Download Construction Accounting Practice Exam Guide: Expert Solutions and Focused Questions and more Exams Project Management in PDF only on Docsity!
CCIFP Practice Exam Guide: Expert Solutions and
Focused Questions for Guaranteed Success
The Project Management Team of ABC Company has informed the CFO that a project is running into trouble with respects to the budgeted costs for the work. They have informed the CFO that they expect the project to sustain a loss of 15%. The job is expected to be completed in 2 years. The company uses the percentage of completion method to recognize income. When should the company recognize the potential loss? - CORRECT ANS- - In full in the year the loss was determined Which of the following is a contract-related asset? - CORRECT ANS- - Costs and Estimated Earnings in Excess of Billings Which of the following is a contract-related liability? - CORRECT ANS- - Accrued Contract Costs What type of contract is used when one entity works under a single contract to provide both the design of the work and the performance of the construction services? - CORRECT ANS-
- Design-build contract What type of contracting method is also known as lump sum contract, and provides for the contractor's performance of all work to be performed under the contract for a stated price?
- CORRECT ANS- - Fixed price contract method What contracting method provides for reimbursement of allowable or otherwise defined costs incurred plus a fee for the contractor's services? - CORRECT ANS- - Cost-plus-fee contract method What contract method generally provides for payments to the contractor on the basis of direct labor hours at fixed hourly rates and cost of materials or other specified costs? - CORRECT ANS- - Time and material contract method
What contract method is used when a contractor is paid a specified price per each unit of output? - CORRECT ANS- - Unit price contract method The portion of total billing that is NOT required to be paid by the owner until certain conditions are met is known as... - CORRECT ANS- - Retention ABC Company hires a subcontractor to work on a project that will span over 5 years. The subcontract amount is $500,000 and is to be billed monthly to ABC Company. Retention of 10% is to be held until the subcontractor is 75% complete and the owner of the project has approved the release of retention. How should ABC Company record the subcontractor retention on its records in the first year of the project? - CORRECT ANS- - Current liability ABC Company is preparing their monthly billing for the XYZ Owner Development project and the following are the details of the monthly application for payment: Total Gross Base Contract Billing $1,000,000 inclusive of $200,000 in stored material billing, and gross change order billing of $100,000. The retention amount is 10%. What is the correct journal entry to record the current month's application for payment? - CORRECT ANS- - DR: Contract Receivable - $990, DR: Retention Receivable - $110, CR: Contract Revenue - $1,100, 000 Step-by-Step Solution
- Calculate the Total Billing Amount: Gross Base Contract Billing: $1,000, Gross Change Order Billing: $100, Total Gross Billing = $1,000,000 + $100,000 = $1,100,
- Calculate the Retention Amount:
ABC Company sold a crane to XYZ Company for $100,000. The crane originally cost $300,000, and the company had accumulated depreciation on the equipment totaling $150,000. What is the entry that ABC Company would make to remove the asset from its books? - CORRECT ANS- - DR. Cash $100, DR. Accumulated Depreciation $150, DR. Loss on Sale of Equipment $50, CR. Fixed Asset Equipment $300, ABC Company had to hire a special rigger to offload the equipment at a cost of $8,000. In addition to the rigger, they also had to procure additional property insurance which cost them $1,500.What effect will these additional costs have on the book value of the equipment? - CORRECT ANS- - Increase of $8,000 to the Book Value ABC Company enters into a purchase order to purchase new construction equipment from XYZ Company. The equipment has a useful life of 5 years. The details of the purchase order are as follows: Equipment Cost: $500, Freight Costs: $5, Sales Tax: $35, The company also signed a maintenance agreement for 5 years which will be billed separately at the rate of $10,000 plus sales tax of $700 per year. The company uses straight-line depreciation for its financial statements and uses a half- year convention. Question: What is the amount of depreciation that the company will record in Year 1? - CORRECT ANS- - $54,
