Problem Solving. Answer the following problems.

Show supporting computation with proper

label. (3 pts. each)

Round off percentage of completion to 2 decimal points. (e.g. 25.75%)

Problem 1
GB Construction, Inc. has entered into a very profitable fixed price contract for constructing
a high-rise building over a period of three years. It incurs the following costs relating to the
contract during the first year:

* Cost of material = P2.5 million

* Site labor cost = P2.0 million
* Agreed administration costs as per contract to be reimbursed by the customer = P1million
* Depreciation of the plant used for the construction = P0.5 million
* Marketing costs for selling apartments, when they are ready = P1.0 million

Total estimated cost of the project = P18 million

The percentage of completion of this contract at the year-end is 33.33%

Cost of material = 2,500,000

Site labor cost = 2,000,000
Agreed administration costs as per contract to
be reimbursed by the customer = 1,000,000
Depreciation of the plant used for the construction = 500,000
Total 6,000,000
Divide by: Total estimated cost of the project = 18,000,000
Percentage of completion = 33.33%

Problem 2
MC Construction Company is executing a gigantic project of constructing the tallest boarding
house in the country. The project is expected to take three years to complete. MC uses the
percentage of completion method.

The company has signed a fixed price contract of P12,000,000 for the construction of this
prestigious boarding house.

The details of the costs incurred to date in the first year are:

Site labor costs 1,000,000

Costs of construction material 3,000,000
Depreciation of special plant and equipment used in constructing
the boarding house 500,000
Marketing and selling costs to get the boarding house in the
country the right exposure 1,000,000

Total contract cost estimated to complete 5,500,000

Calculate the construction in progress at the end of first year 5,400,000

Site labor costs 1,000,000
Costs of construction material 3,000,000
Depreciation of special plant and equipment used in constructing
the boarding house 500,000
Total Actual Cost Incurred 4,500,000

Cost incurred 4,500,000 45%

Estimated cost to complete 5,500,000
Total estimated cost 10,000,000

Contract price 12,000,000

Estimated cost 10,000,000
Estimated gross profit 2,000,000
Multiply: POC 45%
Gross profit 900,000
GP of prior years -
Realized gross profit 900,000

Cost incurred 4,500,000

Realized gross profit 900,000
Construction in progress 5,400,000

Problem 3
KC Construction Company has consistently used the cost recovery method – construction
accounting of recognizing income (zero-profit approach).

In 2017, it began a construction project to erect a building for P3,000,000. The project was
completed during 2018. Under this method, the accounting records disclosed the following:
(any costs incurred are expected to be recoverable)

2017 2018
Progress billings during the year 1,100,000 1,900,000
Costs incurred during the year 900,000 1,800,000
Collections on billings during the year 900,000 2,100,000
Estimated costs to complete the project 1,800,000 -0-

The company should recognized construction revenue for the year 2017 and 2018
amounting to: 2017 900,000 2018 2,100,000

2017
Construction revenue 900,000
Less: Cost incurred 900,000
Gross profit -0-

The construction revenue in zero-profit method is equal to cost incurred.

2018
Cost incurred 1,800,000
Realized gross profit 3m – (1.8M+900K) 300,000
Construction Revenue 2,100,000
Problem 4
On October 1, 2017, PM Corporation entered a contract to build a sports arena which it
estimated would cost P3,120,000. PM bills its clients at cost plus 20% and recognized
construction revenue on a percentage-of-completion basis. Data on this project for 2017,
2018, and 2019 follow:

Cost incurred Estimated costs to complete

2017 546,000 2,054,000
2018 998,400 1,315,600
2019 1,575,000 -0-

PM Corporation’s gross profit earned for 2019 is 147,240

2017 2018 2019

Contract price (cost X 120%) 3,744,000 3,744,000
3,744,000
Less: Total estimated costs
(1) Cost incurred to date 546,000 1,544,400 3,119,400
Estimated cost to complete 2,054,000 1,315,600 –
(2) Total 2,600,000 2,860,000 3,119,400
Estimated gross profit 1,144,000 884,000
624,600
Percentage of completion (1/2) 21% 54% 100%
Gross profit earned to date 240,240 477,360 624,600
Gross profit earned in prior years – 240,240 477,360
Gross profit earned this year 240,240 237,120 147,240

Problem 5
EB Builders Company began operations on January 1, 2018. During the year, EB Builders
Company entered into a contract with MJ Company to construct a manufacturing facility. At
that time, EB estimated that it would take five years to complete the facility at a total cost
of P4,800,000. The contract price for construction of the facility is P5,800,000.

During 2018, EB incurred P1,250,000 in construction costs related to the project. Because
of rising material and labor costs, the estimated cost to complete the contract at the end of
2018 is P3,750,000. MJ Company was billed for and paid 30% of the contract price in
accordance with the contract agreement. It is further agreed, that any costs incurred is
expected to be recoverable.

