Reference no: EM132977749
Problem 1 - The following account balances are excerpt from DIPINAKOPYA Corp's trial balance for the audit period ended December 31, 2020:
Patents 4,940,000
Licensing Agreement 1,680,000
Trademark 1,606,000
Leasehold Improvements 1,300,000
Audit notes:
a. Patents for DIPINAKOPYA Corp's manufacturing process were acquired January 2, 2020, at a cost of Php 3,740,000. An additional amount of Php 1,387,000 was spent on December 30, 2020, for repairs on machinery covered by the patents and charged to patent account. The repairs were necessarily incurred to bring back the said machinery to its original working condition. DIPINAKOPYA Corp's uses the straight line method for all depreciation and amortization. The useful life of the patent is its legal life.
b. On January 1, 2019, DIPINAKOPYA Corp purchased the licensing agreement, which was useful for ten years. The licensing agreement account balance included the purchase price of Php 2,160,000 and Php 240,000 cost to train employees at the inception of the licensing agreement. The license have been amortized over the agreement term which is 10 years.
c. A trademark was purchased by DIPINAKOPYA Corp for Php 1,280,000 on July1 , 2019. Expenditures for the successful litigation in defense of the trademark totaled to Php 326,000 were paid on July 1, 2021a and were charged to the trademark account. The trademark was estimated to have an indefinite life. By the end of 2021, the company estimated to generate annual net future cash flows from the continued use of the trademark at Php 90,000. The prevailing market rate of interest on this date was at 9%
d. A 10 year non-renewable lease was signed January 3, 2021, for the leased building that DIPINAKOPYA Corp. used in manufacturing operations. The leasehold improvement account includes: o Php 900,000 cost of improvement with a total estimated useful life of 5 years, which was completed on March 1, 2021. o Php 400,000 lease rights paid for the exclusive right to occupy the leased property for the duration of the lease term without the lessor having the right to lease it out to other third parties.
e. Amortization/depreciation is yet to be recognized on lease-related assets.
1. What is the total retroactive adjustment to retained earnings in 2021 related to the licensing agreement?
PROBLEM 2 - You are auditing TAHAN NA Co.'s post-retirement benefits accounts.
The following selected accounts were lifted form the 2020 unadjusted trial balance. No adjusting entry had been made yet at year end in relation to the post-retirement benefits related accounts.
Accrued Pension Expense, January 1, 2020 630,000
Pension expense for 2020, amount contributed to the plan 1,200,000
Additional information: The memorandum account balances and other off-books transactions are as follows:
Plan assets at fair market value, January 1, 2020 9,450,000
Accumulated benefit obligation at present value, January 1, 2020 10,080,000
Payments to retirees at scheduled retirement in 2020 1,400,000
Payments to early retirees (settlement price) in 2020 800,000
Carrying value of accrued benefits of early retirees in 2020 650,000
Current service cost 855,000 Past service cost recognized in the current year 120,000
Settlement rate 12%
Plan asset at fair market value, December 31, 2020 9,800,000
Accumulated benefit obligation at present value, December 31, 2020 10,500,000
There had been no remeasurement (actuarial) gain or loss from plan asset and accumulated retirement obligation in the prior years.
2. What is the total pension expense in 2020?
3. What is the accrued pension liability as of December 31, 2020?