empleo chapter 7 - non-current operating assets

Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

MULTIPLE CHOICE - THEORIES

1. B 2. B 3. A 4. B 5. D 6. A 7. A 8. C 9. D 10. A

Problem 1 (Pine Company)

Correct cost Recorded Cost Difference Land 25.8M x 8.4/28 P7,740,000 P7,000,000 P 740,000 Building 25.8M x 14/28 12,900,000 9,000,000 3,900,000 Equipment 25.8M x 5.6/28 5,160,000 4,000,000 1,160,000 Adjusting Entries: 1. Land 740,000 Building 3,900,000 Equipment 1,160,000 Other Operating Expenses 5,000,000 Salaries and Commission Expense 800,000 2. Depreciation Expense – Building 130,000

Depreciation Expense – Equipment 77,333 Accumulated Depreciation – Building 116,667 Accumulated Depreciation – Equipment 77,333 5% x 3,900,000 x 8/1 2 = P130,000 10% x 1,160,000 x 8/12 = 77,333 Problem 2 (Gay Company)

Discount on Notes Payable (5% x 850,000) 42,500 Equipment 42,500 Problem 3 Lakeside Company

a. Machinery Machinery Tools Raw materials used in construction P176,000 – 4,000 P172,000 Labor 50,000 Cost of installation 10,000 Materials spoiled in trial runs 5,000 Incremental overhead due to machine construction 25,000 Decommissioning cost 40,000 x .56447 22,579 Purchase of machine tools P15,000 Correct Cost P284,579 P15,000 b. Adjusting entries: Machinery 1,579 Loss on Disposal of Old Machine 3,000 Purchase Discounts 4,000 Profit on Construction 24,000 Machinery Tools 15,000 Accumulated Depreciation – Machinery (old) 120,000 Factory Overhead Control 25,000 Provision for Machine Dismantling 22,579 Machinery (old) 120,000


Depreciation Expense – Machinery 158 Accumulated Depreciation – Machinery 158 (284,579 x 10%) – 28,300 = 158 Problem 4 Emem Corporation

Land Building Others Organization Fees P50,000 Org’n Exp. Land site and old building P8,150,000 Corporate organization costs 30,000 Org’n Exp Title clearance fees 25,000 Cost of razing old building 220,000 Sale of scrap ( 25,000) Salaries 300,000 Salaries Exp Stock bonus to corporate promoters 100,000 Org’n Exp. (or –

APIC) Real estate tax 25,000 Taxes Expense Cost of construction P18,000,000 Total correct cost P8,370,000 P18,000,000

Adjusting Entries Land 8,370,000 Building 18,000,000 Organization Expenses 180,000 Taxes Expense 25,000 Miscellaneous Revenues 25,000 Administrative Salaries 300,000 Land, Buildings and Equipment 26,900,000

Problem 5 Electro Corporation

Correct cost: Down payment P50,000 PV of future payments P100,000 x 3.6048 360,480 Total cost P410,480 Correct Depreciation 410,480 / 15 x ½ P13,683 Adjusting Entries: Discount on Notes Payable (500,000 – 360,480) 139,520 Machine 139,520 Interest Expense 36,048 Discount on Notes Payable 36,048 360,480 x 12% x 10/12 Accumulated Depreciation 4,650 Depreciation Expense 4,650 13,683 – 18,333


Problem 6 Flames Company

Accumulated Depreciation – Machine (40,000/10 x 5) 20,000 Loss on Replacement of Machine Parts 20,000 Machinery 40,000 Machinery 50,000 Repairs Expense 50,000 Accumulated Depreciation 7,000 Depreciation Expense 7,000 Cost P200,000 Removed part ( 40,000) Replacement 50,000 Revised gross cost P210,000 Accumulated depreciation, 12/31/11 200,000/10 x 5 100,000 Removed accumulated depreciation ( 20,000) (80,000)