Which are external users of construction financial reports? - CORRECT ANS- - Bankers, Sureties, and Vendors ABC Company and XYZ Company enter into a Joint Venture Agreement. ABC Company contributes $200,000 in cash to the Joint Venture, and XYZ Company contributes $25, in cash and equipment with a fair market value of $175,000. The depreciated cost of the equipment being contributed is $100,000. What is the amount contributed by each of the venture partners? - CORRECT ANS- - Equity - ABC Company $200,000, Equity - XYZ Company $200, ABC Company holds a 60% ownership in AXY Joint Venture. Which method of accounting is required for reporting the transactions of the joint venture? - CORRECT ANS- - Consolidation Method XYZ Company has a 10% ownership interest in a Joint Venture with ABC Company and BCS Company. ABC Company holds a 75% ownership interest and BCS holds a 15% ownership interest in the Joint Venture.What accounting method would XYZ & BCS Company use for joint venture transactions? - CORRECT ANS- - Cost Method Which of the following is necessary for a company to use the percentage of completion method? - CORRECT ANS- - Ability to reasonably estimate costs, revenues, and job progress Which accounting method provides for a better matching of revenues to costs? - CORRECT ANS- - Percentage of Completion A construction company should record interest rate swaps purchased for business purposes using which method of valuation? - CORRECT ANS- - Fair Market Value In the Construction industry, a profit center is normally considered to be... - CORRECT ANS- - Each individual construction contract
XYZ Company entered into a 3-year contract to construct a new hospital facility. The contract amount is $100,000,000 with an estimated cost amount of $60,000,000. The entire project is expected to take 10,000,000 labor hours. Below are the respective costs and labor hours incurred for each year of the project: Year 1 Labor Hours Incurred: 2,000,000Costs Incurred: $25,000, Year 2 Labor Hours Incurred: 6,700,000Costs Incurred: $20,000, Year 3 Labor Hours Incurred: 1,300,000Costs Incurred: $15,000, Question: What would be the total cumulative revenue to be recognized at the end of Year 2 using the cost-to-cost method? - CORRECT ANS- - $75,000, Step-by-Step Calculation:
- Calculate the Total Costs Incurred by the End of Year 2: Year 1 Costs: $25,000, Year 2 Costs: $20,000, Total Costs Incurred by End of Year 2 = $25,000,000 + $20,000,000 = $45,000,
- Calculate the Percentage of Completion by the End of Year 2: Estimated Total Cost of the Project: $60,000, Percentage of Completion = (Total Costs Incurred by End of Year 2) / (Estimated Total Cost) Percentage of Completion = $45,000,000 / $60,000,000 = 0.75 or 75%
- Calculate the Cumulative Revenue to be Recognized by the End of Year 2:
Contract Amount: $100,000, Revenue to Recognize by End of Year 2 = Contract Amount × Percentage of Completion Revenue to Recognize by End of Year 2 = $100,000,000 × 0.75 = $75,000, XYZ Company entered into a 3-year contract to construct a new hospital facility. The contract amount is $100,000,000, with an estimated cost amount of $60,000,000. The entire project is expected to take 10,000,000 labor hours. Below are the respective costs and labor hours incurred for each year of the project: Labor Hours Incurred Year 1: 2,000, Year 2: 6,700, Year 3: 1,300, Costs Incurred Year 1: $25,000, Year 2: $20,000, Year 3: $15,000, Question: What would be the total cumulative revenue to be recognized at the end of Year 2 using the efforts method? - CORRECT ANS- - Answer: $87,000, To calculate revenue recognition using the efforts method, we consider the proportion of labor hours used up to the end of Year 2 in relation to the total estimated labor hours for the project.
