LONG-TERM CONSTRUCTION CONTRACTS

LONG-TERM CONSTRUCTION CONTRACTS

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In accounting for long-term construction contracts (those taking longer than one year to complete), the two methods
commonly followed are percentage-of-completion and completed-contract.
 (a)    The revenue recognized on a long-term construction contract under the percentage-of-completion method is
determined by applying a percentage representing the degree of completion to the total contract price at the end of
the accounting period. The percentage may be derived by dividing the costs incurred to date by the total estimated
costs of the entire contract based on the most recent information. The revenue so derived is then reduced by the
direct contract costs to determine the gross profit recognized in the initial period.
         In subsequent periods, since the percentage-of-completion method described produces cumulative results, revenue
and gross profit recognized in prior periods must be subtracted to obtain current revenue and gross profit to be
recognized.
         Under the completed-contract method, no earnings are recognized until the contract is substantially completed. For
the period in which completion occurs, gross revenues include the total contract price. Total job costs incurred are
deducted from gross revenues, resulting in recognition of the entire amount of gross profit in the completion period.
If it is expected that a loss will occur on the contract, a provision for loss should be recognized immediately under
both the completed-contract method and the percentage-of-completion method.
(b)      The percentage-of-completion method should be used when estimates of the bases upon which progress is measured
are reasonably dependable and all the following conditions exist:
         1.      The contract clearly specifies the enforceable rights regarding goods or services to be provided and received by
the parties, the consideration to be exchanged, and the manner and terms of settlement.
          2.      The buyer can be expected to satisfy all obligations under the contract.
          3.      The contractor can be expected to perform the contractual obligation.
         The completed-contract method should be used when inherent hazards or lack of dependable estimates cause the
forecasts to be of doubtful value.
(c)     Under the percentage-of-completion method, a schedule is made of the contracts in process, showing the total costs
incurred as of the end of a given period, the estimated gross profit recognized based on the degree of completion,
and the total billings rendered on each individual contract. If costs incurred plus recognized profits exceed the
related billings on a contract, this net figure is shown as a current asset.  This treatment shows that the contractor has
not fully billed the customer for work performed to date and has a claim against the customer for that portion of
work completed but not yet billed. If billings on a contract exceed costs incurred plus estimated profits, this net
figure is shown as a current liability, which means that the contractor has overbilled the customer for work done to
date and must complete the work represented by the excess billings.
         Under the completed-contract method, the treatment of excess costs and billings is the same as under the percentage-
of-completion method except that estimated profits are not computed because profit recognition is deferred until a
contract is completed. The excess of costs over related billings on a contract is a current asset while the excess of
billings over related costs on a contract is a current liability.

PROBLEM 1
Waya Construction Co. has used the cost to cost percentage of completion method of recognizing profits. Lia Ortega
assumes leadership of the business after the retirement of her mother Lyca. In reviewing the records, Lia finds the
following information regarding a recently completed building project for which the total contract was P500,000.
                                                                        2009                2010                2011
Gross Profit (loss)                                            P10,000           P35,000           P(5,000)
Cost incurred/year                                             90,000              ?                   P205,000
Lia wants to know how effectively the company operated during the last three years on this project and, since the
information is not complete, has asked you to help by answering the following questions
a. How much cost was incurred in 2010?
b. What percentage of the project was completed by the end of 2010?
c. What was the total estimated gross profit on the project by the end of 2010?
d. What was the estimated cost to complete the project at the end of 2010?
e. What percentage of the project was completed by the end of 2009?
 PROBLEM 2

                    In 2009, Golden Engineering entered into an agreement to construct an office building at a contract price of
P5,100,000. Construction data were as follows:

2009 2010 2011

Construction costs P  750,000 P2,700,000 P  630,000 
  incurred
Estimated costs to  3,000,000    862,500        --
  complete
Progress billings    570,000  3,600,000   930,000
Collections from client    450,000  3,300,000 1,350,000
Prepare the necessary entries for each year, assuming the firm uses the:
(1) completed-contract method
(2) percentage-of-completion method.

PROBLEM 3
                    Solidrock Construction contracted to build a ship over a two year period. The contract price was P21,000,000 with an
estimate total cost of P18,400,000. The following cost data relate to the construction period.

