PROBLEM NO. 1 - White Corporation
Nondepreciable:
Land, 1/1/05
Cash paid on purchase of land
Mortgage assumed on the land bought, including interest at 16%
Realtor’s commission
Legal fees, realty taxes and documentation expenses
Amount paid to relocate persons squatting on the property
Cost of tearing down an old building on the land
Amount recovered from the salvage of the building demolished
Land, 12/31/05
Depreciable:
Land improvements
Balance, 1/1/05
Cost of fencing the property
Building
Balance, 1/1/05
Amount paid to a contractor for the building erected
Building permit fees
Excavation expenses
Architect’s fee
Machinery and equipment
Balance, 1/1/05
Invoice cost of machinery acquired
Freight, unloading, and delivery charges
Customs duties and other charges
Allowances, hotel accommodations, etc., paid to
foreign technicians during instillation and test run of
machines
Total depreciable PPE, 12/31/05
2,500,000
10,000,000
16,000,000
1,200,000
200,000
400,000
300,000
(600,000)
30,000,000
1
560,000
440,000
1,000,000
2
3,600,000
8,000,000
50,000
250,000
100,000
12,000,000
3
17,000,000
30,000,000
4
5
6,600,000
8,000,000
240,000
560,000
1,600,000
PROBLEM NO. 2 - Black Company
Entry made
a. Office equipment
Cash
400,000
Should be entry
Office equipment
400,000 Purchase disc. lost
Cash
392,000
8,000
Adjusting journal entry
Purchase disc. lost
Office equipment
*
8,000
8,000
400,000
*(P400,000 x 2%)
b. Machinery
Cash
140,000
(entry made reconstructed from the
depreciation information; P28,000 x 5)
Freight in
Cash
Depreciation exp
Acc. Dep.
4,000
28,000
Machinery
140,000 FC/Interest exp
Cash
Machinery
4,000
Cash
Depreciation exp
28,000
Acc. Dep.
(140,000/5 )
c. Machinery
Bonds payable
Depreciation exp
Acc. Dep.
128,000
12,000
FC/Interest exp
Machinery
12,000
12,000
140,000
4,000
26,400
Machinery
4,000
Freight in
Acc. Dep.
26,400
Depreciation exp
4,000
4,000
1,600
1,600
[(128,000+4,000)/5]
400,000
54,000
Machinery
400,000 Discount on BP
Bonds payable
360,000
40,000
Depreciation exp
54,000
Acc. Dep.
48,000
[(400,000-40,000)/5 *9/12]
Discount on BP
Machinery
40,000
40,000
400,000
Acc. Dep.
48,000
Depreciation exp
6,000
Interest exp
3,000
Discount on BP
3,000
Allowance for DA
Loss on exchange
Machinery
28,000
2,000
Machinery
110,000
Treasury stock
30,000
Equipment
450,000
Gain on exchange
50,000
50,000
6,000
[(36,000-4,000)/5 *9/12]
Interest exp
Discount on BP
3,000
3,000
[(40,000/10)*9/12]
d. Machinery
Accts receivable
Treasury stock
Machinery
e. Equipment
Investment in Tyler
f. Machinery
Cash
g. Machinery-new
Cash
Machinery-old
140,000
140,000
450,000
20,000
102,000
Machinery
140,000 Allowance for DA
Loss on exchange
Accts receivable
110,000
28,000
2,000
Treasury stock
140,000
Machinery
110,000
Equipment
450,000
Investment in Tyler
Gain on exchange
500,000
140,000
Machinery-new
20,000 Accumulated dep.
Machinery-old
Cash
140,000
280,000
Machinery-new
80,000 Loss on trade-in
22,000
Cash
Machinery-old
90,000
12,000
h. None
30,000
50,000
Machinery-new
Accumulated dep.
400,000
Machinery-old
20,000
120,000
280,000
Loss on trade-in
Machinery-new
12,000
400,000
12,000
80,000
22,000
Land
200,000
Building
400,000
APIC-donated capital
Depreciation exp
Acc. Dep.
30,000
Land
200,000
Building
400,000
600,000
APIC-donated capital
4,000
4,000
Depreciation exp
Acc. Dep.
