CHAPTER 10 - Long-Term Construction Contracts

SOLUTIONS TO PROBLEMS

Problem 10 – 1
(a) 2010 2011
Contract Price P  450,000 P  450,000
Less: Total estimated cost
(1) Cost incurred to date 200,000 320,000
Estimated costs to complete __100,000 _______–
(2) Total __300,000 _320,000
Estimated gross profit 150,000 130,000
Percentage of completion (1  2) ______2/3 ___100%
Estimated gross profit to date 100,000 130,000
Less: Gross profit earned in prior year _______– __100,000
Gross profit earned this year P  100,000 P    30,000
(b) Contract Price P  450,000
Less: Total cost incurred __320,000
Gross profit P  130,000
(c) 2010: Construction in Progress 100,000
Cost of construction 200,000
Construction Revenue 300,000
2011: Construction in Progress 30,000
Cost of Construction 320,000
Construction Revenue 350,000

Problem 10 – 2
(a) Construction Revenue P1,250,000
Less: Cost incurred _1,250,000
Gross profit – 2011 P     – 0 –
Construction in Progress (cost incurred) P1,250,000
Less: Contract billings (P5,800,000 x 30%) _1,740,000
Billings in excess of related costs P(490,000)
(b) Contract price P5,800,000
Less: Total estimated costs
Cost incurred to date P1,250,000
Estimated costs to complete 3,740,000 5,000,000
Estimated gross profit 800,000
Percentage of Completion (P1,250,000  500,000) _____25%
Gross profit P  200,000
Construction on Progress (P1,250,000 + P200,000) P1,450,000
Less: Contract billings _1,740,000
Billings in excess of related costs P(290,000)

Problem 10 – 3
(a) 2008 2009 2010 2011
Contract Price P55,000,000 P55,000,000 P55,000,000 P55,000,000
Less: Total estimated costs
 (1) Cost incurred to date 15,000,000 25,000,000 35,000,000 50,000,000
Estimated costs to complete_35,000,000 25,000,000 15,000,000 ________–
(2) Total _50,000,000 50,000,000 50,000,000 50,000,000
Estimated gross profit 5,000,000 5,000,000 5,000,000 5,120,000
Percentage of completion (1 / 2) ______30% _____50% _____70% ____100%
Gross profit earned to date 1,500,000 2,500,000 3,500,000 5,000,000
Gross profit earned in prior yr(s) ________– _1,500,000 _2,500,000 _3,500,000
Gross profit earned the year P 1,500,000 P 1,000,000 P 1,000,000 P 1,500,000

(b) 2010 2011

(1) Construction in Progress 15,000,000 15,000,000
Cash or Payable 15,000,000 15,000,000

(2) Accounts Receivable 15,000,000 20,000,000

Contract Billings 15,000,000 20,000,000

(3) Cash 12,000,000 25,000,000

Accounts Receivable 12,000,000 25,000,000

(4) Construction in Progress 1,000,000 1,500,000

Cost of Construction 15,000,000 15,000,000
Construction Revenue 16,000,000 16,500,000

Problem 10 – 4
(a) 2009 2010 2011
Cost incurred to date P 1,000,000 P  5,500,000 P10,000,000
Divide by total estimated cost P 9,000,000 P11,000,000 _12,000,000
Percentage of Completion 11.11% 50% 83.33%
2009 2010 2011
(b) Contract Price P15,000,000 P15,000,000 P15,000,000
Less: Total Estimated Cost
Cost incurred to date 1,000,000 5,500,000 10,000,000
Estimated costs to complete __8,000,000 __5,500,000 __2,000,000
Total __9,000,000 _11,000,000 _12,000,000
Estimated gross profit 6,000,000 4,000,000 3,000,000
Percentage of completion ___11.11% ______50% ___83.33%
Gross profit earned to date 666,600 2000,000 9,500,000
Less: Gross profit earned in prior yrs. ________– ___666,600 _2,000,000
Gross profit earned this year P   666,600 P  1,333,400 P   500,000
(c) (1) Construction in progress (cost incurred) 1,000,000
Cash 1,000,000
(2) Accounts Receivable 1,325,000
Contract Billings 1,325,000
(3) Cash 1,200,000
Accounts Receivable 1,200,000
(4) Construction in progress (gross profit) 666,600
Cost of construction 1,000,000
 Construction Revenue 1,666,600

