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CHAPTER 10

CHAPTER 10 - Long-Term Construction Contracts 163 CHAPTER...

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Long-Term Construction Contracts 163 CHAPTER 10 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 10-1: a Percentage of Completion Method: Contract Price P1,000,000 Less:Total estimated cost Cost incurred P 200,000 Estimated remaining cost _400,000 __600,000 Gross profit estimated 400,000 % of completion (200,000/600,000) __33 1/3% Gross profit to be recognized P 133,333 Zero Profit Method: 0 10-2: a P100,000 2007 2008 Contract Price P9,000,000 P9,000,000 Less: Total estimated cost _7,800,000 _8,100,000 Estimated gross profit 1,200,000 900,000 % of completion: 2007 (3,900,000/7,800,000) 50% 2008(6,300,000/8,100,000) _________ ______78% Gross profit earned to date 600,000 700,000 Less: Gross profit earned in prior year ________– ___600,000 Gross profit earned each year P 600,000 P 100,000 10-3: a Contract Price P6,000,000 Less: Total estimated cost (3,600,000 + 1,200,000) _4,800,000 Estimated gross profit 1,200,000 % of completion (3,600,000/4,800,000) _____75% Gross profit earned to date 900,000 Less: Gross profit earned in 2007 __600,000 Gross profit earned in 2008 P 300,000 10-4: b Contract Price P3,000,000 Less: Total estimated cost (930,000 + 2,170,000) _3,100,000 Loss (P 100,000 )

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164 Chapter 10 10-5: b Total cost to date, 2008 (4,800,000 X 60%) P2,880,000 Less: Cost incurred in 2007 (4,500,000 X 20%) __900,000 Cost incurred in 2008 P1,980,000 10-6: a Percentage of Completion Method: Contract Price P3,000,000 Less: Total estimated cost (900,000/1,800,000) _2,700,000 Estimated gross profit 300,000 % of completion (900,000/2,700,000) ___33.33% Gross profit recognized, 2007 100,000 Add: Cost Incurred ___900,000 Construction in Progress - 2007 P 1,000,000 Zero Profit Method: Cost incurred to Construction in Progress - 2007 P 900,000 10-7: a 2007 2008 Contract Price P4,200,000 P4,200,000 Less: Total estimated cost _3,000,000 _3,750,000 Estimated gross profit 1,200,000 450,000 % of completion _____20% ____100% Gross Profit earned to date 240,000 450,000 Gross Profit earned in prior year _______– __240,000 Gross Profit earned this year P 240,000 P 210,000 10-8: b Collections: Contract Billings P 47,000 Less: Accounts receivable ___15,000 Collections P 32,000 Initial Gross Profit: Contract Price P 800,000 Gross Profit rate: Income recognized 10,000 Divide by Construction in Progress 50,000 =_____20% Initial Gross Profit P 160,000
Long-Term Construction Contracts 165 10-9: a Gross profit (loss) earned in 2008 (P 20,000) Gross profit earned in prior years _180,000 Gross profit earned to date - 2008 160,000 Divide by percentage of completion - 2008 ___100% Estimated gross profit - 2008 160,000 Less: Contract price 2,000,000 Total estimated cost 1,840,000 Less: Cost incurred - 2008 _820,000 Cost incurred to date - 2007 1,020,000 Less: Cost incurred - 2006 __360,000 Cost incurred in 2007 P 660,000 10-10: b Gross profit earned to date - 2007 (P40,000 + P140,000) P 180,000 Divide by estimated gross profit - 2007: Contract price P2,000,000 Gross profit rate [180,000/(1,020,000 + 180,000)] ___X 15% __300,000 Percentage of completion - 2007 60% 10-11: a, Refer to Q 10-10 solutions. 10-12: d Contract price P2,000,000 Estimated gross profit - 2007 (Refer to Q 10-10) __300,000 Total estimated cost 1,700,000 Less: Cost incurred to date - 2007 (refer to Q 10-9) 1,020,000 Estimated cost to complete - 2007 P 680,000 10-13: d 2007: Construction in progress P 244,000 Less: Construction costs __210,000 Gross profit recognized - 2007 P 34,000 2008: Construction in progress (P728,000-P244,000) P 484,000 Less: Construction costs __384,000 Gross profit recognized - 2008 P 100,000

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166 Chapter 10 10-14: d Project 1 Project 2 Percentage of Completion Method: Contract price P 420,000 P 300,000 Less: Total estimated cost Cost incurred to date - 2008 P 240,000 P 280,000 Estimated cost to complete __120,000 ___70,000 Total __360,000 __350,000 Estimated gross profit (Loss) 60,000 (50,000) Percentage of completion __66.67% _______– Profit (loss) to be recognized P 40,000 (P 50,000) Total is (P10,000) Zero Profit Method - The loss (P50,000) for project 2 only.
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