PROBLEM NO. 1 - White Corporation Nondepreciable:
Land, 1/1/05 2,500,000
Cash paid on purchase of land 10,000,000
Mortgage assumed on the land bought, including interest at 16% 16,000,000
Realtor’s commission 1,200,000
Legal fees, realty taxes and documentation expenses 200,000 Amount paid to relocate persons squatting on the property 400,000 Cost of tearing down an old building on the land 300,000 Amount recovered from the salvage of the building demolished (600,000)
Land, 12/31/05 30,000,000 1
Depreciable:
Land improvements
Balance, 1/1/05 560,000
Cost of fencing the property 440,000 1,000,000 2
Building
Balance, 1/1/05 3,600,000
Amount paid to a contractor for the building erected 8,000,000
Building permit fees 50,000
Excavation expenses 250,000
Architect’s fee 100,000 12,000,000 3
Machinery and equipment
Balance, 1/1/05 6,600,000
Invoice cost of machinery acquired 8,000,000 Freight, unloading, and delivery charges 240,000 Customs duties and other charges 560,000
1,600,000
17,000,000 4
Total depreciable PPE, 12/31/05 30,000,000 5
Allowances, hotel accommodations, etc., paid to foreign technicians during instillation and test run of machines
PROBLEM NO. 2 - Black Company
Entry made Should be entry Adjusting journal entry
a. Office equipment 400,000 Office equipment 392,000 Purchase disc. lost 8,000
Cash 400,000 Purchase disc. lost 8,000 * Office equipment 8,000
Cash 400,000
*(P400,000 x 2%)
b. Machinery 140,000 Machinery 128,000 FC/Interest exp 12,000
Cash 140,000 FC/Interest exp 12,000 Machinery 12,000
(entry made reconstructed from the Cash 140,000
depreciation information; P28,000 x 5)
Freight in 4,000 Machinery 4,000 Machinery 4,000
Cash 4,000 Cash 4,000 Freight in 4,000
Depreciation exp 28,000 Depreciation exp 26,400 Acc. Dep. 1,600
Acc. Dep. 28,000 Acc. Dep. 26,400 Depreciation exp 1,600
(140,000/5 ) [(128,000+4,000)/5]
c. Machinery 400,000 Machinery 360,000 Discount on BP 40,000
Bonds payable 400,000 Discount on BP 40,000 Machinery 40,000 Bonds payable 400,000
Depreciation exp 54,000 Depreciation exp 48,000 Acc. Dep. 6,000
Acc. Dep. 54,000 Acc. Dep. 48,000 Depreciation exp 6,000
[(400,000-40,000)/5 *9/12] [(36,000-4,000)/5 *9/12]
Interest exp 3,000 Interest exp 3,000
Discount on BP 3,000 Discount on BP 3,000 [(40,000/10)*9/12]
d. Machinery 140,000 Machinery 110,000 Allowance for DA 28,000
Accts receivable 140,000 Allowance for DA 28,000 Loss on exchange 2,000
Loss on exchange 2,000 Machinery 30,000 Accts receivable 140,000
Treasury stock 140,000 Treasury stock 110,000 Machinery 30,000
Machinery 140,000 Machinery 110,000 Treasury stock 30,000
e. Equipment 450,000 Equipment 500,000 Equipment 50,000
Investment in Tyler 450,000 Investment in Tyler 450,000 Gain on exchange 50,000 Gain on exchange 50,000
f. Machinery 20,000 Machinery-new 140,000 Machinery-new 120,000
Cash 20,000 Accumulated dep. 280,000 Accumulated dep. 280,000
Machinery-old 400,000 Machinery-old 400,000
Cash 20,000
g. Machinery-new 102,000 Machinery-new 90,000 Loss on trade-in 12,000
Cash 80,000 Loss on trade-in 12,000 Machinery-new 12,000
Machinery-old 22,000 Cash 80,000
Machinery-old 22,000
h. None Land 200,000 Land 200,000
Building 400,000 Building 400,000
APIC-donated capital 600,000 APIC-donated capital 600,000 Depreciation exp 4,000 Depreciation exp 4,000
Acc. Dep. 4,000 Acc. Dep. 4,000
[(P400,000/25)*3/12]
i. Building 4,000,000 Land 2,000,000 Land 2,000,000
Cash 4,000,000 Deferred income-govt grant 2,000,000 Deferred income-govt grant 2,000,000 Building 4,000,000
Cash 4,000,000
Depreciation exp 160,000 Depreciation exp 160,000
Acc. Dep. 160,000 Acc. Dep. 160,000
(P4,000,000/25) (P4,000,000/25)
Deferred income-govt g 80,000 Deferred income-govt g 80,000
Income from govt. grant 80,000 Income from govt. grant 80,000
(P2,000,000/25) (P2,000,000/25)
Government grants are "assistance by government in the form of transfers of resources to an enterprise in return for past or future compliance with certain conditions relating to the operating activities of the enterprise". Grants related to nondepreciable assets requiring fulfillment of certain conditions should be recognized as income over the periods which bear the cost of meeting the conditions.
