Reference no: EM132800938
PROBLEM 1 - On July 1, 2020, Manuel Corporation purchased machinery worth P 8,000,000. Terms: P 500,000 down payment, the balance on three equal annual payments every July 1 of each year. The cash price of the machinery is P 6,000,000. A promissory note is issued for the installment balance.
1) What is the carrying amount of machinery at December 31, 2020?
PROBLEM 2 - Chot acquired a tract of land with an existing building in exchange for 20,000 ordinary shares of P 10 par value with a market price of P 20 per share on the date of acquisition. The last tax bill assessed value of P 200,000 for the land and P 120,000 for the building. However, the land has a fair value of P 550,000 and the building has no determinable fair value. Shortly, after acquisition, the building was razed at a cost of P 9,000 in anticipation of a new building construction.
1) What is the cost assigned to land?
2) Assuming the fair value of the land is not available, what would be the cost of the land?
PROBLEM 3 - On December 15, 2020, Tenorio Company and Jason Company exchanged equipment. The following data are available on the exchange.
Tenorio Jason
Equipment (cost) 500,000 300,000
Accumulated Depreciation 300,000 50,000
Fair value of Equipment 180,000 220,000
Cash paid by Tenorio to Jason 40,000 40,000
1) How much should Tenorio record the asset?
2) How much should Jason record the asset?
PROBLEM 4 - Brave Company carried out a number of transactions involving the acquisition of several assets. All expenditures were recorded in the following single asset account, identified as Property and equipment:
Property and equipment
Acquisition price of land and building 960,000
Options taken out on several pieces of property 16,000
List price of machinery purchased 318,400
Freight on machinery purchased 5,000
Repair to machinery resulting from damage during shipment 1,480
Cost of removing old machinery 4,800
Driveways and sidewalks 102,000
Building remodeling 400,000
Utilities paid since acquisition of building 20,800
1,828,480
Based on property tax assessments, which are believed to fairly represent the relative values involved, the building is worth twice as much as the land. The machinery was subject to a 2% cash discount, which was taken and credited to Purchases Discounts. Of the two options, P 6,000 is related to the building and land purchased and P 10,000 related to those not purchased. The old machinery was sold at book value.
Based on the above and the result of your audit, determine the adjusted balance of the following:
1) Land
2) Building
3) Machinery
PROBLEM 5 - The following items relate to the acquisition of a new machine by Bongabon Corporation in 2020:
Invoice price of machinery 2,000,000
Cash discount not taken 40,000
Freight on new machine 10,000
Cost of removing the old machine 12,000
Loss on disposal of the old machine 150,000
Gratuity paid to operator of the old machine who was laid off 70,000
Installation cost of new machine 60,000
Repair cost of new machine damaged in the process of installation 8,000
Testing costs before machine was put into regular operation 15,000
Salary of engineer for the duration of the trial run 40,000
Operating cost during first month of regular use 250,000
Cash allowance granted because the new machine proved to be of inferior quality 100,000
1) How much should be recognized as cost of the new machine?
PROBLEM 6 - On July 1, 2020, Drenz Company purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below.
Purchase price 925,000
Title insurance 7,500
Legal fees to purchase land 5,000
Cost of razing old building on lot 42,500
Proceeds from sale of salvageable materials 6,000
Property taxes, January 1, 2019 to June 30, 2019 15,000
Cost of grading and filling building site 45,000
Cost of building construction 3,100,000
Interest in construction loan 60,000
Cost of constructing driveway 400,000
Cost of parking lot and fencing 60,000
Based on the above data, determine the cost of the following:
1) Land
2) Building
3) Land Improvements
PROBLEM 7 - On January 1, 2020, ABC Company obtained a loan of P 4,000,000 at an interest rate of 10% specifically to finance the construction of its new building. Availments from the loan were made quarterly in unequal amounts. Total borrowing cost amounted to P 250,000. Prior to their disbursements, the proceeds of the loan were temporarily invested and earned interest income amounting to P 40,000. The building was completed on December 31, 2020.
1) The amount of capitalizable borrowing costs is?
PROBLEM 8 - Frey Company purchased a machine for P 4,500,000 on January 1, 2020. The machine has an estimated useful life of four years and a residual value of P 500,000. The machine is depreciated using the SYD.
1) The December 31, 2021 asset balance, net of accumulated depreciation, should be:
PROBLEM 9 - Bergen Company purchased factory equipment which was installed and put into service January 1, 2019 at a total cost of P 1,280,000. Residual value was estimated at P 80,000. The equipment is being depreciated over eight years by the double declining balance method.
1) For the year 2020, how much depreciation expense should be recorded on the equipment?
PROBLEM 10 - During 2020, Dual Company incurred P 4,000,000 in exploration cost for each of 15 oil wells drilled in 2020.
Of the 15 wells drilled, 10 were dry holes. The entity used the successful effort method of accounting. The entity depleted 30% of the oil discovered in 2020.
1) What amount of exploration cost should be reported in the December 31, 2020 statement of financial position?