600,000
4,000
4,000
[(P400,000/25)*3/12]
i. Building
Cash
4,000,000
4,000,000
Land
2,000,000
Deferred income-govt grant
Government grants are "assistance by government
Building
in the form of transfers of resources to an enterprise
Cash
in return for past or future compliance with certain
conditions relating to the operating activities of the
enterprise". Grants related to nondepreciable assets Depreciation exp
Acc. Dep.
requiring fulfillment of certain conditions should be
recognized as income over the periods which bear
(P4,000,000/25)
the cost of meeting the conditions.
2,000,000
2,000,000
4,000,000
4,000,000
160,000
80,000
Income from govt. grant
160,000
Depreciation exp
Acc. Dep.
160,000
160,000
(P4,000,000/25)
80,000
Income from govt. grant
Deferred income-govt g
Deferred income-govt g
(P2,000,000/25)
Land
2,000,000
Deferred income-govt grant
80,000
(P2,000,000/25)
80,000
Page 1 of 4
PROBLEM NO. 3 - Blue Corporation
1) Land [(10,000 shares x P120) +P98,000]
Land and building
Additional paid in capital
2) Land
Land and building
1,298,000
1,098,000
200,000
60,000
60,000
3) Organization expenses
Land
Building
Land and building
9,500
4,000
1,500
15,000
4) Building
Land and building
700,000
5) Building
Land and building
600,000
700,000
600,000
6) Insurance expense (26,000 x 1/2)
Prepaid insurance
Land and building
13,000
13,000
26,000
7) Building
Land and building
200,000
8) Retained earnings
Land and building
500,000
Adjusted balances
Land
AJE no. 1
AJE no. 2
AJE no. 3
200,000
500,000
1,298,000
60,000
4,000
Building
AJE no. 3
AJE no. 4
AJE no. 5
AJE no. 7
1,362,000
9) Land and building
Depreciation expense
Accumulated depreciation
Should be depreciation (1,501,500 / 25 x 6/12)
Recorded depreciation
Overstatement in depreciation expense
Land and building account
Unadjusted balance
AJE no. 1
AJE no. 2
AJE no. 3
AJE no. 4
AJE no. 5
AJE no. 6
AJE no. 7
AJE no. 8
AJE no. 9
1,500
700,000
600,000
200,000
1,501,500
31,990
1,960
30,030
30,030
31,990
1,960
3,167,010
(1,098,000)
(60,000)
(15,000)
(700,000)
(600,000)
(26,000)
(200,000)
(500,000)
31,990
-
PROBLEM NO. 4 - Green Company
Adjusted bal.
Machine 1 - sold 8/31
Machine 2 - destroyed 12/1
Machine 3 - traded in 9/30
Machine 4
Machine 5
Machine 6
Machine 7
Machine 8
Total
90,000
198,000
108,000
216,000
216,000
828,000
Orig. cost
Months
90,000 remaining
90,000
11
90,000
9
90,000
12
198,000
4
108,000
3
216,000
1
216,000
1
Depreciation
5,625
20,625
16,875
22,500
16,500
6,750
4,500
4,500
97,875
PROBLEM NO. 5 - Red Company
Question No. 1 - B
Buildings (150% declining balance)
Balance, 1/1/05
Depreciation for 2005:
Book value, 1/1/05 (P30,000,000 - P6,577,500)
150% declining balance rate (1/25 x 150%)
6,577,500
6,577,500
23,422,500
6%
1,405,350
7,982,850
Accumulated dep - Buildings, 12/31/05
Question No. 2 - D
Machinery and Equipment (Straight line)
Balance, 1/1/05
Depreciation for 2005:
M & E balance, 1/1/05
Less machine destroyed by fire
Remainder of beginning balance
Depreciation rate (1/10 years)
Depreciation on remainder of beginning bal.
Depreciation on machine destroyed by fire
(P575,000 x 10% x 3/12)
Depreciation on machine purchased on 7/1/05
[(P7,000,000+P125,000+P625,000) x 10% x 6/12]
6,250,000
22,500,000
575,000
21,925,000
10%
2,192,500
14,375
387,500
2,594,375
(287,500)
8,556,875
Machine destroyed by fire (P575,000 x 5/10)
Accumulated dep - Machinery & Equip., 12/31/05
Question No. 3 - B
Delivery equipment (SYD)
Balance, 1/1/05
Depreciation for 2005:
Depreciation on 1/1/05 balance (see info (e))
Less depreciation on truck traded-in
(P450,000 x 2/10*)
Depreciation on remainder of beginning bal.
