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Construction Contract Revenue Analysis

The document contains 7 problems involving construction contract accounting. Problem 1 requires calculating revenue, cost of construction, and gross profit for years 2021 and 2022 using the input method where performance obligation is satisfied over time. Problems 2 and 6 calculate the same using the cost recovery method where outcome cannot be reasonably measured but costs are expected to be recovered. Problem 3 calculates the same using the point in time method where performance obligation is satisfied at a point. Problems 4-6 involve 3 contracts and calculate totals for revenues, costs, and profits using different measurement methods. Problem 7 involves a contract where price was later reduced and requires calculation of revenues, costs, and profits for years 2021-2023 using the cost-to-cost method.

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Abby Gail Tiongson
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169 views2 pages

Construction Contract Revenue Analysis

The document contains 7 problems involving construction contract accounting. Problem 1 requires calculating revenue, cost of construction, and gross profit for years 2021 and 2022 using the input method where performance obligation is satisfied over time. Problems 2 and 6 calculate the same using the cost recovery method where outcome cannot be reasonably measured but costs are expected to be recovered. Problem 3 calculates the same using the point in time method where performance obligation is satisfied at a point. Problems 4-6 involve 3 contracts and calculate totals for revenues, costs, and profits using different measurement methods. Problem 7 involves a contract where price was later reduced and requires calculation of revenues, costs, and profits for years 2021-2023 using the cost-to-cost method.

Uploaded by

Abby Gail Tiongson
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Problem Set 1
  • Problem Set 2

Solve the following problems:

Use the following information for the next three questions:

In 2021, Bright Co. enters into a construction contract with a customer. The contract price is
P6,000,000. Information on the contract follows:

2021 2022____
Actual costs incurred each year 2,250,000 2,550,000
Estimated remaining costs 2,250,000 -
Progress billings 2,400,000 3,600,000
Collection on progress billings 2,000,000 4,000,000

1. At contract inception, Bright Co. assesses its performance obligation in the contract and concludes
that it has a single performance obligation that is satisfied over time. Bright Co. determines that the
measure of progress that best depicts its performance on the contract is the inputs method based on
costs incurred.

Required: Compute for the revenue, cost of construction, and gross profit to be recognized in 2021,
and 2022, respectively.

2. At contract inception, Bright Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation that is satisfied over time. However, Bright Co.
determines that the outcome of the performance obligation cannot be reasonably measured but
expects to recover the contract costs incurred.

Required: Compute for the revenue, cost of construction, and gross profit to be recognized in 2021,
and 2022, respectively.

3. At contract inception, Bright Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation that is satisfied at appoint in time, i.e., when the
construction is completed and the control over the promised good is transferred to the customer.

Required: Compute for the revenue, cost of construction, and gross profit to be recognized in 2021,
and 2022, respectively.

Use the following information for the next three questions:

In 2021, Best co. started work on three contracts. Information of these contracts is shown below:
Contract Transaction price Costs incurred Est. costs to complete
Contract 1 500,000 375,000 -
Contract 2 700,000 100,000 400,000
Contract 3 250,000 100,000 100,000

4. The performance obligation of Best Co. in all of the contracts are satisfied over time. Best Co. uses
the cost-to-cost method to measure its progress in the contracts.

Required:
a. Compute for the total revenues, costs of construction, and profits recognized in 2021 and 2022,
respectively.
b. Best Co. uses the “construction in progress” account to accumulate contract costs incurred and
profits recognized. How much would be the balance of this account on December 31, 2021?

5. The performance obligation of Best Co. in all of the contracts are satisfied at a point in time, i.e., upon
completion of the contract.

Required:
Compute for the total revenues, costs of construction, and profits to be recognized in 2021, and
2022, respectively.

6. The performance obligation of Best Co. in all of the contracts are satisfied over time. However, the
outcome of the performance obligation in each of the contract cannot be reasonably measured but
Best Co. expects to recover any contract costs incurred.

Required:
Compute for the total revenues, costs of construction, and profits to be recognized in 2021, and
2022, respectively.

7. Good Co. entered into a P10M contract to construct a building. The estimated cost to complete the
project was P8M and the contract period was 36 months starting January 1, 2021. Good Co. uses the
cost-to-cost method of estimating earnings. On January 1, 2022, the contract price was reduced to
P9.5M due to many changes made to the original contract. The accounting records relating to this
contract for the years 2021 to 2023 disclosed the following:
Actual costs in Estimated costs
Year current year complete Progress billings
2021 3,000,000 5,000,000 2,800,000
2022 3,500,000 1,600,000 4,000,000
2023 1,700,000 - 2,700,000

Required: Compute for the revenues, costs of construction, and profits to be recognized in 2021,
2022, and 2023, respectively.

Solve the following problems: Use the following information for the next three questions: In 2021, Bright Co. enters into a c
a. Compute for the total revenues, costs of construction, and profits recognized in 2021 and 2022, respectively. b. Best Co.

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