Carrying value after overhaul P130,000

2012 depreciation 130000/(10-5+5) P 13,000 Recorded depreciaition 20,000 Adjustment P 7,000 Problem 7 Silver Company

Equipment Accumulated Depreciation Balance, 1/01/12 P 50,000 P 28,000 6/01/12 Purchase of Machine 14 P15,000 + 3,500 18,500 09/01/12 Sold Machine 8 ( 8,000) 8,000 x 10% x 4 ( 3,200) Depreciation for 2012 60,500 x 10% ___ __ 6,050 Balances, December 31, 2012 P60,500 P 30,850 Adjusting Entries: Accumulated Depreciation 3,200 Loss on Sale of Equipment 4,200 Equipment 8,000 – (1,000 - 400) 7,400 Net proceeds P1,000 – 400 P 600 Carrying value P8,000 – 3,200 4,800 Loss on sale P4,200 Equipment 3,500 Repairs and Maintenance 3,500


Accumulated Depreciation – Equipment 390 Depreciation Expense – Equipment 390 6,440 – 6,050 Problem 8 Conquer Company

Equipment Accumulated Depreciation January 1 Balances P 223,000 P 44,000 May 1 Acquisition P60,000 + P4,000 64,000 Oct. 1 Sale (20,000) 20,000 x 10% x 2 ( 4,000) Dec. 31 Depreciation (223,000 – 20,000) x 10% P20,300 20,000 x 10% x ½ 1,000 64,000 x 10% x ½ 3,200 ___ 24,500 December 31, 2010 Balances P267,000 P 64,500 Adjusting Entries Equipment 4,000 Operating Expenses 4,000 Loss on Sale of Equipment 4,000 Accumulated Depreciation 4,000 Equipment 8,000 Accumulated Depreciation 200 Depreciation Expense 200 24,700 – 24,500

Problem 9 Berol Giant Corporation

Audit Adjusting Entries Rent Expense (50,000 x 9/12) 375,000 Prepaid Rent 125,000 Finance Lease Liability 3,540,000 Machinery and Equipment 4,040,000 Profit on Construction 150,000 Building 150,000 Land Improvement 500,000 Land 500,000


Accumulated Depreciation – Machinery and Equipment 2,880,000 Gain on Sale of Machinery 680,000 Machinery and Equipment 4,800,000 – 2,600,000 2,200,000 Cost P4,800,000 Accumulated depreciation 480,000/10 x 6 2,880,000 Carrying value P1,920,000 Proceeds 2,600,000 Gain on Sale of M and E P 680,000

Land 6,000,000 Building 24,000,000 Unearned Income from Government Grant 30,000,000 Depreciation Expense – Building 511,667 Accumulated Depreciation – Building 511,667 Correct depreciation Old P12,000,000/ 25 P480,000 Improvement 1,600,000/12 x ½ 66,667 Donated 24,000,000/25 x ½ 480,000 Correct depreciation P1,026,667 Per client 515,000 Adjustment P 511,667 Unearned Income from Government Grant 600,000 Income from Government Grant 600,000 30,000,000/25 x ½ Accumulated Depreciation – Machinery and Equipment 312,000 Depreciation Expense – Machinery and Equipment 312,000 Correct depreciation – Machinery and Equipment (38,500,000 – 4,800,000)/10 = P3,370,000 4,800,000 / 10 x ½ 240,000 Total P3,610,000 Per client 3,922,000 Adjustment P 312,000 Depreciation Expense – Land Improvements 25,000 Accumulated Depreciation – Land Improvements 25,000 500,000 / 10 x ½ = 25,000 b. Adjusted balances: 1. Land P48,250,000 2. Land Improvements 500,000 3. Accumulated Depreciation – Land Improvements 25,000 4. Buildings 37,600,000 5. Accumulated Depreciation – Buildings 7,026,667 6. Machinery and Equipment 33,700,000 7. Accumulated Depreciation – Machinery and Equipment 18,055,000 8. Unearned Income from Government Grant 29,400,000 9. Depreciation Expense – Land Improvements 25,000 10. Depreciation Expense – Buildings 1,026,667 11. Depreciation Expense – Machinery and Equipment 3,610,000 12. Amortized Income from Government Grant 600,000


