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What is the excess of construction in progress over progress billings on December 31, 2020 under percentage of completion method, cost-to-cost approach? a. 500,000 b. 200,000 c. 300,000 d. 400,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

2. On January 1, 2020, an entity entered into a long-term construction contract with fixed contract
price of P5,000,000. The entity billed its client as follows: 30% during 2020, 40% during 2021 and
the remainder at the year of project completion. The following data were provided by the cost
accountant of the entity:
2020
2021
2022
Cumulative Cost incurred as of the end of the year
P2,200,000
P3,600,000
P4,800,000
Estimated remaining cost to complete at the end of the
P3,300,000
P900,000
year
1. What is the excess of construction in progress over progress billings on December 31,
2020 under percentage of completion method, cost-to-cost approach?
a. 500,000
b. 200,000
c. 300,000
d. 400,000
2. What is the excess of construction in progress over progress billings on December 31,
2021 under cost recovery method?
a. 100,000
b. 500,000
c. 300,000
d. 400,000
3. Assume that an architect hired by the company made the following estimates of the
project's percentage of completion at 50%, 90% and 100% at the end of 2020,2021, and
2022, respectively, what is the realized gross profit for 2021, using percentage of
completion method – output measures as determined by estimates made by the architect?
900,000
600,000
c. (300,000)
d.
а.
b.
450,000

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