PRACTICAL ACCOUNTING 2

LONG-TERM CONSTRUCTION CONTRACTS

Problem 1
WAYA

2009 2010 2011 Total

Gross Profit 10,000 35,000 (5,000) 40,000
Cost 90,000 165,000 (a) 205,000 460,000
Revenue 100,000 200,000 200,000 500,000

Revenue to date 100,000 300,000 500,000

% of completion
CIP/TCP 20% (e) 60% (b) 100%

GP to date 10,000 45,000 40,000

Total Est GP
GPTD/% of comp 50,000 75,000 (c)

TEC (CITD / % of C) 450,000 425,000

less CITD 90,000 255,000
Est. Cost to complete 360,000 170,000 (d)

Problem 2
GOLDEN
Requirement #1
Year 1
Construction in Progress .................... 750,000
Materials, Cash, etc. ..................... 750,000

Accounts Receivable ......................... 570,000

Progress Billings on Construction Contracts 570,000

Cash ........................................ 450,000

Accounts Receivable ....................... 450,000

Year 2
Construction in Progress .................... 2,700,000
Materials, Cash, etc. ..................... 2,700,000

Accounts Receivable ......................... 3,600,000

Progress Billings on Construction Contracts 3,600,000

Cash ........................................ 3,300,000

Accounts Receivable ....................... 3,300,000

Year 3
Construction in Progress .................... 630,000
Materials, Cash, etc. ..................... 630,000

Accounts Receivable ......................... 930,000

Progress Billings on Construction Contracts 930,000

P2-01A
 Cash ........................................ 1,350,000
Accounts Receivable ....................... 1,350,000

Progress Billings on Construction Contracts . 5,100,000

Revenue from Long-Term Construction
Contracts ................................. 5,100,000

Cost of Long-Term Construction Contracts .... 4,080,000

Construction in Progress .................. 4,080,000

Requirement #2
Year 1
Construction in Progress .................... 750,000
Materials, Cash, etc. ..................... 750,000

Accounts Receivable ......................... 570,000

Progress Billings on Construction Contracts 570,000

Cash ........................................ 450,000

Accounts Receivable ....................... 450,000

Cost of Long-Term Construction Contracts .... 750,000

Construction in Progress .................... 270,000
Revenue from Long-Term Construction
Contracts ................................. 1,020,000

Year 2
Construction in Progress .................... 2,700,000
Materials, Cash, etc. ..................... 2,700,000

Accounts Receivable ......................... 3,600,000

Progress Billings on Construction Contracts 3,600,000

Cash ........................................ 3,300,000

Accounts Receivable ....................... 3,300,000

Cost of Long-Term Construction Contracts .... 2,700,000

Construction in Progress .................... 360,000
Revenue from Long-Term Construction
Contracts ................................. 3,060,000

Year 3
Construction in Progress .................... 630,000
Materials, Cash, etc. ..................... 630,000

Accounts Receivable ......................... 930,000

Progress Billings on Construction Contracts 930,000

Cash ........................................ 1,350,000

Accounts Receivable ....................... 1,350,000

Cost of Long-Term Construction Contracts .... 630,000

Construction in Progress .................... 390,000
Revenue from Long-Term Construction
Contracts ................................. 1,020,000

P2-01A
 Progress Billings on Construction Contracts . 5,100,000
Construction in Progress .................. 5,100,000

Problem 3
SOLIDROCK
Year 1
Construction in Progress .................... 9,000,000
Materials, Cash, etc. ..................... 9,000,000

Accounts Receivable ......................... 11,000,000

Progress Billings on Construction Contracts 11,000,000

Cash ........................................ 7,500,000

Accounts Receivable ....................... 7,500,000

Cost of Long-Term Construction Contracts .... 9,000,000

Construction in Progress
(P9,000,000 / P19,000,000)  P2,000,000 ... 947,368
Revenue from Long-Term Construction
Contracts ................................. 9,947,368

Year 2
Construction in Progress .................... 9,500,000
Materials, Cash, etc. ..................... 9,500,000

Accounts Receivable ......................... 8,000,000

Progress Billings on Construction Contracts 8,000,000

Cash ........................................ 9,000,000

Accounts Receivable ....................... 9,000,000

Cost of Long-Term Construction Contracts .... 9,500,000

Construction in Progress (P21,000,000 -
P18,500,000 total costs) - P947,368 ........ 1,552,632
Revenue from Long-Term Construction
Contracts ................................. 11,052,632

Year 3
Accounts Receivable ......................... 2,000,000
Progress Billings on Construction Contracts 2,000,000

Cash ........................................ 4,500,000

Accounts Receivable ....................... 4,500,000

Progress Billings on Construction Contracts . 21,000,000

Construction in Progress .................. 21,000,000
Problem 4
SEALAND
(1) Using the completed-contract method, no gross profit is recognized on the contract until the bridge is
completed. Thus, no entry is needed.

(2)
Cost of Long-Term Construction Contracts ... 1,800,000
Construction in Progress ................... 450,000 *
Revenue from Long-Term Construction
Contracts.................................. 2,250,000
P2-01A
 P1,800,000 / 30% = P6,000,000
P7,500,000 - P6,000,000 = P1,500,000
P1,500,000  30% = P450,000

Problem 5
JAGUAR
Year 1 Year 2 Year 3
Contract price ................... P250,000 P250,000 P250,000
Current year costs ............... 110,000 115,000 15,000
Costs to date .................... 110,000 225,000 240,000
Estimated cost to complete ....... 100,000 20,000 0
Estimated total cost ............. 210,000 245,000 240,000
Estimated total gross profit ..... 40,000 5,000 10,000

Percent complete ................. 52% 92% 100%

Revenue to date .................. P130,000 P230,000 P250,000

To Date Previous Current

at Dec. 31 Years Year
Year 1: Revenue ............ P130,000 P130,000
Costs ............ 110,000 110,000
Gross profit ............ P 20,000 P 20,000

Year 2: Revenue ............ P230,000 P130,000 P100,000

Costs ............ 225,000 110,000 115,000
Gross profit ............ P 5,000 P 20,000 P(15,000)

Year 3: Revenue ............ P250,000 P230,000 P 20,000

Costs ............ 240,000 225,000 15,000
Gross profit ............ P 10,000 P 5,000 P 5,000

Year 1 Year 2 Year 3

1. Revenue recognized during

the year .................... P130,000 P100,000 P20,000
2. Gross profit recognized during
the year .................... 20,000 (15,000) 5,000
3. Balance in the construction in
progress account at Dec. 31 . 130,000 230,000 0
4. Balance in the progress
billings account at Dec. 31 . 125,000 250,000 0

MULTIPLE CHOICE
1. D 6. D 11. A 16. C 21. A
2. C 7. C 12. D 17. A 22. B
3. D 8. D 13. C 18. D 23. C
4. B 9. C 14. C 19. B 24. C
5. C 10. B 15. B 20. B

P2-01A