Problem 10 Malabon Company

Schedule of Depreciation Expense

A. Building Method – 150% declining balance Depreciation rate = 1.5/25 = 6% Old (P12,000,000 – P2,654,000) x 6% P560,760 New P12,800,000 x 6% 768,000 2012 Depreciation – Building P1,328,760 B. Machinery and Equipment Method – straight-line Useful life – 10 years Old including scrapped in December P7,750,000/10 P775,000 New P290,000/10 x 6/12 14,500 2012 Depreciation – Machinery P789,500 C. Automobiles and Trucks Method - 150% declining balance Depreciation rate = 1.5/5 = 30% Old (not sold) (P13,200,000 – P8,620,000) = P4,580,000 P4,580,000 – (P810,000 + 235,200) x 30% P1,060,440 Sold 235,200 New P650,000 x 30% x 4/12 65,000 2012 Depreciation – Automobiles and Trucks P1,360,640 D. Leasehold Improvements Method – straight line Useful life – 8 years Lease term : original 6 years upon completion of the improvement Remaining useful life = 8 – 3 = 5 years Remaining lease term = 6 – 3 + 4 = 7 years 2012 Depreciation: (P2,210,000 – 1,105,000) / 5 = P 221,000 E. Land Improvements Method – straight-line Useful life – 12 years 2012 Depreciation: P1,920,000 / 12 x 9/12 P 120,000

b. Adjusted Balances: 1. Land P16,200,000 2. Land Improvements 1,920,000 3. Accumulated Depreciation – Land Improvements 120,000 4. Building 24,800,000 5. Accumulated Depreciation – Buildings 3,892,760 6. Machinery and Equipment 7,870,000 7. Accumulated Depreciation – Machinery and Equipment 2,611,250 8. Automobiles and Trucks 5,258,750 9. Accumulated Depreciation – Automobiles and Trucks 3,059,360 10. Leasehold Improvements 2,210,000 11. Accumulated Depreciation – Leasehold Improvements 1,326,000


Problem 11

Adjusting Entries

a. Depreciation Expense – Machine A 15,750 Accumulated Depreciation 15,750 Cost P105,000 Acc. Depreciation 1/1/12 105,000 / 12 x 3 ( 26,250) Carrying amount 1/1/12 P 78,750 78,750 / 5 = P 15,750 b. Depreciation Expense – Machine B 40,000 Accumulated Depreciation – Machine B 40,000 P240,000 / 6 = P 40,000 Impairment Loss 15,000 Accumulated Depreciation – Machine B 15,000 Carrying value 12/31/12 P240,000 x 3.5/6 P140,000 Recoverable amount 125,000 Impairment loss P 15,000 c. Depreciation Expense – Building A 590,625 Accumulated Depreciation – Building A 590,625 Carrying value 1/1/12 P6,300,000 x 15/20 = P4,725,000 2012 Depreciation = P4,725,000 x 15/120 = P 590,625 d. Retained Earnings 175,000 Accumulated Depreciation – Building B 175,000 Carrying value 12/31/11 P5,250,000 x 7/10 = P3,675,000 Recoverable amount 3,500,000 Impairment loss in 2011 P 175,000 Depreciation Expense – Building B 500,000 Accumulated Depreciation – Building B 500,000 3,500,000 / 7 = P 500,000 Accumulated Depreciation – Building B 100,000 Gain - Recovery of Previous Impairment 100,000 Carrying value, 12/31/12 3,500,000 – 500,000 = P3,000,000 Recoverable amount 3,100,000 Increase in value P 100,000 Limit on recovery 175,000 x 6/7 P 150,000

e. Depreciation Expense – Building 300,000

Accumulated Depreciation – Building 300,000 12,000,000 / 20 x 6/12


Investment Property – Land 8,000,000 Investment Property – Building 12,000,000 Accumulated Depreciation – Building (PPE) (12M/20 x 4.5)2,700,000 Land 6,500,000 Building 12,000,000 Revaluation Surplus 4,200,000 Investment Property – Land 500,000 Investment Property – Building 400,000 Fair Value Gain on Investment Property 900,000

