LTCC 1

LONG-TERM CONSTRUCTION CONTRACTS (1)
01. Medicare, Inc. has entered into a very profitable fixed contract for constructing a high-rise building over a period
of three years. In incurs the following costs relating to the contract during the year:
* Cost of materials, P2.5 million

* Site labor cost, P2.0 million
* Agreed administrative costs as per contract to be reimbursed by the client, P1 million
* Depreciation of the plant used for the construction, P0.5 million
* Marketing costs for selling apartments when they are ready. P1.0 million
The total estimated cost of the project is P18 million. The percentage of completion of this contract at the year-
end is:
a. P33-1/3% b. 27% c. 25% d. 39%
02. DJ Builders, Inc. has consistently used the percentage of completion method of accounting for construction-type
contracts. During 2019, DJ started work on a P9,000,000 fixed-price construction contract that was completed in
2020. DJ’s accounting records disclosed the following:
12/31/2019 12/31/2020
Cumulative contract costs incurred. . . . . . . . . . . P3,900,000 P6,300,000
Estimated total costs at completion. . . . . . . . . . . . 7,800,000 8,100,000
How much income would DJ have recognized on this contract for the year ended December 31, 2020?
a. P100,000 b. P300,000 c. P600,000 d. P700,000
03. DMC Power Co. was tapped to build private electric plants in the towns of Calauag and Calauan. The following
information relate to these projects during 2020. Any costs incurred are expected to be recoverable.
Calauag Calauan
Contract price P10,500,000 P7,500,000
Costs incurred to date 6,000,000 7,000,000
Estimated cost to complete 3,000,000 1,000,000
Billings during the year 7,000,000 1,000,000
Collections during the year 6,000,000 1,000,000
What amount of gross profit (loss) should the company report in its 2020 income statement using the percentage
of completion method?
a. P562,000 b. P500,000 c. (P500,000) d. (P562,000)
04. The following information relates to a flood control project of JJD Construction Company which was started in
2019 and competed in 2020.
Cost incurred to-date: Estimated total costs on completion:

As of June 30, 2019 P 9,750,000 As of June 30, 2019 P19,500,000
As of June 30, 2020 15,750,000 As of June 30, 2020 20,250,000
The project is a P22,500,000 fixed-price construction contract, and JJD uses the percentage-of-completion method
of revenue accounting. On June 30, 2020, how much income would JJD report on the project?
a. P250,000 b. P300,000 c. P3,500,000 d. P4,800,000
05. Daryl Construction Company has consistently used the percentage-of-completion method of recognizing income.
During 2019, Daryl entered into a fixed-price contract to construct an office building for P10,000,000.
Information relating to the contract is as follows:
12/31/2019 12/31/2020
Percentage of completion 20% 60%
Estimated total cost at completion P7,500,000 P8,000,000
Income recognized (cumulative) 500,000 1,200,000
Contract costs incurred during 2020 were

a. P3,200,000 b. P3,300,000 c. P3,500,000 d. P4,800,000
06. ST Construction Company’s construction jobs, which commenced during 2020:
Project X Project Y
Contact price P420,000 P300,000
Costs incurred during 2020 240,000 280,000
Estimated costs to complete 120,000 70,000
Billed to customers during 2020 250,000 290,000
Received from customers during 2020 240,000 280,000
General and administrative expenses 20,000 10,000
It is therefore agreed between the contractor and the client that any costs incurred are expected to be recoverable.
What amount of net income (loss) would ST Corporation Company report in its 2020 income statement using the
percentage-of-completion method?
a. P(80,000) b. P(10,000) c. P(30,000) d. P(40,000)
07. Chicano Builders, Inc. employs the cost-to-cost method in determining the percentage of completion for revenue
recognition. The company’s record show the following information on a recently completed project for a contract
price of P5,000,000.
2018 2019 2020
Cost incurred to date P900,000 P2,550,000 P ?
Gross profit (loss) 100,000 350,000 P(50,000)
Complete the (1) estimated costs to complete the project at December 31, 2019 and (2) the actual cost incurred
during the year 2020
a. (1) P1,700,000; (2) P2,550,000
b. (1) P1,700,000; (2) P2,050,000
c. (1) P850,000; (2) P2,050,000
d. (1) P1,700,000; (2) P2,200,000
08. DJ Construction Co. contracted to build a structure for P400,000. Construction began in 2019 and was completed
in 2020. Data relating to the contract are summarized below:
Year Ended
2019 2020
Costs incurred P200,000 P110,000
Estimated cost to complete 100,000 -
Using percentage-of-completion method of revenue recognition, how much revenue should be recognized in 2029
and 2020, respectively?
a. P66,667 and P23,333 b. P0 and P400,000 c. P0 and P90,000 d. P266,667 and P133,333
09. Pomelo Builders is in the business of constructing apartment buildings. Two buildings were in progress
at the beginning of 2020. The status of these buildings at the beginning of the year were as follows:
Contract Cost incurred Estimate costs to

Contract Price prior to 1/1/2020 complete 1/1/2020
Apartment-Cubao P1,620,000 P 600,000 P840,000
Apartment-Marikina 2,520,000 1,560,000 690,000
During 2020, the following costs were incurred:
Apartment-Cubao………. P600,000 (estimated cost to complete as of 12/31/2020, P240,000)

Apartment-Marikina……. P750,000 (job completed)
How much is the gross profit in 2020 if Pomelo uses the percentage-of-completion method?
a. P97,800 b. P210,000 c. P262,200 d. P360,000
10. AJD Builders entered into a contract to build an office building and plaza at a contract price of P10,000,000.
Gross profit is to be recognized using the percentage of completion method – output measures as determined by
estimates made by the architect. The data below summarize the activities of the construction for the years 2018 to
2020:
Actual Estimated Percentage of Progress

Year Cost Incurred Cost to Complete Completion Billings Collection
2018 P3,200,000 P6,000,000 25% P3,300,000 P3,100,000
2019 4,300,000 1,600,000 75% 4,500,000 4,000,000
2020 1,550,000 - 100% 2,200,000 2,900,000
Compute the recognized gross profit for the years:

2018 2019 2020
a. P200,000 P675,000 P950,000
b. P278,261 P463,497 P208,242
c. P278,261 P741,758 P950,000
d. P200,000 P475,000 P275,000

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LONG-TERM CONSTRUCTION CONTRACTS (1)

* Cost of materials, P2.5 million

Cost incurred to-date: Estimated total costs on completion:

Contract costs incurred during 2020 were

Contract Cost incurred Estimate costs to

During 2020, the following costs were incurred:

Apartment-Cubao………. P600,000 (estimated cost to complete as of 12/31/2020, P240,000)

Actual Estimated Percentage of Progress

Compute the recognized gross profit for the years:

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