Prelim, midterm finals PDF

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OverTime (Zero-profit approach) Percentage-of-Completion Cost Recovery Method Method of Construction Accountinga. P562,500 ( 500,000 ) b. 500,000 (500,000) c. 500, d. (500,000) 500, Uberita Corp. entered into a construction agreement in 20x5 that called for a contract price of P9 At the beginning of...

Description

OverTime Percentage-of-Completion Method a. b. c. d.

(Zero-profit approach) Cost Recovery Method of Construction Accounting

P562,500 500,000 500,000 (500,000)

( 500,000 ) (500,000) 500,000

36. Uberita Corp. entered into a construction agreement in 20x5 that called for a contract price of P9 At the beginning of 20x6, a change order increased the initial contract price by P480,000. The company uses the percentage-of-completion basis of revenue recognition. In relation to the project, the following data are obtained: 20x5 20x6 Cost incurred to date ______________________ Est'd costs to complete_____________________ Billings made_____________________________ Collection made__________________________

4,920,000 4,920,000 5,280,000 4,380,000

8,640,000 2,160,000 85200 7,500,000

What gross profit (loss) should Uberita Corp. recognize in 20x5: a. PI 20,000 gross profit c. P480,000 gross loss b. 240,000 gross loss d. 720,000 gross loss

Use the following information for questions 37 and 38. In Fargo Corporation began construction work under a three-year contract. The contract price is Fargo Uses the percentage-of-completion (over time) method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 20x5, follow: Statement of Financial Position Accounts receivable—construction contract billings Construction in progress Less contract billings Costs and recognized profit in excess of billings Income Statement Income (before tax) on the contract recognized in 20x5 37. How much cash was collected in 20x5 on this contract? a. P 40,000 c. P280,OOO

P200,OOO P600,OOO 480.000 120,000 P120,OOO

b.

P200,OOO

d. P480,OOO

38. What was the initial estimated total income before tax on this contract? a. P600,OOO c. P800,OOO b. P640,OOO d. P960,OOO Use the following information for questions 39and 40: Joey Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-term construction projects of this type, with the typical project lasting fifteen to twenty-four months. The contractor Uses the percentageof-completion (over time) method of revenue recognition since, given the characteristics of the contractor's business and contracts, it is the most appropriate method. Progress toward completion is measured on a cost-to-cost basis. Joey began work on a lump-sum contract at the beginning of As bid, the statistics were as follows: Lump-sum price (contract price) ……………………..

4,000,000

Estimated costs Labor …………………………………………………..

850,000

Materials and subcontractor………………..

1,750,000

Indirect cost ………………………………………..

400,000

Estimated gross profit …………………………………….

3,000,000 1,000,000

It should be noted that included in the above costs incurred to date were standard electrical and mechanical materials stored on the job site, but not yet installed, costing PI 05,000. These costs should not be considered in the costs incurred to date.

39.

40.

Compute the percentage of completion on the contract at the end of 20x6. a. 35.00% c. 43.50% b. 40.00% d. 46.67% Indicate the amount of gross profit that would be reported on this contract at the end of 20x5. a. P200,ooo c. P540,OOO b. P400,OOO d. P667,OOO

Use the following information for questions 41 and 42

The board of directors of Jaja Construction Company is meeting to choose between the cost-recovery method and the percentage-of-completion method of accounting for longterm contracts in the company's financial statements. You have been engaged to assist Jaja's controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information:

● ●

Jaja commenced doing business on January l , 20x5. Construction activities for the year ended December 31 , 20x5, were as follows: Total Contract Price

Project A B C D E

Billings Through 12/31/x5

P 500,000 720,000 475,000 200,000 450 000 P2 345 000

Cash Collections Through 12/31/x5

P 340,000 210,000 475,000 100,000 400,000 PI 525,000

P 310,000 210,000 390,000 65,000 400,000 1,375,000

● Each contract is with a different customer. ● Any work remaining to be done on the contracts is expected to be completed in 20x6. 41.

The amount reported as income (loss) under the percentage-of-completion (recognizes revenue over time) method for 20x5 is: a. P 80,000 c. P164.ooo b. P141,OOO d. P186,OOO

42.