Problem 12 Gotham Company

As of December 31, 2011 Based on Cost Based on

Revalued Amt. Balance of Revaluation Surplus

Land P15,000,000 P20,000,000 P5,000,000 Building, net of accumulated depreciation

14,000,000

20,000,000

6,000,000

(a) Depreciation expense on the building for the year 2012: P20,000,000 / 20 years = P1,000,000 (b) Revaluation surplus transferred to Retained Earnings = P6,000,000 / 20 = P300,000 (c) Balance of revaluation surplus at December 31, 2012 statement of financial position =

Based on Previous Revaluation

Based on New Revalued Amt.

Difference

Land P20,000,000 P22,000,000 P2,000,000 Building, net of accumulated depreciation

19,000,000

21,850,000

2,850,000

Balance of Revaluation Surplus at December 31, 2012 statement of financial position: 12/31/11 Balance Realized in 2012 New Revaluation 12/31/12 Final

Pertaining to land P5,000,000 ---------- P2,000,000 P7,000,000 Pertaining to building 6,000,000 (300,000) 2,850,000 8,550,000 Total P11,000,000 P(300,000) P4,850,000 P15,550,000


Problem 13 (Ecstacy Company)

Adjusting Entries Franchise 420,000 Prepaid Rent 280,000 Retained Earnings 160,000 Patents 740,000 Research and Development Expense (400,000+1,600,000) 2,000,000 Goodwill 2,784,000 Formula (or Patent) 350,000 Legal Fees 126,500 Intangible Assets 6,860,500 Retained Earnings (3/24 x 280,000) 35,000 Rent Expense (1/2 x 280,000) 140,000 Prepaid Rent 175,000 Retained Earnings (6/60 x 420,000) 42,000 Amortization Expense – Franchise 84,000 Accumulated Amortization – Franchise 126,000

Amortization Expense – Patents 61,667

Accumulated Amortization – Patents 61,667 740,000 /10 x 10/12

Problem 14 (Mandy Moore Corporation) Adjusting Entries Research and Development Expense 940,000 Patents 75,000 Rent Expense (91,000 x 5/7) 65,000 Prepaid Rent (91,000 – 65,000) 26,000 General and Administrative Expense / Share Premium * 36,000 Discount on Bonds Payable 84,000 Advertising and Promotions Expenses 207,000 Other Operating Expenses 241,000 Share Premium – Ordinary Share 250,000 Intangible Assets 1,424,000 * If there is no share premium from the same transaction/ If share premium results from the same transaction.


Problem 14 (Kookabar Enterprises) Retained Earnings 525,000 Patents 525,000 750,000 x 7/10 = 525,000 Patents 4,975,000 Accumulated Amortization – Patents 4,975,000 To reinstate the gross cost of the patents and related Accumulated Amortization (5,500,000 – 525,000) ÷ 7/14 Total cost is therefore P9,950,000 Accumulated amortization = 9,950,000 x 7/14 = P4,975,000 Cost of Goods Sold 910,714 Accumulated Amortization – Patents 910,714 (P2,100,000 – 1,050,000) / 3 years =P 350,000 (P9,95,000 – 2,100,000) / 14 years = 560,714 2012 Amortization P 910,714 Selling and Administrative Expenses 450,000 Franchise Agreement 450,000 Selling and Administrative Expenses 100,000 Accumulated Amortization – Franchise Agreement 100,000 50,000 /5 = 10,000 Retained Earnings 440,000 Organization Costs 440,000 Retained Earnings (45,000 + 100,000) 145,000 Goodwill 145,000 Problem 16 (Yuka Sato Corporation)

