Reference no: EM132881257

Question 1 - Lindy Co. purchased an office building and the land on which it is located by paying P800,000 cash and assuming an existing mortgage of P200,000. The property is assessed at P960,000 for realty tax purposes, of which 60% is allocated to the building.

Lindy leased construction equipment under a seven-year capital lease requiring annual year-end payments of P100,000. Link's incremental borrowing rate is 9%, while the lessor's implicit rate, which is not known as Link, is 8%. The present value factors for an ordinary annuity for the seven periods are 5.21 at 8% and 5.04 at 9%. The fair value of the equipment is P515,000.

Lindy paid P50,000 and gave a plot of undeveloped land with a carrying amount of P320,000 and a fair value of P450,000 to Club Co. in exchange for a plot of undeveloped land with a fair value of P500,000. The land was carried on the Club's books at P350,000. This transaction is considered to lack commercial substance; the configuration of cash flows from the land acquired is not expected to be significantly different from the configuration of cash flows of the land exchanged.

Calculate the following amounts to be recorded by Lindy.

1. Building.

2. Leased equipment.

3. Land received from the Club on Link's books.

4. Land received from Link on the Club's books.

Question 2 - On January 2, year 3, White purchased a manufacturing machine for P864,000. The machine has an eight-year estimated life and a P144,000 estimated salvage value. White expects to manufacture 1,800,000 units over the life of the machine. During year 4, White manufactured 300,000 units.

Calculate the depreciation expense on the manufacturing machine for year 4 for each method listed.

5. Straight line.

6. Double-declining balance.

7. Sum-of-the-years' digits.

8. Units of production