The amount reported as income (loss) under the cost-recovery method (recognizes revenue at point in time) for 20x5 is: a. P 80,000 c. PI 64,000 b. P141,OOO d. P186,000

43. JelaiConstruction, Inc. experienced the following construction activity in 20x5, the first year of operations.

Contract X Y 252,000

Total Contract Price 260,000 330,000

Billings through 12/31/x5 170,000 115,000

Cash Collections through 1 2/31 /x5 155,000 115,000

Cost Estimated Incurred Additional through Costs to 1 2/31 /x5 Complete 182,000 63,000 100,000

Z

233,000 P823,OOO

233,000

198,000

P518,OOO

P468,OOO

158,000 P440,OOO

0 P315000

Each of the above contracts is with a different customer, and any work remaining at December 31 , 20x5 is expected to be completed in 20x6.The amount reported as gross profit (loss)under the cost-recovery method (recognizes revenue at point in time) for 20x5 is: a. (22,00) c. P75,OOO b. P 53,000 d. P86,400 Use the following to answer questions 44—46: ReSA Desert Safari Homes (ReSA Homes) constructed a new subdivision during 20x5 and 20x6 under contract with Cactus Development Co. Relevant data are summarized below: Contract amount Cost:

20x5 20x6

3,000,000 1,200,000 600,000

Gross profit:

20x5 20x6

800,000 400,000

Contract billings:

20x5

1,500,000

20x6 1,5000,000 ReSA Homes recognizes revenue over time with respect to these contracts. 44. What would be the journal entry made in 20x5 to record revenue? a. Accounts receivable 1,500,000 Revenue from long-term contracts 1,500,000 b. Accounts receivable Gross profit 800,000 Revenue from long-term contracts 1,500,000 c. Construction in progress 800,000 Cost of construction 1,200,000 Revenue from long-term contracts d. Accounts receivable 1,5OO,OOO Billings in excess of cost 300,000 Revenue for long-term contracts 45. In its December 31 , 20x5, balance sheet, ReSA Homeswould report:

2,000,000

1,800,000

The contract asset, cost and profits in excess of billings, of P500,OOO. The contract liability, billings in excess of cost, of P300,000. The contract asset, contract amount in excess of billings, of 1,500,000 The contract asset, deferred profit, of P400,000.

a. b. c. d. 46.

For 20x6, what is the journal entry to record revenue? a. Accounts receivable Revenue from long-term contracts 1,500,000 b. Construction in progress Cost of construction Revenue from long-term contracts c. Cost of construction Gross 1,000,00 Revenue from long-term contracts 3,000,000 d. Accounts receivable 1,500,000 Cost of construction Gross profit Deferred revenue

1,500,000

400,000 600,000 1,000,000 2,000,000 profit

600,000 600,000 300,000

Use the following to answer questions 47-49: Using the same date for items 41-44, except that ReSA Homes recognizes revenue upon completion (point in time) with respect to these contracts. 47.

What WOUld be the journal entry made in 20x5 to record revenue? a. Accounts receivable 1,500,000 Revenue from long-term contracts 1,500,000 b. Accounts receivable 2,300,000 Gross profit 800,000 Revenue from long-term contracts 1,500,000 c. Construction in progress 800,000 Cost of construction 1200,000 Revenue from long-term contracts 2,000,000 d.

No entry

48. In its December 31 , report:

balance sheet, ReSA Homes would

a. b. c. d.

49.

For

The contract asset, cost and profits in excess of billings, of P500,OOO. The contract liability, billings in excess of cost, of P300,000. The contract asset, contract amount in excess of billings, of PI $500,000. The contract asset, deferred profit, of P400,000.

What is the journal entry to record revenue? a. b.

c.

d.

Accounts receivable 1,500,000 Revenue from long-term contracts Construction in progress 400,000 Cost of construction 600,000 Revenue from long-term contracts Cost of construction 2,000,000 Gross profit 1,000,000 Revenue from long-term contracts Construction in progress 1,200,000 Cost of construction 1800,000 Revenue from long-term contracts

1,500,000

1,000,000

3,000,000

3,000,000

50. ST Construction Company's construction jobs, which commenced during 20...