- Total Labor Hours Estimated for the Project: 10,000,
- Cumulative Labor Hours at the End of Year 2:
- Calculate Revenue to be Recognized: Revenue Recognized = Percentage of Completion × Contract Amount = 0.72 × 5,458,500 = 3,930,
- Determine Adjustment Needed: Adjustment=Revenue Recognized−Billings to Date =3,930,120−2,750,000=1, A contractor may make a claim against an owner in which of the following circumstances? - CORRECT ANS- - Erroneous specifications Methods of measuring the extent of progress toward completion selected for percentage of completion include: - CORRECT ANS- - Cost-to-Cost Method, Efforts Method, Output Method A reason the Completed Contract Method can be used... - CORRECT ANS- - When the contractor has many short-term projects Normally, the completed contract method is only used when ___________ associated with the contract preclude the contractor's ability to reasonably estimate contract revenues, costs, or gross profit. - CORRECT ANS- - Inherent risks Under the Completed Contract Method of accounting, how are General and Administrative Costs realized on the income statement? - CORRECT ANS- - Expensed and recognized in the year incurred ABC Company uses the Completed Contract Method for the purposes of accounting for their long-term contracts. The company entered into a 3-year contract to construct a 400,000 square foot manufacturing plant and warehouse. The total contract price for the
work is $40,000,000, and the estimated costs for the project are $25,000,000. The company incurred General and Administrative Costs each year of $500,000. Below is the financial information for each of the 3 years of the project: Year 1 Contract Billings: $10,000, Contract Costs: $2,000, General & Administrative Costs: $500, Year 2 Contract Billings: $15,000, Contract Costs: $15,000, General & Administrative Costs: $500, Year 3 Contract Billings: $15,000, Contract Costs: $8,000, General & Administrative Costs: $500, Question: What would be the net income (loss) for each year? - CORRECT ANS- - Year 1: $(500,000) Year 2: $(500,000) Year 3: $14,500, ABC Company entered into a two-year contract to construct a 500,000 square foot office tower. The total price of the contract is $50,000,000 and the project is estimated to cost $40,000,000. The company's annual General and Administrative Costs are $1,000,000. At the end of year 1 the company had billed $10,000,000 and had incurred $6,000,000 in
- Calculate the Allocable Overhead to the Contract: Allocable Overhead = Contract Billings × Overhead Allocation Rate = 10,000,000 × 0.03 = 300,
- Calculate the Daily Overhead Rate: Since the contract duration is 1 year (365 days): Daily Overhead Rate = Allocable Overhead / Contract Duration = 300,000 / 365 ≈ 821.
- Calculate the Overhead Due to Delay: Overhead Due to Delay = Daily Overhead Rate × Delay Days = 821.92 × 60 ≈ 49, Overhead Due to Delay = Daily Overhead Rate × Delay Days = 821.92 × 60 ≈ 49, A delay caused by a strike or act of God is typically considered to be what type of delay? - CORRECT ANS- - Excusable non-compensable delay A contractor had a contract to build an army base for the U.S. Army. Under which circumstances would the contract termination be considered a termination for convenience? - CORRECT ANS- - Army did not receive the funding. The Federal Government utilizes two major types of government contracts, they are... - CORRECT ANS- - Fixed-Price and cost-reimbursable A contractor has a contract with a school district to construct an addition to a grade school building. The construction is to take place during summer when school is out. Due to contractor-caused delays, the construction is not complete by the first day of school.
Which of the following contract clauses would be most relevant to this situation? - CORRECT ANS- - Liquidated damages clause Which of the following contract provisions is exculpatory? - CORRECT ANS- - No damages for delay clause A Japanese car company contracts with a New York-based construction company to build a new car manufacturing facility in Michigan. The contract is based on the 2007 AIA Document A201. Based on the standard AIA language, which of the following jurisdiction's laws will apply in this case? - CORRECT ANS- - Michigan Hold harmless clauses are what type of risk management technique? - CORRECT ANS- - Contractual risk transfer Which of the following alternatives to litigation are typically binding? - CORRECT ANS- - Arbitration The Spearin doctrine addresses which of the following... - CORRECT ANS- - The owner's implied warranty of plans and specifications for the project An external, regulatory, political and social factor that affects a contractor may include... - CORRECT ANS- - Governmental oversight activities The components of "SWOT" or situation analysis include? - CORRECT ANS- - Strengths, Weaknesses, Opportunities, and Threats Which of the following examples is NOT an external limitation when putting together the firm's annual operating budget? - CORRECT ANS- - Working capital
- Given that the starting salary is $50,000: 0.9M = 50,