Problem 10 – 5
(1) 2008 2009 2010 2011
Contract Price P14,000,000 P14,000,000 P14,000,000 P14,000,000
Less: Total Estimated Cost
Cost incurred to date 6,500,000 9,800,000 12,200,000 13,900,000
Estimated cost to complete __6,800,000 _3,900,000 _1,900,000 ________–
Total _13,300,000 13,700,000 14,100,000 13,900,000
Estimated gross profit 700,000 300,000 (   100,000) 100,000
Percentage of completion ___48.87% ___71.53% _____100% ____100%
Gross profit (loss) to date 342,090 214,590 (   100,000) 100,000
Less: Gross profit (loss) in prior yrs.________– ___342,090 ___214,590 (   100,000)
Gross profit (loss) this year P   342,090 P(  127,500) P(  314,590) P 200,000

(2) 2008 2009 2010 2011

Cost of construction 6,500,000 3,300,000 2,400,000 1,700,000
Construction in progress 342,090 127,500 314,590 200,000
Construction Revenue 6,842,090 3,172,500 2,085,410 1,900,000

Problem 10 – 6
(1) 2008 2009 2010
Contract Price P 6,000,000 P 6,000,000 P 6,000,000
Less: Total estimated costs
Cost incurred to date 3,400,000 5,950,000 6,150,000
Estimated costs to complete_2,100,000 ___150,000 ________–
Total _5,500,000 _6,100,000 _6,150,000
Estimated gross profit 500,000 (   100,000) (   150,000)
Percentage of completion ___61.82% _______– ________–
Gross profit (loss) to date 309,100 (   100,000) (   150,000)
Gross profit (loss) in prior yrs. ________– __309,100 (   100,000)
Gross profit (loss) this year P   309,100 P   409,100 P     50,000
(2) 2008 2009 2010
Cost of construction 3,400,000 2,550,000 200,000
Construction in progress 309,100 409,100 50,000
Construction Revenue 3,709,100 2,140,900 150,000
(3) Cash 400,000
Accounts Receivable 400,000
Contract Billings 6,000,000
Construction in progress 6,000,000

Problem 10 – 7
(1) 2009 2010 2011
Contract Price P16,000,000 P16,000,000 P16,000,000
Less: Total Estimated Cost
Cost incurred to date 4,600,000 9,100,000 14,350,000
Estimated costs to complete __9,640,000 __5,100,000 _________–
 Total _14,240,000 _14,200,000 _14,350,000
Estimated gross profit 1,760,000 1,800,000 1,650,000
Engineer's estimate of comp. ______31% ______58% _____100%
Gross profit to date 545,600 1,044,000 1,650,000
Less: Gross profit earned in prior yrs.________– __545,600 _1,044,000
Gross profit earned this yr. P   545,600 P   498,410 P   606,000
(2) 2009 2010 2011
(a) Construction on progress 4,600,000 4,500,000 5,250,000
Cash 4,600,000 4,500,000 5,250,000