(a)Compute the amount of Construction in Progress (net) – Due from Customers(current

asset) under percentage of completion method. 1,450,000

Contract price 5,800,000

Cost incurred to date (1) 1,250,000
Estimated cost to complete 3,750,000
Total estimated cost (2) 5,000,000
Expected profit 800,000
Percentage of completion (1/2) 25%
RGP 200,000
Cost incurred 1,250,000
CIP, 2018 1,450,000

(b)How much is Contract Billing (net) – Due to Customers(current liability) under zero
profit method? 1,740,000

Contract Billings 5,800,000 X 30%= P 1,740,000

Problem 6
In May 2017, the AJ Company begin to work on a project that has a contract price of
P5,000,000. Any costs incurred are expected to be recoverable. Progress billing collections
are of equal amount with costs incurred.

2017 2018
Cost incurred to date 1,125,000 3,825,000
Estimated cost to complete 3,375,000 1,275,000

In its statement of comprehensive income for the year 2018, the company would recognized
construction revenue of: POC Method 2,475,000 Zero-Profit 2,600,000

POC
2017 2018
Contract Price 5,000,000 5,000,000
Less: Cost incurred to date 1,125,000 3,825,000
Estimated Cost to complete 3,375,000 1,275,000
Total Estimated Cost 4,500,000 5,100,000
Expected Gross Profit 500,000 (100,000)
Multiply: Percentage of Completion 25% 100%
Gross Profit earned to date 125,000 (100,000)
Less: Gross Profit earned in prior year - (125,000)
Gross Profit earned this year 125,000 (225,000)

Cost incurred to date (3,825,000 – 1,125,000) 2,700,000

Less: GP, 2018 (225,000)
Construction Revenue 2,475,000

Zero-Profit (3,825,000 - 1,125,000 – 100,000) = 2,600,000

Problem 7
LC Construction Company was engaged on October 1, 2017 to construct a building for a
contract price of P8,400,000 payable in 5 installments. One-fifth of the contract price was
to be paid upon completion of each quarter of the work (as defined in detail by the terms of
the contract), the final payment being due within 10 days after acceptance of the completed
project.

By December 29, 2017, ¾ of the building had been completed whereupon the third billing
was made in accordance with the terms of the contract (cash had been received on the
previous billings). During 2017, a total of P4,200,000 had been disbursed by LC for costs
incurred and, at year-end, outstanding accounts payable for materials purchases totaled
P1,000,000. LC expected that an additional P1,800,000 would be required to complete the
project.
(a)Using percentage-of-completion method on an output basis proportional approach, the
gross profit to be recognized in the 2017 statement of comprehensive income would be
1,050,000

(b)Using percentage-of-completion input method – actual costs approach, the gross profit to
be recognized in 2017 statement of comprehensive income would be 1,100,000

Problem 8
No Power Co. was tapped to build private electric plants in the towns of Calauag and
Calauan. The following information relate to these projects during 2019. Any costs incurred
are expected to be recoverable.
Calauag Calauan
----------- ------------
Contract price 10,500,000 7,500,000
Costs incurred to date 6,500,000 7,000,000
Estimated costs to complete 3,000,000 1,000,000
Billings during the year 7,000,000 1,000,000
Collections during the year 6,000,000 1,000,000

What amount of gross profit (loss) should the company report in its 2019 statement of
comprehensive income under percentage of completion method? 184,200

Calauag
Contract Price 10,500,000
Less: Total estimated cost
Cost incurred 6,500,000
Estimated remaining cost 3,000,000 9,500,000
Estimated gross profit 1,000,000
% of completion (6,500,000/9,500,000) x 68.42%
Gross profit to be recognized 684,200

Calauan
Contract Price 7,500,000
Less: Total estimated cost
Cost incurred 7,000,000
Estimated remaining cost 1,000,000 8,000,000
Estimated gross profit (500,000)

684,200 + (500,000) = 184,200

Problem 9
The Macro Construction Company started work on three job sites during the current year. Any
costs incurred are expected to be recoverable. Data relating to the three jobs are given below:

Contract Costs Estimated costs Billings Collections

Site Price Incurred to complete on contract
Batangas 500,000 375,000 500,000 500,000
Laguna 700,000 100,000 400,000 100,000
100,000
Cebu 250,000 100,000 100,000 150,000 100,000

What would be the amount of construction in progress to be reported on the year-end statement
of financial position if the percentage of completion method is used? 765,000

Batangas Laguna Cebu

Contract Price 500,000 700,000 250,000

Cost incurred to date (1) 375,000 100,000 100,000

Estimated cost to complete - 400,000 100,000
Total estimated costs (4) 375,000 500,000 200,000
Expected Gross Profit 125,000 200,000 50,000
POC (2/4) 100% 20% 50%
Gross profit 125,000 40,000 25,000

Construction in progress (375k + 125K) (100K+40K) (100K+25K)

500,000 140,000 125,000

Total 765,000