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   incurred	P  750,000	P2,700,000	P  630,000
Estimated costs to   complete	3,000,000	862,500	--
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   12/31/09 ................................	960,000
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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