Correction of Errors in Accountancy Bachelor of Science in Accountancy PDF

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Chart TitleCHAPTER 8- Revenue Recognition: Construction ContractsMultiple ChoiceA 1. DJD Construction is constructing a building for Hotel Dian. Under the construction agreement it DJD can't complete construction. Hotel Dian would own the partially completed building and cou construction company to ...

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Chart Title

CHAPTER 8- Revenue Recognition: Construction Contracts Multiple Choice

A

1.

DJD Construction is constructing a building for Hotel Dian. Under the construction agreement it DJD can't complete construction. Hotel Dian would own the partially completed building and co construction company to complete the job. When should DJD recognize revenue: as the buildin or after construction is completed? a. Over time c. No revenue rec b. Point in time d. No performance

C

2.

On January 1, 20x6, Silver Construction Company signed a contract to build a custom garage for recived P 10,00 in advance for the job. The new garage will be built on the customer's land. To project, Silver must first build a concrete floor, construction wooden pillars and walls, and finall Silver normally charges stan-alone prices of P3,000, P4,000, and P5,000, respectively,for eahc o smaller tasks if done separately. How may performance obligations exist in this contract? a. 0 c. 2 b. 1 d. 3

C

3.

DJ Builders Construction builds luxury houses in remote areas. On June 1,20x6, the company sig build a house in an undeveloped section of a mountainside, and received P2million in advance complete the project, the company must construcct a pathway leading to the building lot, clear and construct a wooden house. Normally, the company would change P 400,000, P 1,400,000, a respectively, for each of these tasks if done separately. Given the information above, how man obligations are included in this contract? a. 0 c. 2 b. 1 d. 3

C

4.

Mediocre Inc. has entered into a very profitable fixed price contract for constructing a high-ris period of three years. It incurs the following costs relating to the contract during the first year: · Cost of material = 2.5 million · Site labor cost = 2.0 million · Agreed administrative costs as per contract to be reimbursed by the customer = 1milliion · Depreciation of the plant used for the construction = 0.5million · Marketing costs for selling apartments, when they are ready = 1.0 million Total estimated cost of the project = 18 million the percentage of completion of this contract of the year-end is: a. 33 1/3% (=6.0/ 18.0) b. 27% (=4.5/16.5)

B

5.

c. d.

25% (=4.5/18.0) 39% (7.0/18)

Manroe Construction Company uses the percentage-of-completion (over time) method of accounting. In 20x4, Monroe began work on a contract it had received which provided for a contract price of P 15,000,000. Other details follow:

Costs incurred during the year Estimated costs to complete as of December 31 Billings during the year Collections during the year What should be the gross profit recognized in 20x4? a. P 600,000 b. P 1,800,000 C

6.

7.

P 3,000,000 P 7,000,000

Adler Construction Co. uses the percentage-of-completion (over time) method. In 20x4, Adler began work on a contract for P 3,300,000 and it was completed in 20x5. Data on the costs are:

Costs incurred Estimated costs to complete For the years 20x4 and 20x5, Adler should recognize gross profit of 20x4 20x5 a. P -0P 1,290,000 b. P 774,000 P 516,000 D

c. d.

c. d.

20X4 P 810,000 P 810,000

AJD Company recognizes construction revenue and express using the percentage of completion (over time) method. During 20x4, a single long-term project was begun which continued throug Information on the project were as follows: 20x4 Accounts Receivable from construction contract P 200,000 Construction expenses 210,000 Construction in progress 244,000 Portial billings on contract 200,000 The profit recognize from the long-term construction contract should amount to: 20x4 20x5 20X4 a. P 44,000 P456,000 c. 34,000 b. 44,000 200,000 d. 34,000

Use the following information for questions 8 and 9: Gomez, Inc. began work in 20x4 on contract #3814, which provided for a contract price of P 7,200,00 Other details follow:

Costs incurred during the year Estimated costs to complete, 12/31 31 Billings during the year

20x4 P 1,200,000 3,600,000 1,350,000

Collections during the year

90,000

B

8.

Assume that Gomez uses the percentage-of-completion (over time) method of accounting. The portion of the total fross profit to be recognized as income in 20x4 is a. P 450,000 c. P 1,800,000 b. P 600,000 d. P 2,400,000

C

9.