Depreciation on truck purchased on 1/2/05
(P600,000 x 4/10*)
Truck traded-in (P450,000 - P135,000)
Accumulated dep - Delivery Equip., 12/31/05
2,115,000
450,000
90,000
360,000
240,000
600,000
(315,000)
2,400,000
* SYD = (4+3+2+1) = 10
Question No. 4 - A
Leasehold improvements (Straight line)
Depreciation for 2004 (P4,200,000 x 8/80*)
Remaining lease term (5/1/04 to 12/31/10)
Useful life (8 years x 12)
Shorter - remaining lease term
420,000
80 months
96 months
80 months
*
Question No. 5 - C
Machine destroyed by fire:
Amount recovered from insurance company
Less book value of machine:
Cost
Accumulated depreciation (see above)
Gain on machine destroyed by fire
Truck traded-in:
Trade-in value (P600,000 - P500,000)
Less book value of truck traded-in
Loss on truck traded-in
Net gain on asset disposals
387,500
575,000
(287,500)
287,500
100,000
100,000
135,000
(35,000)
65,000
PROBLEM NO. 6 - Josef, Inc.
Question No. 1 - B
Acquisition cost
Less residual value
Depletable cost
Total estimated reserves
Depletion rate
Tons mined
Depletion for 2005
10,400,000
800,000
9,600,000
8,000,000
1.20
800,000
960,000
Question No. 2 - D
Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 80%]
Depreciation - Machinery [(P1,600,000-P320,000/4]
Total
64,000
320,000
384,000
Question No. 3 - B
Depletion (see no. 1)
Direct labor
Depreciation (see no. 2)
Miscellaneous mining overhead
Total available for sale
Divide by tons mined
Cost per ton
Unsold tons (800,000 - 640,000)
Inventory, 12/31/05
960,000
640,000
384,000
128,000
2,112,000
800,000
2.64
160,000
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)
Less cost of sales (see no. 4)
Gross profit
Operating expenses
Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 20%]
Net income
Realized depletion (640,000 tons x P1.2)
Maximum amount that may be declared as dividends
2,816,000
1,689,600
1,126,400
(576,000)
(16,000)
534,400
768,000
1,302,400
PROBLEM NO. 7 - Pink Corporation
Journal entries for 2005:
1/2 Organization expenses
Cash
1/15 Advertising expense
233,000
233,000
15,000
Cash
4/1 Patents
15,000
492,500
Cash
5/1 Licences (P300,000 x 2/3)
Trademark
Common stock (6,000 x P50)
7/1 Building
492,500
200,000
100,000
300,000
1,310,000
Cash
12/31 Research and Development expense
1,310,000
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
Licences
Trademark
Less amortization
Patent (P492,500/6 x 9/12)
Licences (P200,000/6 x 8/12)
Trademark (P100,000/6 x 8/12)
Carrying value, 12/31/04
492,500
200,000
100,000
61,563
22,222
11,111
792,500
94,896
697,604
Question no. 5 - C
Organization expenses (Jan. 2 transaction)
Advertising expense (Jan. 15 transaction)
R and D expense (Dec. 31 transaction)
Total
233,000
15,000
1,750,000
1,998,000
PROBLEM NO. 8 - Silver Corporation
Question No. 1 - A
Trademark*
Goodwill*
Customer list (P220,000/3)
Total amortization
73,333
73,333
*The useful life is indefinite, so no amortization expense is recognized.
Question No. 2 - B
Trademark:
Carrying value
Recoverable amount (P10,000/0.06)
Goodwill*:
Carrying value of Hayo Manufacturing unit
(P2,700,000 + P1,500,000 - P1,800,000)
Recoverable amount (P250,000 x 12.0416)
Customer list
Carrying value (P220,000 - P73,333)
Recoverable amount:
2006: (P120,000 x 0.9434)
2007: (P80,000 x 0.8900)
Total impairment loss
300,000
166,667
133,333
2,400,000
3,010,400
-
146,667
113,208
71,200
184,408
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
Less impairment loss
Carrying value, 12/31/05
300,000
133,333
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
Less amortization for 2005
Carrying value, 12/31/05
PROBLEM NO. 9
1B
2B
3D
4A
5C
6A
7A
8D
9D
10 D
220,000
73,333
146,667
11
12
13
14
15
16
D
B
A
A
D
A