Reference no: EM132774701

The Finals Na Corporation started its business on January 1, 2016, by purchasing three equipment having the following costs:

Equipment 1.00 P157,200
Equipment 2.00 120,000
Equipment 3.00 132,000

• Since that date of purchase, Finals Na Corporation has charged depreciation at 20% on the balance of the asset account at the end of each year. The amount of depreciation computed on each year has been credited directly to the asset account. Moreover, all purchases since the inception of the operations have been debited to the equipment account. Cash proceeds from the disposal of equipment were credited to the same account. All the equipment were estimated to have a useful life of 5 years and were supposed to be depreciated under the straight-line method.

Upon conducting your audit of the equipment, the following information was revealed:

1. On September 30, 2016, an equipment (Equipment 1.25) with a cash price of P180,000 was purchased on an installment basis. The installment contract called for a 12 monthly payment of P18,000. The monthly payments on the installment contract beginning September 30, 2016 has been debited to the equipment account. Freight and installation charges amounting to P6,000 were paid and charged to the equipment account on October of the same year.
2. On June 30, 2017, another equipment (Equipment 1.50) was purchased for P240,000, 2/10, n/30. The amount was paid on July 15, 2017. The equipment account was debited for the amount paid on the same date.
3. On June 30, 2018, Equipment 1.00 was traded for more superior equipment (Equipment 5.00) having a cash price of P279,000. An allowance amounting to P129,000 was received on the old equipment with the balance being paid in cash. The company recorded the trade-in by merely debiting the equipment account for the cash payment.
4. On January 1, 2019, the Equipment 3.00 was sold for P75,000. The company incurred crafting costs on the machinery amounting to P3,750. The equipment account was credited for the net cash received from the disposal.
5. On October 1, 2020, Equpment 2.00 was sold for P24,000. The amount received was credited to the equipment account.

Requirements:

Problem 1: How much is the gain on the trade in of Equipment 5.00?

Problem 2: How much is the gain on the sale of Equipment 3.00?

Problem 3: How much is the gain on the sale of Equipment 2.00?

Problem 4: What is the carrying amount of the Equipment as of December 31, 2020?

Problem 5: What is the correct depreciation expense to be reported in 2020?