Equipment 34,700 Patents 34,700 Cost of Goods Sold 5,500 Accumulated Amortization – Patents 5,500 93,500 / 17 = 5,500 Impairment Loss – Licensing Agreement No. 1 42,000 Accumulated Impairment – Licensing Agreement 1 42,000 70% x 60,000 = 42,000 Licensing Agreement No. 2 4,000 Unearned Revenue 4,000 (Correction: advance collection of 2013, instead of 2011 revenue) Selling and Administrative Expenses 6,000 Accumulated Amortization – Licensing Agreement No. 2 6,000 60,000 / 10 = 6,000


Retained Earnings 30,000 Goodwill 30,000 Equipment 15,000 Miscellaneous Receivables 6,100 Leasehold Improvements 21,100 Retained Earnings 1,500 Cost of Goods Sold 1,500 Accumulated Depreciation – Leasehold Improvements 3,000 15,000/ 10 = 1,500 Retained Earnings 32,000 Organization Costs 32,000

Problem 17 Genuine Company (1) Audit Adjusting Entries

Patents 200,000 Accumulated Amortization – Patents 200,000 Professional Fees and Other Legal Expenses 120,000 Patents 120,000 Amortization of Patents 100,000 Accumulated Amortization – Patents 100,000 Impairment Loss – Patents 169,288 Accumulated Amortization – Patents 169,288 Carrying value before impairment P700,000 Value in use = 140,000 x 3.7908 = 530,712 Impairment loss P169,288

Professional Fees and Other Legal Expenses 70,000 Trademarks 70,000 Amortization of Trademarks (150,000/3) 50,000 Accumulated Amortization – Trademarks 50,000 Discount on Notes Payable 166,020 Franchise 166,020 Face value of the note P800,000 Present value when issued 200,000 x 3.1699 633,980 Initial discount P166,020


Retained Earnings 63,398 Interest Expense 49,738 113,136 Discount on Notes Payable Date Periodic Payment Interest Principal Bal. of Principal 1/1/11 P633,980 12/31/11 P200,000 P63,398 P136,602 497,378 12/31/12 200,000 49,738 150,262 347,116 Franchise 16,602 Retained Earnings 16,602 Franchise 83,398 Accumulated Amortization 83,398 Amortization of Franchise 83,398 Accumulated Amortization – Franchise 83,398 Correct cost of franchise = 200,000 + 633,980 = 833,980 Recorded amortization ( 10 year life) 100,000 Correct amortization 833,980/10 83,398 Adjustment 16,602 Retained Earnings 40,000 Organization Costs 40,000 Goodwill (285,000/ 19 ) 15,000 Retained Earnings 15,000 Advertising Expense 165,000 Goodwill 165,000 (2.) Adjusted Balances

(a) Gross cost of patents ……………………………………………………………………….P1,000,000 (b) Carrying value of patents, December 31, 2011…………………………………….. 800,000 (c) Amortization of patents for 2012………………………………………………………. 100,000 (d) Impairment loss on patents – 2012…………………………………………………… 169,288 (e) Amortization of patents for the year 2013 = 530,712/5 ……………………….. 106,142 (f) Total expenses relating to the Trademark = 70,000 + 50,000……………… 120,000 (g) Correct cost of the franchise……………………………………………………………… 833,980 (h) Discount on notes payable, 12/31/12 = 166,020 – 113,136…………………… 52,884 (i) Interest expense for 2012 relating to the Notes Payable………………………. 49,738 (j) Carrying value of the Franchise, 12,31,12 (833,980 – 166,796)……………… 667,184 (k) Initial cost of goodwill 285,000 ÷ 19/20 ………………………………………… 300,000 (l) Net adjustment to Retained Earnings, 1/1/12……………………………………… 71,796 dr.


