Reference no: EM132945098

1st Centro Realty Corporation entered into a fixed price contract with Camela Homes on July 1, 2018 to construct a medium rise condominium. At that time, 1st Centro Realty Corporation estimated that it would take between 2 to 3 years to complete the project. The total contract price for construction of the building is P4,500,000. 1st Centro accounts for this contract under the percentage of completion method. The building was deemed substantially completed on December 31, 2020.

Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract and accumulated billings under the contract were as follows:

2018
% of completion 30%
Contract costs incurred 1,140,000
Est. costs to complete 2,660,000
Progress billings 1,600,000

2019
% of completion 60%
Contract costs incurred 2,820,000
Est. costs to complete 1,880,000
Progress billings 2,700,000

2020
% of completion 100%
Contract costs incurred 4,800,000
Est. costs to complete 0
Progress billings 4,800,000

Problem 1. The amount of (1) Contract Revenue, (2) Cost of construction, (3) Gross Profit to appear in the income statement for the period ended December 31, 2020 is:

a. 1,350,000, 1,680,000, (330,000)
b. 1,350,000, 1,760,000, (410,000)
c. 2,700,000, 2,820,000, (120,000)
d. 1,880,000, 1,980,000, (100,000)

Problem 2. The balance of the Contract Asset account on December 31, 2020 is:

a. P3.960,000
b. P4,500,000 or zero
c. 4,170,000
d. P2,700,000