61.Reese Construction Corporation contracted to construct a building for $1,500,000. Construction began in 2007 and was completed in 2008. Data relating to the contract are summarized below:

Year ended

December 31,

2007     2008

Costs incurred $600,000 $450,000

Estimated costs to complete 400,000 —

Reese uses the percentage-of-completion method as the basis for income recognition.  For the years ended December 31, 2007, and 2008, respectively, Reese should report gross profit of

a.$270,000 and $180,000.

b.$900,000 and $600,000.

c.$300,000 and $150,000.

d.$0 and $450,000.

62.Winsor Construction Company uses the percentage-of-completion method of accounting. In 2007, Winsor began work on a contract it had received which provided for a contract price of $15,000,000.  Other details follow:

2007

Costs incurred during the year $7,200,000

Estimated costs to complete as of December 31 4,800,000

Billings during the year 6,600,000

Collections during the year 3,900,000

What should be the gross profit recognized in 2007? a. $600,000

b.$7,800,000

c.$1,800,000

d.$3,000,000

Use the following information for questions 63 and 64.

In 2007, Crane Corporation began construction work under a three-year contract. The contract price is $2,400,000. Crane uses 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 statement presentations relating to this contract at December 31, 2007, follow:

Balance Sheet

Accounts receivable—construction contract billings $100,000

Construction in progress $300,000 Less contract billings   240,000

Costs and recognized profit in excess of billings 60,000

Income Statement

Income (before tax) on the contract recognized in 2007 $60,000

63.How much cash was collected in 2007 on this contract?

a.$100,000

b.$140,000

c.$20,000

d.$240,000

64.What was the initial estimated total income before tax on this contract?

a.$300,000

b.$320,000

c.$400,000

d.$480,000

65.Eaton Construction Co. uses the percentage-of-completion method. In 2007, Eaton began work on a contract for $3,300,000 and it was completed in 2008. Data on the costs are:

Year Ended December 31

2007       2008

Costs incurred $1,170,000 $840,000 Estimated costs to complete 780,000               —

For the years 2007 and 2008, Eaton should recognize gross profit of

2007        2008

a.$0 $1,290,000

b.$774,000 $516,000

c.$810,000 $480,000

d.$810,000 $1,290,000

Use the following information for questions 66 and 67.

Ramos, Inc. began work in 2007 on contract #3814, which provided for a contract price of $7,200,000.  Other details follow:

 

 

 

2007

2008

 

 

Costs incurred during the year

$1,200,000

$3,675,000

 

 

Estimated costs to complete, as of December 31

3,600,000

0

 

 

Billings during the year

1,350,000

5,400,000

 

 

Collections during the year

900,000

5,850,000

66.Assume that Ramos uses the percentage-of-completion method of accounting. The

portion of the total gross profit to be recognized as income in 2007 is a. $450,000.

b.$600,000.

c.$1,800,000.

d.$2,400,000.

67.Assume that Ramos uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2008 is a. $900,000.

b.$1,350,000.

c.$2,325,000.

d.$7,200,000.

Use the following information for questions 68 and 69.

Miley, Inc. began work in 2007 on a contract for $8,400,000. Other data are as follows:

2007       2008

Costs incurred to date $3,600,000 $5,600,000 Estimated costs to complete 2,400,000 — Billings to date 2,800,000 8,400,000

Collections to date 2,000,000 7,200,000

68.If Miley uses the percentage-of-completion method, the gross profit to be recognized in

2007 is

a.$1,440,000.

b.$1,600,000.

c.$2,160,000.

d.$2,400,000.

69.If Miley uses the completed-contract method, the gross profit to be recognized in 2008 is a. $1,360,000.

b.$2,800,000.

c.$1,400,000.

d.$5,600,000.

Use the following information for questions 70 and 71.

70.Parker Construction Co. uses the percentage-of-completion method. In 2007, Parker began work on a contract for $5,500,000; it was completed in 2008. The following cost data pertain to this contract:

Year Ended December 31

2007      2008

Cost incurred during the year $1,950,000 $1,400,000

Estimated costs to complete at the end of year 1,300,000 —

The amount of gross profit to be recognized on the income statement for the year ended December 31, 2008 is a. $800,000.

b.$860,000.

c.$900,000.

d.$2,150,000.

 

 

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