Problem 11 % of completion 33.

1/3%
(P5,400,000 ÷ 16,200,000= 33.1/3%)
Cortez Construction Company, Inc., entered into a firm fixed-
Gross profit recognized in 2013 P600,000
price contract with Rod Association on July 1, 2011 to
construct a four-story office building. At that time, Cortez
estimated that it would take between two and three years to Problem 13
complete the project. The total contract price for construction In 2013 North Construction Co. was contracted to do the
of the building is P4,000,000. Cortez appropriately accounts private road network of Subdivision Corp. for P100 million.
for this contract under the zero-profit method in its financial The project was estimated to be completed in two years.
statements and for income tax reporting. The building was
deemed substantially completed on December 31, 2013. The construction contract provided among other things the
Estimated percentage of completion, accumulated contract following:
cost incurred, estimated cost to complete the contract and
accumulated billings to Rod under the contract were as a. Five per cent mobilization fee (to be deducted from
follows: the last billing) payable within fifteen days after the
signing of the contract;
At At At
December December December b. Retention provion of 10% on all billings, payable
31, 2011 31, 2012 31, 2013 with the final bill after the acceptance of the
Percentage completed project; and
of 10% 60% 100% c. Progress billings on construction are payable within
completion seven days from acceptance.
Contract
costs P350,000 P2,500,000 P4,250,000
North estimated its gross margin on the project at 25%. It used
incurred
Estimated the percentage of completion method of accounting.
costs to
P3,150,000 P1,700,000 --- By the end of the year, North presented progress billings
complete the
contract corresponding to 50% completion. Subdivision Corp. accepted
Billings to all the bills presented accepted all the bills presented except
P720,000 P2,160,000 P3,600,000
Rod the last one for 10% which was accepted on January 10. With
the exception of the second to the last billing of 8% accepted
billings were settled.
The amount to be shown as excess of costs over billings or
(billings in excess of cost) in December 31, 2013. In 2013, North realized gross profit from the Subdivision
project the sum of:
A. (P400,000)
B. P260,000
A. P10,000,000
C. P400,000
B. P12,500,000
D. (P260,000)
C. P25,000,000
Solutions: D. P7,500,000
Contract Cost incurred to date, 2013 P4,250,000
Solutions:
Less: Loss on contract to date:
Contract Price P4,000,000
Contract price P10,000,000
Total estimated cost (4,250,000) (250,000)
Gross Profit rate 25%
Net 4,000,000
Estimated gross profit 25,000,000
Billings to date 3,600,000
% of completion 50%
Cost in excess of billings P400,000
Gross profit realized in 2013 P12,500,000
Problem 12
Problem 14
X company uses the percentage of completion method of
recognizing income. In 2012, work was started on a
On September 14, 2013, Contractors Inc. won the bid for the
P18,000,000 job completed in 2012. Records in 2013 show the
construction of a 1,000 room hotel for Victoria Inc. on the
following:
reclamation area for P1.2 billion. On the terms of payment,
parties agreed to the following:
Progress Billing P6,600,000
Cost incurred 4,500,000 a. One percent mobilization fee (deductible from the
Collections 4,200,000 final bill) payable within fifteen days after the
Cost to complete 10,600,000 signing of the contract;
b. Retention of 10% on all billings, payable with the
Gross profit recognized in 2013 was: final bill after the acceptance of entire completed
A. P1,400,000 project; and
B. P1,200,000 c. Progress billings on construction within seven days
C. P900,000 from the date of acceptance
D. P600,000
By the end of 2013, the company had presented only one
Solutions: progress billing for 10% completion which Victoria Inc.
evaluated and accepted on December 28 for payment in
Contract Price P18,000,000 January. The company used the percentage of completion
Estimated cost: method of accounting.
Cost incurred P5,400,000
Cost to complete 10,800,000 16,200,000 Contractor’s Inc. received a fee of:
Estimated gross profit 1,800,000
 A. P9,800,000
B. P10,800,000
C. P12,000,000
D. P1,200,000

Solutions:
The fee received by contractor’s fee is P12,000,000 (1% of
the bid price of P1.2 billion)

Problem 15

Bonta Constructor’s, Inc. has the following data for large jobs
in its Jobs in progress account (000’s omitted):

Project Actual Estimated Contract Percent

no. cost total cost price complete
101 P8,756 172,800 192,000 5
102 11,457 14,875 17,500 75
103 53,865 61,250 87,500 80
104 22,800 39760 49,700 55
105 44,500 122,310 151,000 35
P141,378 410,995 497,700 0000000

The company accounts for its large jobs under the percentage
of completion method. Billings are done as follows:

a. 20% down payment upon contract signing

b. Balance is billed according to percentage of
completion les an application of the down payment
which is also according to percentage of completion.

The total billings made for the large jobs is:

A. P203,286
B. P99,540
C. P104,246
D. P193,786

Solutions:

P192,000 x .20 P38,400

17,500 x .20 3,500
87,500 x .20 17,500
49,700 x .20 9,940
151,000 x .20 30,200
Total P99,540

Billings on balance , less applied down payment:

(192,000 x .80 x .05)

(P38,400 x .05) P5,760
-
(17,500 x .80 x .75) - (3500 x .75) 7,875
(87,500 x .80 x .55) - (17,500 x .80) 42,000
(49,700 x .80 x .55) - (9,940 x .55) 16,401
(151,000 x .80 x .35) - (30,200 x .35) 31,710
Total 103,746
Total billing made for large jobs P203,286
(P99,540 + 103,746 = P203,286)