Costs Incurred Estimated Cost Cash

Year       in Year         to Complete   Billings Collected
2009 P9,000,000 P10,000,000 P11,000,000 P7,500,000
2010  9,500,000           0   8,000,000  9,000,000
2011          0           0   2,000,000  4,500,000
Prepare the necessary journal entries for 2009, 2010, and 2011 assuming Solidrock uses the percentage-of-
completion method.

PROBLEM 4

                    Sealand Construction entered into a contract to construct a floating bridge across a lake. The contract price for the
bridge is P7,500,000. During 2009, costs of P1,800,000 were incurred representing 30% of total expected costs.

Prepare the necessary entries for 2009 to recognize gross profit for the year assuming the firm uses the
(1) completed-contract method.
(2) percentage-of-completion method.
PROBLEM 5

              .     In 2009, Mandaluyong Builders began construction work under a three-year contract at a price of P7,525,000. The
firm uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each
year is based on the proportion of cost incurred to the total estimated costs for completing the contract. The financial
statement presentations relating to this contract on December 31, 2009, are:

Balance Sheet
  Accounts receivable ........................ P150,500
  Construction in progress ................... P602,000
   Less progress billings .....................  562,000 40,000
Income Statement
  Gross profit on construction contracts ..... P301,000
Determine the
(1) cash collected in 2009.
(2) estimated income on the construction contract.

     

PROBLEM 6
                    On January 1, 2009, Jaguar Enterprises obtained a contract to construct a building. It was estimated at the beginning
of the contract that it would take three years to complete the project at an expected cost of P200,000. The contract
price was P250,000. The following information describes the status of the job at the close of production each year:

2009 2010 2011

Actual costs incurred ........... P110,000 P120,000 P15,000
Estimated costs to complete ..... 100,000 20,000 0
Billings on contract ............ 125,000 125,000 0
Collections on contract ......... 120,000 120,000 10,000
Compute the items listed below for each year assuming the use of the percentage-of-completion cost-to-cost method.
(Round all percentages to two decimals).

2009 2010 2011

1. Revenue recognized during the
   year ..........................                        
2. Gross profit recognized during
   the year ......................                        
3. Balance in the construction in
   progress account at December 31
   (after closing entries) .......                        
4. Balance in the progress billings
   account at December 31 (after
   closing entries) ..............                        
     
PROBLEM 7
                    On January 1, 2009, Boston Inc. obtained a contract to construct a building. It was estimated at the beginning of the
contract that it would take 3 years to complete the project at an expected cost of P200,000. The contract price was
P250,000. The following information describes the status of the job at the close of production each year:

2009  2010  2011 

Actual costs incurred ............ P150,000 P100,000 P15,000
Estimated costs to complete ...... 90,000 20,000 0
Billings on contract ............. 110,000 120,000 20,000
Collections on contract .......... 100,000 120,000 30,000
Compute the items listed below for each year assuming the use of the percentage-of- completion cost-to-cost
method. (Round all percentages to two decimals.)
 2009 2010 2011
1. Construction costs (expense)
   recognized during the year ....                        
2. Gross profit recognized during
   the year ......................                        
3. Balance in the construction in
   progress account at Dec. 31
   (after closing entries) .......                        
4. Balance in accounts receivable
   at Dec. 31 (after closing
   entries) ......................                        

            LONG-TERM CONSTRUCTION CONTRACTS  

                             
             Multiple Choice          Identify the choice that best completes the statement or answers the question.

____    1.   How should the balances of Progress Billings and Construction in Progress be shown at reporting dates prior to the
completion of a long-term contract?
a. Progress Billings as income, Construction in Progress as inventory.
b. Net, as income from construction if credit balance, and loss from construction if
debit balance.
c. Progress Billings as deferred income, Construction in Progress as a current asset.
d. Net, as a current asset if debit balance and current liability if credit balance.

____    2.   If the percentage-of-completion method is used, what is the basis for determining the gross profit to be recognized in
the second year of a three-year contract?
a. Cumulative actual costs incurred only.
b. Incremental cost for the second year only.
c. Cumulative actual costs and estimated costs to complete.
d. No gross profit would be recognized in year 2.

