Solution manual advanced accounting by baysa lupisan chapter 06

Statement of Financial Position Current Assets: Current Liabilities: Progress Billings on Construction Contracts P44,000,000 Exercise 7-2 Cash, Materials, etc... Journal entries Cash

Exercise 7-1

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To Date Recognized in prior year/s To be recognized this year

c Cash 5,500,000 33,000,000 11,500,000

e Progress Billings on

3

Statement of Financial Position

Current Assets:

Current Liabilities:

Progress Billings on Construction Contracts P44,000,000

Exercise 7-2

Cash, Materials, etc 32,000,000 43,000,000 15,500,000

Progress Billing on Const Contract 33,000,000 45,000,000 22,000,000

Accounts Receivable 31,000,000 40,000,000 29,000,000

Revenue from LTCC 25,000,000 50,000,000 25,000,000

e Progress Billing on Const Contracts 100,000,000

To date Recognized in prior year/s To be recognized this year

Exercise 7-3

Total estimated cost:

Cost incurred to date P 4,400,000

2 Accounts Receivable (P25,000,000 x 30% x 10%) P 750,000

Progress Billings on Construction Contracts (P25,000,000 x 30%) P7,500,000

Exercise 7-4

2 Journal entries

Cash, Materials, etc 17,500,000 11,750,000 1,750,000

Progress Billing on

Const Contracts

16,000,000

12,000,000

7,000,000

c Cash 15,000,000 10,000,000 10,000,000

Accounts Receivable 15,000,000 10,000,000 10,000,000

Rev from LTCC 21,875,000 9,625,000 3,500,000

Exercise 7-5

Gross profit/income recognized in 2008 (P3,120,000 - P1,300,000) 1,820,000

Exercise 7-6

Binondo Project Pasig Project

Exercise 7-7

Cost incurred to date, 12.31.07 (P1,800,000 + P3,300,000) 5,100,000

Percentage-of-completion (6,000,000/10,000,000) 60%

Exercise 7-8

Exercise 7-9

1 Cash 4,000,000

Discount on Notes Receivable

(3,000,000-(2.48685 x 1,000,000)

513,200

Unearned Franchise Fees (1,000,000 x 2.48685) 2,486,800

Exercise 7-10

2007

P800,000 x 3.1699 = P2,535,900

P3,200,000 - P2,535,900 = P664,100

Interest Revenue 126,795

P2,535,900 x 10% x 6/12 = P126,795

2008

15 - Cost of Franchise Fee Revenue 260,000

1 - Discount on Notes Receivable 126,795

Problem 7-1

2007 2008

Cash, Materials, etc 11,000,000 4,800,000

Progress Billing on Const Contract

10,800,000 9,200,000

Accounts Receivable 10,000,000 10,000,000

Revenue from LTCC 13,750,000 6,250,000

Problem 7-2

Statement of Recognized Income and Expenses:

Statement of Financial Position

Inventory - CIP, net of billings

2007 (13,750,000 - 10,800,000) P2,950,000

-Problem 7-3

Year Income (loss) Recognized Rec’l ending balance CIP Invty ending balance Cost in excess of billings

Problem 7-4

Contract price P29,000,000 P29,000,000 P34,000,000P34,000,000 P17,000,000 P17,000,000 P2,000,000 Cost incurred to date P16,800,000 P26,400,000 P14,400,000P21,200,000 P 3,200,000 P11,830,000 P 5,600,000 Estimated cost to complete 11,200,000 - 17,600,000 13,000,000 9,600,000 1,170,000 10,400,000 Total estimated cost P28,000,000 P26,400,000 P32,000,000P34,200,000 P12,800,000 P13,000,000 P16,000,000 Total estimated gross profit (loss) P 1,000,000 P 2,600,000 P 2,000,000 P( 200,000) P 4,200,000 P 4,000,000 P 4,000,000