- Solving for M: M = 50,000 / 0.9 = 55,555. Rounding to the nearest option, the midpoint is approximately $55,000. Which of the following laws and regulations address overtime pay? - CORRECT ANS- - The Davis-Bacon Act Which of the following types of retirement plans are defined benefit plans? - CORRECT ANS- - Cash Balance Plan When implementing a document imaging or paperless environment, routing refers to... - CORRECT ANS- - Sending the document to a person or group of people What is generally referred to when a party guarantees the performance of another? - CORRECT ANS- - Surety A loss or claim under a surety bond is generally triggered by... - CORRECT ANS- - A default of the contract On a typical construction project whereby the owner has requested performance and payment bonds from the general contractor, the owner is referred to as the... - CORRECT ANS- - Obligee Which federal act mandated the use of surety bonds whenever tax dollars are at risk on public projects... - CORRECT ANS- - Miller Act
Insurance deductibles are an example of what type of risk management technique? - CORRECT ANS- - Risk retention A contractor purchases a commercial general liability insurance policy with:
- A general aggregate limit of $5 million
- An each occurrence limit of $2 million
- A medical expense limit of $7,500 per person
- A "damage to premises rented to you" limit of $150, There is an accident at the construction site resulting in:
- $3 million in settlements for bodily injury and property damage claims
- Four $10,000 medical expenses Question: What would be the maximum the policy would pay for this accident? - CORRECT ANS- - $2,000, A contractor purchases a commercial general liability insurance policy with a general aggregate limit of $5 million, an each occurrence limit of $2 million, a medical expense limit of $7,500 each person, and a "damage to premises rented to you" limit of $150,000. There is an accident at the construction site resulting in $3 million in settlements for bodily injury and property damage claims, plus four $10,000 medical expenses. How much is left to pay future claims during the remaining policy period? - CORRECT ANS- - $3,000, Solution The accident results in a $3 million claim, which exceeds the per-occurrence limit of $ million. So, only $2 million of this will apply to the aggregate limit. The medical expenses are four instances of $10,000, but only up to $7,500 per person is covered, totaling $30,000. Total deducted from the aggregate limit:
Which of the following would meet the definition of a "residential" contract for tax purposes? - CORRECT ANS- - A college dormitory For which of the following entities are distributions to owners generally taxable? - CORRECT ANS- - C corporations Which of the following is true about the Section 179 election? - CORRECT ANS- - It begins to phase out if more than a certain amount of qualifying property is purchased in a single tax year For income tax purposes under the 10-Percent Method, a contractor using the Percentage- of-completion method (PCM), may: - CORRECT ANS- - Defer revenue recognition for contracts that are less than 10 percent complete at the end of a tax year Under the Completed Contract Method, a contract may be considered complete for tax purposes if, use of the subject matter of the contract by the customer for its intended purpose and... - CORRECT ANS- - 95 percent of contract costs have been incurred Which of the following scenarios may result in a contractor likely owing look-back interest?
- CORRECT ANS- - A contractor finishes a long-term contract early, resulting in a higher profit than originally projected in the prior year. Generally, when are the cost of materials included in contract costs and, therefore, reflected as part of the cost incurred portion of costs in excess or billings in excess? - CORRECT ANS- - When they are bought for a specific job An unbalanced item results from the conversion of the contractor's day-to-day accounting records, which reflect actual billings and costs incurred with what income recognition method? - CORRECT ANS- - Percentage-of-completion
Backlog information to be disclosed in the financial statements footnotes of a contractor's include: - CORRECT ANS- - The remaining contract revenue on contracts-in-progress at year end, signed contracts not started at year end, letters of intent and the amount of contracts awarded between the year end and the date of the auditor's The length of a contractor's operation cycle determines what is considered a current asset or current liability for their classified balance sheet. It has become common practice in the construction industry to classify all contract-related assets and liabilities as current based on what measurement? - CORRECT ANS- - Average length of their contracts Which of the following is a typical general footnote disclosure in the financial statements of a contractor? - CORRECT ANS- - Description of the basic methods of accounting What is the accepted practice for reporting a change in a contract's estimated cost or revenue? - CORRECT ANS- - Cumulative catch-up method Which of the following best describes working capital? - CORRECT ANS- - The amount that current assets exceeds current liabilities Back charges generally arise out of situations in which work should have been performed, or costs should have been incurred by one party but were incurred by another. How should back charges to a subcontractor be recorded by the general contractor? - CORRECT ANS- - DR. Receivable subcontractor CR. Subcontractor costs For years beginning after what date does the new revenue recognition standard become effective for private entities? - CORRECT ANS- - December 15, 2018 Cash Management can be defined as... - CORRECT ANS- - Organizing, planning, and controlling the collection, investment, and disbursement of cash