____   3..   If the completed-contract method is used, what is the basis for determining the income to be recognized in the second
year of a three-year contract?

a. Cumulative actual costs incurred only.

b. Incremental cost for the second year only.
c. Latest available estimated costs.
d. No income would be recognized in year 2.
____    4.   Which of the following would be used in the calculation of the gross profit recognized in the third and final year of a
construction contract that is accounted for using the percentage-of-completion method?
Actual Income
Contract Total Previously
Price Costs Recognized
a.     Yes             Yes               No
b.     Yes             Yes               Yes
c.     Yes             No                Yes
d.     No              Yes               Yes

____    5.   Assume the percentage-of-completion method of revenue recognition is used on a long-term construction contract.
Under this method, revenues that are earned but unbilled at the balance sheet date should be disclosed
a. as a long-term receivable in the noncurrent assets section of the balance sheet.
b. only as a footnote disclosure until the customer is billed for the percentage of work
completed.
c. as construction in progress in the current assets section of the balance sheet.
d. as construction in progress in the noncurrent assets section of the balance sheet.

____    6.   The completed-contract method of accounting for long-term construction-type contracts is preferable when
a. a contractor is involved in numerous projects.
b. the contracts are of a relatively long duration.
c. estimates of costs to complete and extent of progress toward completion are
reasonably dependable.
d. there are inherent uncertainties in the contract beyond normal business risks.

____    7.   Which of the following is not a difference between the percentage-of completion and completed-contract methods of
accounting for long-term construction contracts?
a. They report different amounts for inventory during the construction period.
b. They report different amounts for progress billings during the construction period.
c. They cause a different cash inflow during the construction period.
d. They report different amounts for accounts receivable during the construction
period.

____    8.   The theoretical support for using the percentage-of-completion method of accounting for long-term construction
projects is that it
a. is more conservative than the completed-contract method.
b. reports a lower Net Income figure than the completed-contract method.
c. more closely conforms to the cost principle.
d. produces a realistic matching of expenses with revenues.
____    9.   If a company uses the completed-contract method of accounting for long-term construction contracts, then during the
period of construction, financial information related to a long-term contract will
a. appear on both the income statement and balance sheet during the construction
period.
b. appear only on the income statement during the period of construction.
c. appear only on the balance sheet during the period of construction.
d. not appear on the financial statements.

____  10.   When the percentage-of-completion method of accounting for long-term construction projects is used, why is
Construction in Progress increased by the annual recognized gross profit on long-term construction contracts?
a. The cost of the contract has increased.
b. The project's value has increased above cost.
c. The economy experiences inflation over the construction period.
d. Construction in Progress is not increased by the annual recognized profit.

____  11.   When comparing the percentage-of-completion and completed-contract methods of accounting for long-term
construction contracts, both methods will report
a. the same balances each period in the Progress Billings account.
b. the same expense for cost of construction each year.
c. the same amount of income in the year of completion.
d. the same inventory carrying value each year during the construction period.

____  12.   A company uses the percentage-of-completion method to account for a four year construction contract. Progress
billings sent in the second year that were collected in the third year would
a. be included in the calculation of the income recognized in the second year.
b. be included in the calculation of the income recognized in the third year.
c. be included in the calculation of the income recognized in the fourth year.
d. not be included in the calculation of the income recognized in any year.

____  13.   In accounting for a long-term construction contract for which there is a projected profit, the balance in the
Construction in Progress account at the end of the first year of work using the percentage-of-completion method
would be

a. zero.
b. the same as the completed-contract method.
c. higher than the completed-contract method.
d. lower than the completed-contract method.
____  14.   On May 1, 2009, Pateros Construction Company entered into a fixed-price contract to construct an apartment building
for P3,000,000. Pateros appropriately accounts for this contract under the percentage-of-completion method.
Information relating to the contract is as follows:
2009 2010
At December 31:
Percentage of completion ........ 20% 60%
Estimated costs at completion ... P2,250,000 P2,400,000
Income recognized (cumulative) .. P  150,000 P  360,000
What is the amount of contract costs incurred during the year ended December 31, 2010?