Assume that Gomez uses the cost recovery method (point in time) of accounting. The portion o total gross profit to be recognized as income in 20x5 is a. P 900,000 c. P 2,325,000 b. P 1,350,000 d. P 7,200,000

A

10. Tyro Construction Company has two projects, for which it reported, as of December 31, 20x5, t following information: In thousand pesos: Project A Contract Price P 4,800 20x4: Costs incurred P 3,400 Percent completed 75% 20x5: Costs incurred P 1,250 Percent Completed 25% Using the percentage-of-completion (over time) method of revenue recognition, gross profit on Project A to be recognized in 20x4 would be: a. P 200,000 c. P 400,000 b. P 300,000 d. P 900,000

Use the following information for questions 11 and 12: Kiner, Inc. began work in 20x4 on a contract for P8,400,000, Other data are as follows: 20x4 Costs incurred to date P3,600,000 Estimated costs to complete 2,400,000 Billings during the year 2,800,000 Collection to year 2,000,000 A

11. If Kiner uses the percentage-of-completion (over time) method, the gross profit to be recogniz a. P1,440,000 c. P2 160,000 b. P1,600,000 d. P2,400,000

B

12. It Kiner uses the cost recovery method (point in time), the gross profit to be recognized in 20x5 a. P1,360,000 c. P 1,400,000 b. P2,800,000 d. P5,600,000 Use the following information for questions 13 and 14:

A

13. Horner Construction Co. uses the percentage-of-completion method. In 20x4, homer began wo

a contract for P5,500,000; it was completed in 20x5. The following cost data pertain to this con Year Ended 20x4 P1,950,000 1,300,000

Costs incurred Estimated cocts to complete at the end of the year

The amount of gross profit to be recognized on the income statement for the year ended Dece a. P 800,000 c. P 900,000 b. P 860,000 d. P 2,150,000 C

14. If the cost recovery method (zero-profit approach) of accounting was used, the amount of gros to be recognized for years 20x4 and 20x5 would be: 20x4 20x5 20x4 a. P 2,250,000 0 c. P 0 b. P 2,150,000 -100,000 d. P 0

D

15. On October 31, 20x4, Mr. Cruz bought properly from D'Vision Heights which had earlier cost the The company received a dwon payment of P100,000 an a P400,0000 mortgage note payable in semiannual installments plus 16% interest per annum an unpaid principal. Assuming the gross p recognized in the period of sale, the amount of gross profit to be recognized by D'Vision Height a. b.

C

P0 P 50,000

c. d.

P 100,000 P 250,000

16. Hayes Construction Corporation contracted to construct a building for P1,506 Construction beg was completed in 20x5. Data relating to the contract are summarized below: Year Ended 20x4 Costs incurred Estimated cocts to complete

P600,000 400,000

Hayes uses the percentage of completion method (over time) as the basis for inch recognition. years ended December 31, 20x4, and 20x5, respectively, Haye should report gross profit of a. P 270,000 and P 180,000 c. P 300,000 and P b. P 900,000 and P600,000 d. P 0 and 450,000 A

17. Ube Construction Company has consistently used the percentage-of-completion method (over On January 10, 20x4, Ube began work on a P6,000,000 construction contract. At the inception d estimated cost of construction was P4,500,000. The following data relate to the progress of the contract: Income recognized at 12/21/20x4 . . . . . . . . . . . P600,000 Cost incurred 1/10/20x4 through 12/31/20x5 . . . . . Estimated cost to complete at 12/21/20x5 . . . . . . .

3,600,000 1,200,000

How much income should Ube recognize for the year ended December 31, 20x5? a. P 300,000 c. P 600,000 b. P 535,000 d. P 900,000 B

18. Layton Construction Company has consistently used the percentage-of completion method (ov time) of recognizing income. During 20x4, Layton entered into a fixed-price contract to constru office building for P10,000,000. Information relating to the contract is as follows: De 20x4 Percentage of completion

20% P 7,500,000 500,000

Estimated total cost at completion Income recognized (cumulative)

Contract costs incurred during 20x5 were: a. P 3,200,000 b. P 3,300,000 B

c. d.

P 3,500,000 P 4,800,000

19. Remington Construction Company uses the percentage-of-completion method (over time). Dur 20x4, the company entered into a fixed-price contract to construct a building for Sherman Com P30,000,000. The following details pertain to the contract: At December 31, 20x4

Percentage of completion Estimated total cost of contract Gross profit recognized to date

The amount of construction costs incurred during 20x5 was a. P 15,000,000 b. P 9,375,000 B

25% P22,500,000 1,875,000

c. d.

