Reference no: EM132821629

In 20x5, Fargo Corporation began construction work under a three-year contract. The contract price is P4,800,000. Fargo uses the percentage-of-completion (over time) 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, 20x5, follow:

Accounts receivable-construction contract billings P200,000

Construction in progress P600,000

Less contract billings 480,000

Costs and recognized profit in excess of billings 120,000

Income Statement

Income (before tax) on the contract recognized in 20x5 P120,000

Problem 1: How much cash was collected in 20x5 on this contract

a. P 40,000

b. P200,000

c. P280,000

d. P480,000

Problem 2: What was the initial estimated total income before tax on this contract?

a. P600,000

b. P640,000

c. P800,000

d. P960,000