a. P600,000
b. P960,000
c. P990,000
d. P1,440,000

____  15.   Navotas Construction, Inc. has consistently used the percentage-of-completion method of recognizing income. Last
year Navotas started work on a P4,500,000 construction contract, which was completed this year. The accounting
records disclosed the following data for last year:

Progress billings ..................................... P1,650,000

Costs incurred ........................................ 1,350,000
Collections ........................................... 1,050,000
Estimated cost to complete ............................ 2,700,000
How much income should avotas have recognized on this contract last year?

a. P105,000
b. P150,000
c. P300,000
d. P350,000

____  16.   Caloocan Construction, Inc. has consistently used the percentage-of-completion method of recognizing income.
During 2009, Caloocan started work on a P1,500,000 fixed-price construction contract. The accounting records
disclosed the following data for the year ended December 31, 2009:

Costs incurred ........................................ P  465,000

Estimated cost to complete ............................ 1,085,000
Progress billings ..................................... 550,000
Collections ........................................... 350,000
How much loss should Caloocan have recognized in 2009?
 a. P15,000
b. P35,000
c. P50,000
d. P115,000

____  17.   Pasay Construction Company has consistently used the percentage-of- completion method. On January 10, 2009,
Pasay began work on a P3,000,000 construction contract. At the inception date, the estimated cost of construction
was P2,250,000. The following data relate to the progress of the contract:

Gross profit recognized at December 31, 2009 .......... P  300,000

Costs incurred Jan. 10, 2009, through Dec. 31, 2010 ... 1,800,000
Estimated cost to complete at December 31, 2010 ....... 600,000
How much gross profit should Pasay recognize for the year ended December 31, 2010?

a. P150,000
b. P262,500
c. P300,000
d. P450,000

____  18.   For a construction firm using the completed-contract method, if costs exceed billings on some contracts by P1,000,000
and billings exceed costs by P800,000 on others, the contracts should ordinarily be reported as a
a. current asset of P200,000.
b. current liability of P200,000.
c. current asset of P1,000,000 less a contra-current asset of P800,000.
d. current asset of P1,000,000 and a current liability of P800,000.
____  19.   Makati Construction Company uses the percentage-of-completion method of accounting. In 2009, Makati began work
on a project which had a contract price of P1,600,000 and estimated costs of P1,200,000. Additional information is
as follows:

2009 2010
Costs incurred during the year ............ P240,000 P1,060,000
Estimated costs to complete, as of 960,000
  12/31/09 ................................
Billings during the year .................. 290,000 1,310,000
Collections during the year ............... 250,000 1,200,000
The amount of gross profit Makati should recognize on this contract during 2009 is

a. P40,000.
b. P80,000.
c. P100,000.
d. P200,000.
____  20.   Pasig Construction Company uses the percentage-of-completion method for long-term construction contracts. A
specific job was begun in 2009 and completed in 2011. The contract price was P1,400,000 and cost information as
of each year-end is given below:

2009 2010 2011

End of year estimated cost to
  complete ...................... P400,000 P200,000 P      0 
Annual cost incurred ............  400,000  400,000 120,000
Assuming Pasig correctly recorded gross profit in 2009, how much gross profit should the company record in 2010?

a. P0
b. P20,000
c. P300,000
d. P320,000

  
                    The following data relate to a construction job started by Valenzuela Co. during 2009:

Total contract price .................................. P300,000

Actual costs incurred during 2009 ..................... 60,000
Estimated remaining costs ............................. 120,000
Billed to customer during 2009 ........................ 90,000
Received from customer during 2010 .................... 30,000
____   21.Under the completed-contract method, how much should Valenzuela recognize as gross profit for 2009?

a. P0
b. P30,000
c. P40,000
d. P90,000

____  22. Under the percentage-of-completion method, how much should Valenzuela recognize as gross profit for 2009?

a. P0
b. P40,000
c. P80,000
d. P100,000
____  23.   Violet Construction Company uses the percentage-of-completion method for long-term construction contracts. The
company started a project with a contract price of P2,750 in 2009. Given the following data, what is the balance in
Construction in Progress for this contract at the end of 2009?
2009 2010
Costs incurred this year .................. P  400 P  500
Total estimated costs remaining at end
  of year .................................  1,600  1,000

a. P150
b. P400
c. P550
d. P1,750

____  24.   Silver Construction Company uses the percentage-of-completion method for long-term construction contracts. The
company has a project with a contract price of P7,000 on which P600 of gross profit has been recognized in prior
years. Information for the current year is as follows:

Total cost incurred through current year ............... P5,000

Estimated costs remaining at end of current year ....... 2,800
What is the loss that Silver should recognize in the current year?

a. P600
b. P800
c. P1,400
d. No loss should be recognized.