Multiple Choice

1. B 21. B 2. A 22. C 3. C 23. D 4. A 24. D 5. C 25. A 6. C 26. B 7. B 27. A 8. C 28. D 9. D 29. B 10. B 30. C 11. D 31. C 12. D 32. C 13. C 33. B 14. C 34. A 15. B 35. B 16. C 36. C 17. B 37. C 18. C 38. B 19. C 39. B 20. B 40. D 41. A 42. C 43. D 44. C Supporting computations: 1. B P300,000/10 x 7/12 = P17,500 (300,000 x 6/10) + 36,000 x 5/12 8 11,250 Depreciation expense for 2012 P 28,750 2. A Carrying value as of August 1, 2012 P180,000 Overhaul costs 36,000 Depreciation – Aug. 1 – Dec. 31, 2012 ( 11,250)

- January 1 – June 30, 2013 216,000 / 8 x 6/12 ( 13,500)

Carrying value, June 30, 2013 P191,250 Proceeds from sale 185,000 Loss from sale P 6,250 3. C Correct depletion for 2012

P4,860,000 / 1,620,000 x (15,000 tons x 6 months) = P270,000 Recorded depletion 405,000 Overstatement in depletion P135,000

4. A Estimated useful life in years = 15 years Estimated mining period = 1,620,000 / 15,000 = 108 months or 9 years Use unit of output method, since mining period is shorter than life in years Correct depreciation = (P600,000 x 90%) / 1,620,000 x 90,000 tons P 30,000 Recorded depreciation 40,000 Overstatement in depreciation P 10,000


5. C Remaining machines at December 31, 2010 = Machines 2 and 4 only Cost allocated to Machine 2 P1,200,000 x 500,000/1,500,000 P 400,000 Accumulated Depreciation of Machines 2 and 4 Machine 2 400,000 x 5/10 = P200,000 Machine 4 500,000 / 10 x 6/12 = 25,000 Total P225,000

6. C Land Building Cash paid P 800,000 FV of shares issued 8,000 x 107 856,000 Cost of removal of old buildings 98,000 Examination of title 13,000 Legal work for construction contract P 18,600 Insurance premium during period of construction 22,800 x 2/24 1,900 Special tax assessment 40,000 Superintendent’s salary 42,000 Construction costs (600,000 + 400,000 + 400,000) ________ 1,400,000 Correct cost P1,807,000 P 1,462,500 7. B Correct cost of building P1,462,500 8. C Depreciation for 2012 = P1,462,500 / 50 x 6/12 P 14,625 9 through 12 Audit Adjusting Entries: Buildings and Equipment 10,000 Accumulated Depreciation – Buildings and Equipment 30,000 Gain on Exchange of Buildings and Equipment 10,000 Buildings and Equipment 50,000 Buildings and Equipment 10,000 Accumulated Depreciation – Buildings and Equipment 60,000 Buildings and Equipment 70,000 Buildings and Equipment 240,000 Loss on Exchange of Buildings and Equipment 80,000 Buildings and Equipment 320,000 9. D Net decrease in cost of buildings and equipment P180,000 10. B Net decrease in accumulated depreciation P 90,000 11. D Cost assigned to equipment received P20,000 carrying value + cash paid of P10,000 = P 30,000 12. D Net gain on exchange (see audit adjustments) P830,000 13. C Land as Property, Plant and Equipment P8,000,000 + 4,000,000 + 7,000,000 = P19,000,000


14. C Building as Property, Plant and Equipment P12,000,000 + P16,000,000 = P28,000,000 15. B Depreciation Expense – Investment Property (P8,000,000 / 20) x ½ = P 200,000 16. C Equipment P24,000,000 – 800,000 = P23,200,000 17. B Accumulated Depreciation – Equipment P8,000,000 – 320,000 = P 7,680,000 18. C Investment Property