(b) Accounts receivable 5,000,000 6,000,000 5,000,000

Contract billings 5,000,000 6,000,000 5,000,000

(c) Cash 4,500,000 5,400,000 6,100,000

Accounts receivable 4,500,000 5,400,000 6,100,000

(d) Cost of constructions 4,600,000 4,500,000 5,250,000

Construction in progress 545,600 498,400 606,000
Construction revenue 5,145,600 4,998,400 5,856,000
(e) Contract billings 16,000,000
Construction on progress 16,000,000
(3) Zero Profit Method: 2011 Entries
(a) Construction in progress 5,250,000
Cash / accounts payable 5,250,000
(b) Accounts receivable 5,000,000
Contract billings 5,000,000
(c) Cash 6,100,000
Accounts receivable 6,100,000
(d) Cost of construction 5,250,000
Construction in progress 1,650,000
Construction revenue 6,900,000
(e) Contract billings 16,000,000
Construction in progress 16,000,000
(4) The following entry would be the only one different from (2).
2009 2010 2011
* Cost of construction 4,414,400 3,821,600 6,114,000
Construction in progress 545,600 498,400 606,000
Construction revenue 4,960,000 4,320,000 6,720,000
* Total estimated costs x estimated percentage of completion.

Problem 10 – 8
(1) 2009 2010 2011
Contract Price P6,500,000 P6,500,000 P6,500,000
Less: Total Estimated Costs
Cost incurred to date 2,150,000 5,250,000 6,850,000
Estimated costs to complete _3,850,000 _1,500,000 ________–
Total _6,000,000 _6,750,000 _6,850,000
Estimated gross profit (loss) 500,000 (250,000) (350,000)
Less: Gross profit (loss) in prior yrs. ________– ___520,000 _(250,000)
 Gross profit (loss) this years P   520,000 P( 250,000) P( 600,000)
(2) In 2011 when the project is completed.

Problem 10-9
1. P20,000 (P220,000 – P200,000)
2. P260,000 (P250,000 + P10,000)
3. P370,000 [P850,000 – (P220,000 + P260,000)]
4. P380,000 (P370,000 + PP10,000)
5. P830,000 (P200,000 + P250,000 + P380,000)
6. P86,095:
2011: 450/640 = 0.7031 x P850,000 = P597,635
Less cost to date 450,000
Gross profit to date 147,635
2010: 200/650 = 0.3077 x P200,000 = (61,540)
RGP - 2011 P86,095

Problem 10-10
Building 1 Building 2 Building 3 Bldg. 4
Prior Prior Prior
To 2011 2011 To 2011 2011 To 2011 2011 2011
a. P4,000,00 P4,000,00 P9,000,00 P9,000,000 P13,150,00 P13,150,00 P2,500,000
Contract 0 0 0 0 0
price
b. Cost 2,070,000 3,000,000 6,318,0000 8,118,000 3,000,000 10,400,000 800,000
to date
c. ECTC 1,380,000 750,000 1,782,000 - 9,000,000 2,800,000 1,200,000
d. TEC 3,450,000 3,750,000 8,100,000 9,118,000 12,000,000 13,200,000 2,000,000
e. Est.
GP
a-d 550,000 250,000 900,000 882,000 1,150,000 (50,000) 500,000
f. % of
comp.
b/d 60% 80% 78% 100% 25% 78.79% 40%
g. RGP
to date
axf 2,400,000 3,200,000 7,020,000 9,000,000 3,287,500 10,360,885 1,000,000
h RGP- - 2,400,000 - 7,020,000 - 3,287,500 -
prior yr
i RGP 2,400,000 800,000 7,020,000 1,980,000 3,287,500 7,073,385 1,000,000
this yr
j CITD 2,070,000 3,000,000 6,318,000 8,118,000 3,000,000 10,410,885* 800,000
(b)
k CITD - 2,070,000 - 6,318,000 - 3,000,000 -
prior yr.
l CITD 2,070,000 930,000 6,318,000 1,800,000 3,000,000 7,410,885 800,000
this yr.
m GP P330,000 P(130,000) P702,000 P180,000 P287,500 P(337,500) P200,000
(loss)
*P10,360,885 + P50,000 = P10,410,885
1
Prior to 2011 2011
Total revenue all buildings P12,707,500 P10,853,385
 Total costs – all buildings 11,388,000 10,940,885
Total gross profit – all buildings P1,319,500 P (87,500)
2. Revenue – Building 2 P9,000,000
Cost – Building 2 8,118,000
Gross profit P 882,000
Less anticipated loss on Building 3 ( 50,000)
Gross profit P 832,000