____  25.   In 2009, Konstrak Corp. began construction work under a three-year contract. The contract price is P800,000.
Konstrak used the percentage-of-completion 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 presentations relating to this contract at December 31, 2009, appear below.

Balance Sheet
Accounts receivable--construction contract
  billings .................................. P15,000
Construction in progress .................... P50,000 
Less contract billings ......................  (47,000)
Cost of uncompleted contract in excess of
  billings .................................. 3,000
Income Statement
Income (before tax) on the contract
  recognized in year 1 ...................... P10,000
 How much cash was collected in 2009 on this contract?

a. P32,000
b. P35,000
c. P47,000
d. P50,000

LONG-TERM CONSTRUCTION CONTRACTS

Answers  MULTIPLE CHOICE

            1.   D

            2.   C

            3.   D

            4.   B

            5.   C

            6.   D

            7.   C

            8.   D

            9.   C

          10.   B

          11.   A

              

          12.   D

          13.   C
          14.   C

          15.   B

          16.   C

          17.   A

          18.   D
          19.   B

          20.   B

          21.   A

          22.   B

          23.   C

          24.   C

              

          25.   A

              

PROBLEM 2

(1)
2009
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
2010
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
2011
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
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
(2)
 2009
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
2010
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
2011
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
Progress Billings on Construction Contracts . 5,100,000
  Construction in Progress .................. 5,100,000

PROBLEM 3       

2009
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

2010
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

2011
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
(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
  P1,800,000 / 30% = P6,000,000
  P7,500,000 - P6,000,000 = P1,500,000
  P1,500,000  30% = P450,000

PROBLEM 5       

(1)
Progress billings on construction contract ............ P562,000
 Less accounts receivable ..............................  150,500
Cash collected in 2009 ................................ P411,500

(2)
Gross profit from construction contract + Construction in progress = Revenue
for 2009
P301,000 + P602,000 = P903,000
P903,000/P7,525,000 = 12%     Percentage completed in 2009
P301,000/.12 = P2,508,333     Estimated income on construction contract

PROBLEM 6

2009  2010  2011 

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   
2009:      Revenue ............ P130,000  P130,000 
       Costs ............  110,000   110,000 
Gross profit ............ P 20,000  P 20,000 
2010:      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)
2011:      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 

2009  2010    2011 

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

PROBLEM 7

2009 2010 2011

Contract price P250,000 P250,000 P250,000
Current year costs  150,000  100,000   15,000
Costs to date  150,000  250,000  265,000
Estimated cost to complete   90,000   20,000 0
Estimated total cost  240,000  270,000  265,000
Estimated total gross profit   10,000   (20,000)   (15,000)
Percent complete      63%      93%   100%
Revenue to date P157,500 P232,500 P250,000

  To Date  Previous  Current  

at Dec. 31 Years   Year   
2009:      Revenue ............ P157,500  P157,500 
       Costs ............   150,000   150,000 
Gross profit ............ P  7,500  P  7,500 
2010:      Revenue ............ P232,500  P157,500  P 75,000 
       Costs ............  252,500   150,000   102,500 
Gross profit ............  P(20,000) P  7,500   P(27,500)
2011:      Revenue ............ P250,000  P232,500  P 17,500 
       Costs ............  265,000   252,500    12,500 
Gross profit ............  P(15,000)  P(20,000) P  5,000 

2009 2010 2011

1. Construction costs (expense)
   recognized during the year P150,000  P102,500  P12,500 
2. Gross profit recognized during
   the year 7,500   (27,500) 5,000 
3. Balance in the construction in
   progress account at Dec. 31
   (after closing entries)  157,500  230,000  0 
4. Balance in accounts receivable
   at Dec. 31 (after closing
   entries)  10,000  10,000  0 

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