P 5,625,000 P 2,500,000

20. The Naples Company uses the percentage-of-completion method and the cost-to-cost method construction contracts. On one such contract, Naples expects total revenues of P260,000. Durin year, Naples incurred costs pf P50,000 and billed the customer P30,000 under the contract. At should Naples Construction in Progress for this contract be reported at the end of the first year?

a. b.

P 30,000 P 35,000

c. d.

`P 50,000 P 65,000

t for any reason. ould hire another ng is constructed, ognition e obligation r a customer and complete this ly install a proof. of these three

gned a contract to for the job. To r a large hillside, and P 500,000, y performance

se building over a :

)

#5

Costs incurred during the year Estimated Costs Complete 12/31 Actual Costs incurred

20X4 P 7,200,000 4,800,000 6,600,000 3,900,000

Contract Price Costs Incurred Gross Profit

Year Ended December 31 20x4 20x5 P 1,170,000 P 840,000 780,000 20X5 P 480,000 P 1,290,000 n gh 2005. #7

20x4

Construction Expense Construction in Progres Gross Profit

20x5

Construction in Progres Construction Expense Construction in Progres Gross Profit

20x5 P 600,000 384,000 728,000 840,000 20X5 256,000 100,000

00. #8 20x5 P 3,675,000 0 5,400,000

Cost-to-cost Contract Price Actual Cost Incurred to

5,850,000 Total Estimated Cost Estimated Gross Profit Percentage

Revenue Cost Expense Gross Profit

of the

#9 he

Contract Price Less: Cost Incurred (20x Gross Profit to be Reco

#10 Project B P 860

Contract Price Percentage of Complet Recognized Revenue to Less: Costs incurred to Gross Profit Less: Gros Profit in Prio Gross Profit in Current

P 140 15% n

20x5 P5,600,000 8,400,000 7,200,000 ed in 20x4 is

#11

3,600,000/ 600,000 x (8,400,000 = 1,440,00 Gross Profit in 20x4

5 is:

#12

Contrac Price Costs Incurred to date 20x5 Gross profit recognized

ork on

tract: December 31 20x5 P1,400,000 mber 31, 20x5 is:

s profit 20x5 2,150,000 2,250,000 e latter P250,000. twenty equal profit is ts in 20x6 would be:

gan in 20x4 and December 31 20x5 P450,000 -

For the P 150,000 0 time). date, the e

#17

Contract Price Less: Total Estimated Costs Costs Incurred Estimated Costs to complete Less: Cost incurred to date Multiplied by percentage of comp Gross Profit to date

Less: Gross Profit in prior year Gross Profit in current year

er ct an

#18

20x4: Cost to date- 7,500,000 20x5: Cost to date- 8,000,000 Costs Incurred during 20x5

#19

Cost Incurred in 20x5 (25,000,000 x 60%) - (22,500,000 x

ec-31 20x5 60% P 8,000,000 1,200,000

ring mpany for

At December 31, 20x5 60% P25,000,000 3,000,000

for its long-term ng the first what net amount

#20 Cost incurred Contract Price Cost Incurred each year Add: Costs incurred in prior year Cost incurred to date Add: Estimated Cost to complete Total Estimated Costs Estimated Gross Profit (loss) Multiplied by Percentage of comp Construction in Progress Less: Progress Billings Construction in Progress account

(7,200,000) (4,800,000) 12,000,000

(15,000,000 x 60%) (12,000,000 x 60%)

ss

ss (20x4) ss (20x5)

o date

9,000,000 7,200,000 1,800,000

210,000 (244,000) 34,000 2,344,000 384,000 (728000) 100,000

20x4 7,200,000 1,200,000 1,200,000

20x5 7,200,000 3,675,000 4,875,000

3,600,000 4,800,000 2,400,000 25% 20x4 1,800,000 1,200,000 600,000

x5) ognized

7,200,000 4,875,000 P 2,325,000 20X4 4,800,000 75% 3,600,000 3,400,000 200,000 0 200,000

ion o date date or Year Year

- 6,000,000)

8,400,000 (5,600,000) 2,800,000

0 4,875,000 2,325,000 1,005

7,200,000 4,875,000 2,325,000

20x5 1,800,000 1,200,000 600,000

5,400,000 3,675,000 1,725,000

P 6,000,000 3,600,000 1,200,000 pletion

4,800,000 1,200,000 3.6/4.8 900,000

600,000 300,000

0 x 20% 0 x 60%

1,500,000 4,800,000 -3,300,000

9,375,000 x 25%)

50,000

pletion

due from customers

260,000 50,000 0 50,000 150,000 200,000 60,000 20/200

15,000 65,000 30,000 35,000...