Page 1 of 4 PROBLEM NO. 3 - Blue Corporation
1) Land [(10,000 shares x P120) +P98,000] 1,298,000
Land and building 1,098,000
Additional paid in capital 200,000
2) Land 60,000
Land and building 60,000
3) Organization expenses 9,500
Land 4,000
Building 1,500
Land and building 15,000
4) Building 700,000
Land and building 700,000
5) Building 600,000
Land and building 600,000
6) Insurance expense (26,000 x 1/2) 13,000
Prepaid insurance 13,000
Land and building 26,000
7) Building 200,000
Land and building 200,000
8) Retained earnings 500,000
Land and building 500,000
Adjusted balances
Land Building
AJE no. 1 1,298,000 AJE no. 3 1,500
AJE no. 2 60,000 AJE no. 4 700,000
AJE no. 3 4,000 AJE no. 5 600,000 AJE no. 7 200,000 1,362,000
1,501,500
9) Land and building 31,990
Depreciation expense 1,960
Accumulated depreciation 30,030
Should be depreciation (1,501,500 / 25 x 6/12) 30,030 Recorded depreciation 31,990 Overstatement in depreciation expense 1,960
Land and building account
Unadjusted balance 3,167,010 AJE no. 1 (1,098,000) AJE no. 2 (60,000) AJE no. 3 (15,000) AJE no. 4 (700,000) AJE no. 5 (600,000) AJE no. 6 (26,000) AJE no. 7 (200,000) AJE no. 8 (500,000) AJE no. 9 31,990
PROBLEM NO. 4 - Green Company
Adjusted bal. Orig. cost Months Depreciation Machine 1 - sold 8/31 - 90,000 remaining 5,625 Machine 2 - destroyed 12/1 - 90,000 11 20,625 Machine 3 - traded in 9/30 - 90,000 9 16,875 Machine 4 90,000 90,000 12 22,500 Machine 5 198,000 198,000 4 16,500 Machine 6 108,000 108,000 3 6,750 Machine 7 216,000 216,000 1 4,500 Machine 8 216,000 216,000 1 4,500 Total 828,000 97,875
PROBLEM NO. 5 - Red Company
Question No. 1 - B
Buildings (150% declining balance)
6,577,500
Balance, 1/1/05
6,577,500
Depreciation for 2005:
Book value, 1/1/05 (P30,000,000 - P6,577,500)
23,422,500
150% declining balance rate (1/25 x 150%)
6%
1,405,350
Accumulated dep - Buildings, 12/31/05
7,982,850
Question No. 2 - D
Machinery and Equipment (Straight line)
Balance, 1/1/05
6,250,000
Depreciation for 2005:
M & E balance, 1/1/05
22,500,000
Less machine destroyed by fire
575,000
Remainder of beginning balance
21,925,000
Depreciation rate (1/10 years)
10%
Depreciation on remainder of beginning bal.
2,192,500
Depreciation on machine destroyed by fire
(P575,000 x 10% x 3/12)
14,375
Depreciation on machine purchased on 7/1/05
[(P7,000,000+P125,000+P625,000) x 10% x 6/12]
387,500
2,594,375
Machine destroyed by fire (P575,000 x 5/10)
(287,500)
Accumulated dep - Machinery & Equip., 12/31/05
8,556,875
Question No. 3 - B
Delivery equipment (SYD)
Balance, 1/1/05
2,115,000
Depreciation for 2005:
Depreciation on 1/1/05 balance (see info (e))
450,000
Less depreciation on truck traded-in
(P450,000 x 2/10*)
90,000
Depreciation on remainder of beginning bal.
