CCIFP Practice Exam Questions with Correct
Answers
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?
In full in the year the loss was determined
Which of the following is a contract-related asset?
Costs and Estimated Earnings in Excess of Billings
Which of the following is a contract-related liability?
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?
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?
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?
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?
Time and material contract method
What contract method is used when a contractor is paid a specified price per each unit
of output?
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...
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?
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?
DR: Contract Receivable - $990,000
DR: Retention Receivable - $110,000
CR: Contract Revenue - $1,100,000
, Step-by-Step Solution
1. Calculate the Total Billing Amount:
Gross Base Contract Billing: $1,000,000
Gross Change Order Billing: $100,000
Total Gross Billing = $1,000,000 + $100,000 = $1,100,000
2. Calculate the Retention Amount:
Retention Amount = 10% of Total Gross Billing
Retention = $1,100,000 × 10% = $110,000
3. Calculate the Contract Receivable:
Contract Receivable = Total Gross Billing - Retention
Contract Receivable = $1,100,000 - $110,000 = $990,000
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: $500,000
- Freight Costs: $5,000
- Sales Tax: $35,000
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.
Answers
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?
In full in the year the loss was determined
Which of the following is a contract-related asset?
Costs and Estimated Earnings in Excess of Billings
Which of the following is a contract-related liability?
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?
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?
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?
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?
Time and material contract method
What contract method is used when a contractor is paid a specified price per each unit
of output?
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...
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?
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?
DR: Contract Receivable - $990,000
DR: Retention Receivable - $110,000
CR: Contract Revenue - $1,100,000
, Step-by-Step Solution
1. Calculate the Total Billing Amount:
Gross Base Contract Billing: $1,000,000
Gross Change Order Billing: $100,000
Total Gross Billing = $1,000,000 + $100,000 = $1,100,000
2. Calculate the Retention Amount:
Retention Amount = 10% of Total Gross Billing
Retention = $1,100,000 × 10% = $110,000
3. Calculate the Contract Receivable:
Contract Receivable = Total Gross Billing - Retention
Contract Receivable = $1,100,000 - $110,000 = $990,000
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: $500,000
- Freight Costs: $5,000
- Sales Tax: $35,000
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.
