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
, iii
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
beenupdated.
• 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
incorporateprovisions 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
inthe 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
theTax 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 why financial management is different for construction companies than
formost other industries.
, • Understand that all managerial employees from the owner to the crew
forepersonplay a role in financial management of a construction company.
Instructional Hints
• Compare a construction company to a manufacturing plant. Emphasize the
differences between a construction company and a manufacturing plant,
particularly: construction companies build unique products and the equipment
isnot usually stationary at single location. These are the reasons a construction
company needs a job cost system and an equipment cost system.
Activities
• Invite a financial manager (for example, an accountant or general manager) from
aconstruction company to your class to discuss their role as a financial manager.
• Have each student interview a management employee for a construction
company.The interviews should include owners, project managers,
superintendents, and forepersons. Each student is to find out how the employee
contributes to the financial management of the company. Discuss their findings
in class.
Instruction Resources
• The figures from this chapter in electronic format and PowerPoint slides can
befound at the instructor’s website.
• Data on construction failures can be obtained from the Surety Information
Office(www.sio.org).
• Current data on construction company failures can be found at
http://www.census.gov/ces/dataproducts/bds/data_firm.html. The most useful
datacomes from reports that include the sector (e.g., Sector, Firm Age by Sector,
and Firm Size by Sector) because construction can be separated from other
industries.
Solutions to the Textbook Problems
1. They are: 1) ineffective financial management systems, 2) bank line of credits
constantly borrowed to the limits, 3) poor estimating and/or job cost
reporting,
4) poor project management, and 5) no comprehensive business plan.
2. Anyone who controls financial resources (cash, materials, labor, and equipment)
including: owners, general managers, project managers, estimators,
superintendents,and crew forepersons.
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
, iii
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
beenupdated.
• 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
incorporateprovisions 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
inthe 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
theTax 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 why financial management is different for construction companies than
formost other industries.
, • Understand that all managerial employees from the owner to the crew
forepersonplay a role in financial management of a construction company.
Instructional Hints
• Compare a construction company to a manufacturing plant. Emphasize the
differences between a construction company and a manufacturing plant,
particularly: construction companies build unique products and the equipment
isnot usually stationary at single location. These are the reasons a construction
company needs a job cost system and an equipment cost system.
Activities
• Invite a financial manager (for example, an accountant or general manager) from
aconstruction company to your class to discuss their role as a financial manager.
• Have each student interview a management employee for a construction
company.The interviews should include owners, project managers,
superintendents, and forepersons. Each student is to find out how the employee
contributes to the financial management of the company. Discuss their findings
in class.
Instruction Resources
• The figures from this chapter in electronic format and PowerPoint slides can
befound at the instructor’s website.
• Data on construction failures can be obtained from the Surety Information
Office(www.sio.org).
• Current data on construction company failures can be found at
http://www.census.gov/ces/dataproducts/bds/data_firm.html. The most useful
datacomes from reports that include the sector (e.g., Sector, Firm Age by Sector,
and Firm Size by Sector) because construction can be separated from other
industries.
Solutions to the Textbook Problems
1. They are: 1) ineffective financial management systems, 2) bank line of credits
constantly borrowed to the limits, 3) poor estimating and/or job cost
reporting,
4) poor project management, and 5) no comprehensive business plan.
2. Anyone who controls financial resources (cash, materials, labor, and equipment)
including: owners, general managers, project managers, estimators,
superintendents,and crew forepersons.