Land of P6,000,000 + Building, P7,800,000 = P13,800,000

19. C 7,500,000 + 8,500,000 = P16,000,000

20. B Carrying value Cost P800,000 Accumulated depreciation (P320,000 – P20,000) 300,000 Carrying value P500,000

Fair value less cost to sell (520,000 – 50,000) P 470,000 Hence, the assets held for sale shall be measured at the lower amt. P470,000 21. B Impairment loss 500,000 – 470,000 = P 30,000

22. C 1,500,000 + 1,800,000 P3,300,000

23. D 860,000 + 5,000,000 = P5,860,000

24. D 3,000,000 + 2,000,000 + 2,500,000 + 540,000 = P8,040,000

25. A Eggs P100,000 P 100,000 26. B Machinery, December 31, 2010

12/31/09 P9,100,000 01/03/2010 5,920,000 08/28/2010 ( 4,300,000) Balance 12/31/10 P10,720,000

27. A Accumulated Depreciation – Machinery 12/31/2010 12/31/09 P4,820,000 08/28/10 (3,172,500) 12/31/10 Depreciation for 2010 2,394,000 12/31/10 Balance P 4,041,500

28. D Vehicles 12/31/2010 12/31/2009 P 4,680,000 06/22/10 1,620,000 12/31/2010 P 6,300,000


29. C Accumulated Depreciation – Vehicles 12/31/2009 P 1,965,600 12/31/2010 Depreciation for 2010 On beg. Bal. not sold (4,680,000 – 1965,600) x 40% = P 1,085,760 New = 1,620,000 x 40% x 6/12 324,000 1,409,760 P3,375,360

30. C Depreciation Expense – Machinery (2010) Machine 1 ( P4,300,000 – 250,000) / 5 x 8/12 = P 540,000 Machine 2 (4,800,000 – 300,000) / 6 = 750,000 Machine 3 (5,920,000 – 400,000 ) / 5 = 1,104,000 Total depreciation expense, machinery for 2010 P2,394,000

31. C Gain or loss on vehicle sold on May 25, 2011 Cost of vehicle sold P2,340,000 Accumulated depreciation 12/31/2009 P982,800 2010 depreciation 1,085,800 / 2 = 542,900 2011 depreciation 814,300 x 40% x 5/12 135,700 1,661,400 Carrying value P 678,600 Selling price 660,000 Loss on sale P 18,600

32. C Accum. Depreciation – Building, Dec. 31, 2011 12/31/2009 P2,861,400 2010 and 2011 depreciation 903,600 x 2 years 1,807,200 Accumulated depreciation, building 12/31/2011 P4,668,600

33. B Depreciation Expense – Machine 2 (2012) Cost of Machine 2 P4,800,000 Accumulated depreciation – 12/31/2011 (4,800,000 – 300,000) / x 59 months/ 72 months = 3,687,500 Carrying value 12/31/11 P1,112,500 Overhaul cost 1,200,000 Carrying value after overhaul P2,312,500 Depreciation expense – 2012 (P2,312,500 – 500,000) / 4 = P453,125

34. A Carrying value of land, December 31, 2012 P8,100,000

35. B Accumulated Depreciation – Land Improvements, Dec. 31, 2010 (550,000/10) x 1.5 = P 82,500

36. C (100,000 X 98%) + 5,000 = P103,000

37. C Carrying value = 180,000 – 180,000 x 10% x 7.5 P 45,000 Selling price 54,000 Gain on sale P 9,000

38. B 2012 Depreciation

(500,000 – 180,000) x 10% = P 32,000 180,000 x 10% x 9/12 = 13,500 103,000 x 10% x 9/12 = 7,725 Total P 53,225


39. B 500,000 – 180,000 + 103,000 P423,000

40. D 2,000,000 x 9/10 x 1/5 = P 360,000 41. A 42,000 + 100,000 + 102,000 = P 244,000

42. C Cost = 180,000 + (336,000/112%) = P480,000

(P480,000 /10 ) ( 48,000) Carrying value of franchise, 12/31/2012 P432,000

43. D 125,000 + 48,000 + 27,000 = P200,000 44. C 300,000 + (36,000 x 9/12 ) = P 327,000

Summative Exercise

Elegant Builders

Audit Adjustments:

Other Receivables 5,600

Representation and Advertising 5,200

Supplies Expense 3,054

Repairs and Maintenance 6,500

Petty Cash Fund 20,354

Accounts Receivable – Current 84,200

Bank Charges 2,100

Cash 600

Trade Payables 86,900

Accounts Receivable 36,000

Allowance for Doubtful Accounts 36,000

Sales 35,000

Accounts Receivable – current 35,000

Sales 20,000



Advances from Customers 14,000

Other Non-current Financial Assets 120,000


Sales 145,000



Purchases 60,000

Trade Payables 60,000

Doubtful Accounts Expense 162,364

Allowance for Doubtful Accounts 162,364

Inventory, end 2,693,200\

Cost of goods sold 5,887,200

Net Purchases 6,555,000

Inventory, beginning 2,025,400

Other Operating Income 86,400

Trading Securities – PS Bank 86,400

Trading Securities – SM 8,000

Gain on Sale of Trading Securities 8,000

Trading Securities – PS Bank 93,600

Trading Securities – SM 50,000

Unrealized Gains on Trading Securities 143,600

Equipment 14,600

Transportation Expense 3,600


Depreciation and Amortization 1,825

Accumulated Depreciation – Equipment 1,825

14,600 / 8 = 1,825

Accumulated Depreciation – Leasehold Improvements 19,333

Depreciation and Amortization 19,333

Utilities Expense 44,400

Salaries Expense 26,350


Trade Payables and Accrued Expenses 74,570

Interest Expense 12,205

Interest Payable 12,205

Other Operating Income 1,040,000

Additional Paid in Capital 1,000,000

Land 40,000

Retained Earnings 1,650,000

Dividends Payable 1,650,000

Income Tax Expense 142,354

Income Tax Payable 142,354


1. D 375,250 – 84,200 = 291,050 2. A 546,750 – 226,000 – 900 = 319,850 3. A 4. D 6 years which is 12 – 6; shorter than 10 – 6 + 6 5. B see audit adjustments Answer

6. Petty cash fund 4,646

7. Cash in bank 3,471,200

8. Trading securities, at cost 650,000

9. Trading securities, at market 793,600

10. Unrealized gain or loss on trading securities 143,600 gain

11. Accounts receivable 4,614,200

12. Allowance for doubtful accounts 352,284

13. Other Receivables – current 30,600

14. Merchandise inventory 2,693,200

15. Prepaid expenses 60,920

16. Land 5,960,000

17. Equipment 934,600

18. Accumulated Depreciation – Equipment 691,825

19. Net book value of leasehold improvements 193,333

20. Other Non-current Financial Assets 120,000

21. Trade Payables and Accrued Expenses 1,681.475

22. Notes Payable and Accrued Interest 912,205

23. Dividends Payable 1,650,000

24. Income Tax Payable 142,354

25. Additional Paid in Capital 1,950,000

26. Retained Earnings 482,161

27 Net Sales 9,000,000

28 Net Purchases 5,887,200

29. Salaries and Commissions 1,226,350

30. Repairs and Maintenance 59,320

31. Supplies Expense 73,054

32. Bank Charges 14,100

33. Interest Expense 76,205

34 Other Operating Income 151,600

35 Transportation Expense 1,400

36 Depreciation and Amortization 135,492

37 Doubtful Accounts Expense 162,364

38. Representation & Advertising 325,200

39. Ordinary Share Capital 11,000,000

40. Profit 332,161

empleo chapter 7 - non-current operating assets

Documents

depreciation expense

correct depreciation

cost of razing old building

cost p200

decommissioning cost

cost of installation

cost difference land

correct cost p284