Adjusting entries: Loss on Disposal of Old Machine 3,000 Purchase Discounts 4,000 Profit on Construction 24,000 Machinery Tools 15,000 Accumulated Depreciation – Machinery old 120,000 Pr
Trang 1MULTIPLE CHOICE - THEORIES
Problem 1
(Pine Company)
Correct cost Recorded Cost Difference Land 25.8M x 8.4/28 P7,740,000 P7,000,000 P 740,000 Building 25.8M x 14/28 12,900,000 9,000,000 3,900,000 Equipment 25.8M x 5.6/28 5,160,000 4,000,000 1,160,000 Adjusting Entries:
Other Operating Expenses 5,000,000 Salaries and Commission Expense 800,000
2 Depreciation Expense – Building 130,000
Depreciation Expense – Equipment 77,333
Accumulated Depreciation – Building 116,667 Accumulated Depreciation – Equipment 77,333
5% x 3,900,000 x 8/1 2 = P130,000 10% x 1,160,000 x 8/12 = 77,333
Problem 2
(Gay Company)
Discount on Notes Payable (5% x 850,000) 42,500
Problem 3
Lakeside Company
Raw materials used in construction P176,000 – 4,000 P172,000
Cost of installation 10,000
Materials spoiled in trial runs 5,000
Incremental overhead due to machine construction 25,000
Decommissioning cost 40,000 x 56447 22,579
Purchase of machine tools P15,000 Correct Cost P284,579 P15,000
b Adjusting entries:
Loss on Disposal of Old Machine 3,000
Purchase Discounts 4,000
Profit on Construction 24,000
Machinery Tools 15,000
Accumulated Depreciation – Machinery (old) 120,000
Provision for Machine Dismantling 22,579
Trang 2Depreciation Expense – Machinery 158
Accumulated Depreciation – Machinery 158
(284,579 x 10%) – 28,300 = 158
Problem 4
Emem Corporation
Land Building Others Organization Fees P50,000 Org’n Exp Land site and old building P8,150,000
Corporate organization costs 30,000 Org’n Exp Title clearance fees 25,000
Cost of razing old building 220,000
Sale of scrap ( 25,000)
Stock bonus to corporate promoters 100,000 Org’n Exp (or –
APIC)
Cost of construction P18,000,000
Total correct cost P8,370,000 P18,000,000
Adjusting Entries
Building 18,000,000
Organization Expenses 180,000
Taxes Expense 25,000
Miscellaneous Revenues 25,000
Administrative Salaries 300,000
Land, Buildings and Equipment 26,900,000
Problem 5
Electro Corporation
Correct cost:
PV of future payments P100,000 x 3.6048 360,480
Correct Depreciation 410,480 / 15 x ½ P13,683
Adjusting Entries:
Discount on Notes Payable (500,000 – 360,480) 139,520
Discount on Notes Payable 36,048
360,480 x 12% x 10/12 Accumulated Depreciation 4,650
Depreciation Expense 4,650
13,683 – 18,333
Trang 3Problem 6
Flames Company
Accumulated Depreciation – Machine (40,000/10 x 5) 20,000
Loss on Replacement of Machine Parts 20,000
Accumulated Depreciation 7,000
Depreciation Expense 7,000
Accumulated depreciation, 12/31/11
200,000/10 x 5 100,000 Removed accumulated depreciation ( 20,000) (80,000) Carrying value after overhaul P130,000
2012 depreciation
130000/(10-5+5) P 13,000 Recorded depreciaition 20,000 Adjustment P 7,000
Problem 7
Silver Company
Equipment Accumulated
Depreciation
6/01/12 Purchase of Machine 14 P15,000 + 3,500 18,500
09/01/12 Sold Machine 8 ( 8,000)
8,000 x 10% x 4 ( 3,200)
Depreciation for 2012
60,500 x 10% _ 6,050
Balances, December 31, 2012 P60,500 P 30,850 Adjusting Entries:
Accumulated Depreciation 3,200
Loss on Sale of Equipment 4,200
Equipment 8,000 – (1,000 - 400) 7,400
Net proceeds P1,000 – 400 P 600
Carrying value P8,000 – 3,200 4,800
Trang 4Accumulated Depreciation – Equipment 390
Depreciation Expense – Equipment 390
6,440 – 6,050
Problem 8
Conquer Company
Equipment Accumulated
Depreciation
May 1 Acquisition P60,000 + P4,000 64,000
Oct 1 Sale (20,000)
20,000 x 10% x 2 ( 4,000) Dec 31 Depreciation
(223,000 – 20,000) x 10% P20,300 20,000 x 10% x ½ 1,000 64,000 x 10% x ½ 3,200 _ 24,500 December 31, 2010 Balances P267,000 P 64,500 Adjusting Entries
Loss on Sale of Equipment 4,000
Accumulated Depreciation 4,000
Accumulated Depreciation 200
Depreciation Expense 200
24,700 – 24,500
Problem 9
Berol Giant Corporation
Audit Adjusting Entries
Rent Expense (50,000 x 9/12) 375,000
Finance Lease Liability 3,540,000
Profit on Construction 150,000
Trang 5Accumulated Depreciation – Machinery and Equipment 2,880,000
Gain on Sale of Machinery 680,000 Machinery and Equipment 4,800,000 – 2,600,000 2,200,000
Cost P4,800,000 Accumulated depreciation
480,000/10 x 6 2,880,000 Carrying value P1,920,000
Gain on Sale of M and E P 680,000
Building 24,000,000
Unearned Income from Government Grant 30,000,000
Depreciation Expense – Building 511,667
Accumulated Depreciation – Building 511,667
Correct depreciation
Old P12,000,000/ 25 P480,000 Improvement 1,600,000/12 x ½ 66,667 Donated 24,000,000/25 x ½ 480,000 Correct depreciation P1,026,667
Unearned Income from Government Grant 600,000
Income from Government Grant 600,000
30,000,000/25 x ½ Accumulated Depreciation – Machinery and Equipment 312,000
Depreciation Expense – Machinery and Equipment 312,000
Correct depreciation – Machinery and Equipment
(38,500,000 – 4,800,000)/10 = P3,370,000 4,800,000 / 10 x ½ 240,000 Total P3,610,000 Per client 3,922,000 Adjustment P 312,000
Depreciation Expense – Land Improvements 25,000
Accumulated Depreciation – Land Improvements 25,000
500,000 / 10 x ½ = 25,000
b Adjusted balances:
2 Land Improvements 500,000
3 Accumulated Depreciation – Land Improvements 25,000
5 Accumulated Depreciation – Buildings 7,026,667
6 Machinery and Equipment 33,700,000
7 Accumulated Depreciation – Machinery and Equipment 18,055,000
8 Unearned Income from Government Grant 29,400,000
9 Depreciation Expense – Land Improvements 25,000
10 Depreciation Expense – Buildings 1,026,667
11 Depreciation Expense – Machinery and Equipment 3,610,000
12 Amortized Income from Government Grant 600,000
Trang 6Problem 10
Malabon Company
Schedule of Depreciation Expense
A Building
Method – 150% declining balance
Depreciation rate = 1.5/25 = 6%
Old (P12,000,000 – P2,654,000) x 6% P560,760 New P12,800,000 x 6% 768,000
2012 Depreciation – Building P1,328,760
B Machinery and Equipment
Method – straight-line
Useful life – 10 years
Old including scrapped in December
New P290,000/10 x 6/12 14,500
2012 Depreciation – