SOLUTION MANUAL
Construction Accounting and Financial Management,
4th Edition Steven J. Peterson
Chapters 1 - 18, Complete Newest Version
, CONTENTS
New to the Fourth Edition 1
Chapter 1: Construction Financial Management 2
Chapter 2: Construction Accounting Systems 4
Chapter 3: Accounting Transactions 7
Chapter 4: More Construction Accounting 23
Chapter 5: Depreciation 34
Chapter 6: Analysis of Financial Statements 50
Chapter 7: Managing Costs 58
Chapter 8: Determining Labor Burden 62
Chapter 9: Managing General Overhead Costs 65
Chapter 10: Setting Profit Margins for Bidding 67
Chapter 11: Profit Center Analysis 70
Chapter 12: Cash Flows For Construction Projects 75
Chapter 13: Projecting Income Taxes 87
Chapter 14: Cash Flows for a Construction Company 91
Chapter 15: Time Value of Money 93
Chapter 16: Financing a Company’s Financial Needs 99
Chapter 17: Making Financial Decisions 111
Chapter 18: Income Taxes and Financial Decisions 130
, New to the Fourth Edition
The major changes to the fourth edition include the following
• The business failure rate for construction companies in Chapter 1
have been updated.
• Sections on cost segregation and bonus depreciation have been added to
Chapter 5.
• The discussion of typical median ratios in Chapter 6 has been updated.
• A section on the monitoring and controlling process has been added to
Chapter 7.
• A section on managing design-build costs has been added to Chapter 7.
• The wages, social security, and Medicare costs were updated in
Chapters 8, 9, and 14.
• A weekly cash flow problem has been added to Chapter 12.
• The income tax regulations in Chapter 13 have been updated to
incorporate provisions of The Tax Cuts and Jobs Act passed in
December 2017.
• The project cash flows used to develop an annual cash flow for a
construction company have been expanded to cover the entire project
(including work done in the prior year) and the calculation of the
underbillings/overbillings has been included in Chapter 14.
• The effects of taxes on decision has been updated in Chapter 18 to
incorporate the Tax Cuts and Jobs Act.
The Instructor’s Manual includes a list of learning objectives, instructional
hints, suggested activities, and resources for each chapter. Files for the
figures and tables in the textbook are found on the instructor’s website. It is
my hope that these resources will make it easier for course instructors to
teach the material in a meaningful manner. Because the courses that use this
textbook are quite diverse, it is impossible to organize the chapters into one
best order. Each instructor should consider his or her individual program and
determine which chapters need to be taught and in what order.
Best wishes,
Steven J. Peterson, MBA, PE
Chapter 1: Construction Financial Management
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain why financial management is so important to a construction
, company.
• Explain RD!why RD!financial RD!management RD! is RD!different RD!for
RD!construction RD!companies RD!than RD!forRDm ! ost RD! other RD!industries.
• Understand RD!that RD!all RD!managerial RD!employees RD!from RD!the RD!owner
RD!to RD!the RD!crew RD!forepersonRD!play RD!a RD!role RD! in RD!financial
RD!management RD!of RD!a RD!construction RD!company.
Instructional RD!Hints
• Compare RD!a RD!construction RD!company RD!to RD!a RD!manufacturing
RD!plant. RD!Emphasize RD!the RD!differences RD!between RD!a RD!construction
RD!company RD!and RD!a RD!manufacturing RD!plant, RD!particularly:
RD!construction RD!companies RD!build RD!unique RD!products RD!and RD!the
RD!equipment RD!isRDn ! ot RD!usually RD!stationary RD!at RD!single RD!location.
RD!These RD!are RD!the RD!reasons RD!a RD!construction RD!company RD!needs RD!a
RD! job RD!cost RD!system RD!and RD!an RD!equipment RD!cost RD!system.
Activities
• Invite RD!a RD!financial RD!manager RD!(for RD!example, RD!an RD!accountant RD!or
RD!general RD!manager) RD!from RD!aRD!construction RD!company RD!to RD! your
RD!class RD!to RD! discuss RD!their RD! role RD!as RD!a RD! financial RD!manager.
• Have RD!each RD!student RD!interview RD!a RD!management RD!employee RD!for
RD!a RD!construction RD!company.RDT ! he RD!interviews RD!should RD!include
RD!owners, RD!project RD!managers, RD!superintendents, RD!and RD!forepersons.
RD!Each RD!student RD!is RD!to RD!find RD!out RD!how RD!the RD!employee
RD!contributes RD!to RD!the RD!financial RD!management RD!of RD!the RD!company.
RD!Discuss RD!their RD! findings RD!in RD!class.
Instruction RD!Resources
• The RD!figures RD!from RD!this RD!chapter RD!in RD!electronic RD!format RD!and
RD!PowerPoint RD!slides RD!can RD!beRD!found RD!at RD!the RD!instructor’s
RD!website.
• Data RD!on RD!construction RD!failures RD!can RD!be RD!obtained RD!from RD!the
RD! Surety RD!Information RD!OfficeRD!(www.sio.org).
• Current RD!data RD!on RD!construction RD!company RD!failures RD!can RD!be
RD!found RD!at
RD!http://www.census.gov/ces/dataproducts/bds/data_firm.html. RD!The
RD!most RD!useful RD!dataRD!comes RD!from RD!reports RD!that RD!include RD!the
RD!sector RD!(e.g., RD!Sector, RD!Firm RD!Age RD!by RD!Sector, RD!and RD!Firm RD!Size
RD!by RD!Sector) RD!because RD!construction RD!can RD!be RD!separated RD!from
RD!other RD! industries.
Construction Accounting and Financial Management,
4th Edition Steven J. Peterson
Chapters 1 - 18, Complete Newest Version
, CONTENTS
New to the Fourth Edition 1
Chapter 1: Construction Financial Management 2
Chapter 2: Construction Accounting Systems 4
Chapter 3: Accounting Transactions 7
Chapter 4: More Construction Accounting 23
Chapter 5: Depreciation 34
Chapter 6: Analysis of Financial Statements 50
Chapter 7: Managing Costs 58
Chapter 8: Determining Labor Burden 62
Chapter 9: Managing General Overhead Costs 65
Chapter 10: Setting Profit Margins for Bidding 67
Chapter 11: Profit Center Analysis 70
Chapter 12: Cash Flows For Construction Projects 75
Chapter 13: Projecting Income Taxes 87
Chapter 14: Cash Flows for a Construction Company 91
Chapter 15: Time Value of Money 93
Chapter 16: Financing a Company’s Financial Needs 99
Chapter 17: Making Financial Decisions 111
Chapter 18: Income Taxes and Financial Decisions 130
, New to the Fourth Edition
The major changes to the fourth edition include the following
• The business failure rate for construction companies in Chapter 1
have been updated.
• Sections on cost segregation and bonus depreciation have been added to
Chapter 5.
• The discussion of typical median ratios in Chapter 6 has been updated.
• A section on the monitoring and controlling process has been added to
Chapter 7.
• A section on managing design-build costs has been added to Chapter 7.
• The wages, social security, and Medicare costs were updated in
Chapters 8, 9, and 14.
• A weekly cash flow problem has been added to Chapter 12.
• The income tax regulations in Chapter 13 have been updated to
incorporate provisions of The Tax Cuts and Jobs Act passed in
December 2017.
• The project cash flows used to develop an annual cash flow for a
construction company have been expanded to cover the entire project
(including work done in the prior year) and the calculation of the
underbillings/overbillings has been included in Chapter 14.
• The effects of taxes on decision has been updated in Chapter 18 to
incorporate the Tax Cuts and Jobs Act.
The Instructor’s Manual includes a list of learning objectives, instructional
hints, suggested activities, and resources for each chapter. Files for the
figures and tables in the textbook are found on the instructor’s website. It is
my hope that these resources will make it easier for course instructors to
teach the material in a meaningful manner. Because the courses that use this
textbook are quite diverse, it is impossible to organize the chapters into one
best order. Each instructor should consider his or her individual program and
determine which chapters need to be taught and in what order.
Best wishes,
Steven J. Peterson, MBA, PE
Chapter 1: Construction Financial Management
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain why financial management is so important to a construction
, company.
• Explain RD!why RD!financial RD!management RD! is RD!different RD!for
RD!construction RD!companies RD!than RD!forRDm ! ost RD! other RD!industries.
• Understand RD!that RD!all RD!managerial RD!employees RD!from RD!the RD!owner
RD!to RD!the RD!crew RD!forepersonRD!play RD!a RD!role RD! in RD!financial
RD!management RD!of RD!a RD!construction RD!company.
Instructional RD!Hints
• Compare RD!a RD!construction RD!company RD!to RD!a RD!manufacturing
RD!plant. RD!Emphasize RD!the RD!differences RD!between RD!a RD!construction
RD!company RD!and RD!a RD!manufacturing RD!plant, RD!particularly:
RD!construction RD!companies RD!build RD!unique RD!products RD!and RD!the
RD!equipment RD!isRDn ! ot RD!usually RD!stationary RD!at RD!single RD!location.
RD!These RD!are RD!the RD!reasons RD!a RD!construction RD!company RD!needs RD!a
RD! job RD!cost RD!system RD!and RD!an RD!equipment RD!cost RD!system.
Activities
• Invite RD!a RD!financial RD!manager RD!(for RD!example, RD!an RD!accountant RD!or
RD!general RD!manager) RD!from RD!aRD!construction RD!company RD!to RD! your
RD!class RD!to RD! discuss RD!their RD! role RD!as RD!a RD! financial RD!manager.
• Have RD!each RD!student RD!interview RD!a RD!management RD!employee RD!for
RD!a RD!construction RD!company.RDT ! he RD!interviews RD!should RD!include
RD!owners, RD!project RD!managers, RD!superintendents, RD!and RD!forepersons.
RD!Each RD!student RD!is RD!to RD!find RD!out RD!how RD!the RD!employee
RD!contributes RD!to RD!the RD!financial RD!management RD!of RD!the RD!company.
RD!Discuss RD!their RD! findings RD!in RD!class.
Instruction RD!Resources
• The RD!figures RD!from RD!this RD!chapter RD!in RD!electronic RD!format RD!and
RD!PowerPoint RD!slides RD!can RD!beRD!found RD!at RD!the RD!instructor’s
RD!website.
• Data RD!on RD!construction RD!failures RD!can RD!be RD!obtained RD!from RD!the
RD! Surety RD!Information RD!OfficeRD!(www.sio.org).
• Current RD!data RD!on RD!construction RD!company RD!failures RD!can RD!be
RD!found RD!at
RD!http://www.census.gov/ces/dataproducts/bds/data_firm.html. RD!The
RD!most RD!useful RD!dataRD!comes RD!from RD!reports RD!that RD!include RD!the
RD!sector RD!(e.g., RD!Sector, RD!Firm RD!Age RD!by RD!Sector, RD!and RD!Firm RD!Size
RD!by RD!Sector) RD!because RD!construction RD!can RD!be RD!separated RD!from
RD!other RD! industries.