360,000
Depreciation on truck purchased on 1/2/05
(P600,000 x 4/10*)
240,000
600,000
Truck traded-in (P450,000 - P135,000)
(315,000)
Accumulated dep - Delivery Equip., 12/31/05
2,400,000
* SYD = (4+3+2+1) = 10
Question No. 4 - ALeasehold improvements (Straight line)
Depreciation for 2004 (P4,200,000 x 8/80*)
420,000
Remaining lease term (5/1/04 to 12/31/10)
80 months
Useful life (8 years x 12)
96 months
Shorter - remaining lease term
80 months
*
Question No. 5 - C
Machine destroyed by fire:
Amount recovered from insurance company
387,500
Less book value of machine:
Cost
575,000
Accumulated depreciation (see above)
(287,500)
287,500
Gain on machine destroyed by fire
100,000
Truck traded-in:
Trade-in value (P600,000 - P500,000)
100,000
Less book value of truck traded-in
135,000
Loss on truck traded-in
(35,000)
PROBLEM NO. 6 - Josef, Inc. Question No. 1 - B
Acquisition cost 10,400,000
Less residual value 800,000
Depletable cost 9,600,000
Total estimated reserves 8,000,000
Depletion rate 1.20
Tons mined 800,000
Depletion for 2005 960,000 Question No. 2 - D
Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 80%] 64,000 Depreciation - Machinery [(P1,600,000-P320,000/4] 320,000
Total 384,000
Question No. 3 - B
Depletion (see no. 1) 960,000
Direct labor 640,000
Depreciation (see no. 2) 384,000
Miscellaneous mining overhead 128,000
Total available for sale 2,112,000
Divide by tons mined 800,000
Cost per ton 2.64
Unsold tons (800,000 - 640,000) 160,000
Inventory, 12/31/05 422,400
Question No. 4 - A
Cost of sales (640,000 tons x P2.64) 1,689,600 Question No. 5 - C
Sales (640,000 x P4.4) 2,816,000
Less cost of sales (see no. 4) 1,689,600
Gross profit 1,126,400
Operating expenses (576,000)
Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 20%] (16,000)
Net income 534,400
Realized depletion (640,000 tons x P1.2) 768,000 Maximum amount that may be declared as dividends 1,302,400
PROBLEM NO. 7 - Pink Corporation Journal entries for 2005:
1/2 Organization expenses 233,000 Cash 233,000 1/15 Advertising expense 15,000 Cash 15,000 4/1 Patents 492,500 Cash 492,500 5/1 Licences (P300,000 x 2/3) 200,000 Trademark 100,000 Common stock (6,000 x P50) 300,000 7/1 Building 1,310,000 Cash 1,310,000
12/31 Research and Development expense 1,750,000
Cash 1,750,000
Question no. 1 - A
See journal entry for April 1.
Note: Cost of internally developed patent includes only the licensing and other related legal fees in securing the patent rights.
Question no. 2 - B
See journal entry for May 1. Question no. 3 - C
See journal entry for May 1. Question no. 4 - C Cost Patent 492,500 Licences 200,000 Trademark 100,000 792,500 Less amortization Patent (P492,500/6 x 9/12) 61,563 Licences (P200,000/6 x 8/12) 22,222 Trademark (P100,000/6 x 8/12) 11,111 94,896 Carrying value, 12/31/04 697,604 Question no. 5 - C
Organization expenses (Jan. 2 transaction) 233,000 Advertising expense (Jan. 15 transaction) 15,000 R and D expense (Dec. 31 transaction) 1,750,000
PROBLEM NO. 8 - Silver Corporation Question No. 1 - A Trademark* -Goodwill* -Customer list (P220,000/3) 73,333 Total amortization 73,333
*The useful life is indefinite, so no amortization expense is recognized. Question No. 2 - B
Trademark:
Carrying value 300,000
Recoverable amount (P10,000/0.06) 166,667 133,333 Goodwill*:
Carrying value of Hayo Manufacturing unit
(P2,700,000 + P1,500,000 - P1,800,000) 2,400,000 Recoverable amount (P250,000 x 12.0416) 3,010,400 -Customer list Carrying value (P220,000 - P73,333) 146,667 Recoverable amount: 2006: (P120,000 x 0.9434) 113,208 2007: (P80,000 x 0.8900) 71,200 184,408
-Total impairment loss 133,333
*Since goodwill does not generate cash flows independently from other assets or group of assets, the recoverable amount of goodwill as an individual asset cannot be
determined. Therefore, the recoverable amount is determined for the cash generating unit to which goodwill belongs.
Question No. 3 - C
Cost 300,000
Less impairment loss 133,333
Carrying value, 12/31/05 166,667 Question No. 4 - A
Since goodwill is not amortized and is not impaired as of 12/31/05, the carrying value is P1,500,000.
Question No. 5 - B
Cost 220,000
Less amortization for 2005 73,333 Carrying value, 12/31/05 146,667 PROBLEM NO. 9 1 B 2 B 11 D 3 D 12 B 4 A 13 A 5 C 14 A 6 A 15 D 7 A 16 A 8 D 9 D 10 D