Gross profit (loss) to date P 600,000 P 2,600,000 P 900,000P( 200,000)* P 1,050,000 P 3,640,000 P 1,400,000 Less gross profit recognized in prior year - 600,000 - 900,000 1,050,000 -Gross profit - current year P 600,000 P 1,000,000 P 900,000P(1,100,000) P 1,050,000 P 2,590,000 P 1,400,000

* The entire loss should be recognized immediately

(1) Percentage of completion method

2007 2008

Problem 7-5

Total estimated gross profit P 20,000,000 P 10,000,000 P 20,000,000 P 15,000,000

Percentage of completion 24% 55% 90% 100%

Recognized in To be recognized

To date prior year in current year

Cost of revenue 24,000,000 - 24,000,000

Gross profit P 4,800,000 - P 4,800,000

Recognized in

To be recognized

To date prior year in current year

Cost of revenue 60,500,000 24,000,000 36,500,000

Gross profit P 5,500,000 P 4,800,000 P 700,000

Cost of revenue 90,000,000 60,500,000 29,500,000

Recognized in

To be recognized

To date prior year in current year

Cost of revenue 105,000,000 90,000,000 15,000,000

Gross profit P 15,000,000 P 18,000,000 P( 3,000,000)

e Progress Billings

on Const.

Contracts

120,000,000

Construction

Problem 7-6

Total estimated gross profit P 1,500,000 P 1,250,000 P 705,000

Percentage of completion 40% 90% 100%

Less Gross profit recognized in prior year - 600,000 1,125,000

Gross profit - current year P 600,000 P 525,000 P (420,000)

Problem 7-7

1 Recognized revenue P 1,100,000 P1,300,000 (2) P1,100,000 (3) P3,500,000

Cost of revenue 1,000,000 1,250,000 1,150,000 (4) 3,400,000 –(5)

Gross Profit (loss) P 100,000 – (1) P 50,000 P (50,000) P 100,000

Total estimated gross profit 250,000 300,000

Less GP recognized in prior year/s - 76,925

GP to be recognized this year P 76,925 P 134,013

Problem 7-8

Franchise A:

The circumstances imply that the full accrual method could be used

Franchise revenue P3,578,000*

PV of four payments [4% for 4 periods

P 3,578,000

Franchise B:

Because of the doubtful collection and only partial completion, the deposit method should be used No revenue or income would be recognized in 2008 from the franchise fee However, because the first payment of P600,000 was made, interest revenue of P87,200 would

be recognized

Franchise C:

Because of the doubtful collection but substantial completion, either the installment sales or cost recovery method could be used If the installment sales method is used, gross profit of P843,600* would be recognized in 2008 plus interest revenue of P87,200

Gross profit percentage: P1,578,000 ÷ P3,578,000 44.1%

Collections in 2008:

First payment:

Gross profit recognized – 2008: P1,912,800 x 44.1% = P843,600

If the cost recovery method is used, no revenue or income would be recognized, because the P2,000,000 collections are exactly offset by the P2,000,000 costs

Problem 7-9

2007

2008

P6,000,000 x 10% x 6/12

Problem 7-10

Present value of an ordinary annuity (P240,000 x 3.69590) 887,016.00

4 a P800,000 cash received from downpayment (P887,016.00 is recorded as unearned revenue from franchise fees)

b P800,000 cash received from downpayment

a None (P 800,000 is recorded as unearned revenue from Franchise fees)

MULTIPLE CHOICE

11 D P20,000,000 x (3,000,000/15,000,000) = P4,000,000

Less Total estimated cost:

Cost incurred to date P3,150,000 Est cost to complete 6,300,000 9,450,000

Total estimated cost (P4,650,000 + P10,850,000) 15,500,000 Total estimated loss – to be recognized in full P 500,000

Less Gross profit recognized in 2006

Gross profit percentage (1,200/12,000) 10%

GP recognized in prior years

24 B Contract price P100.00M

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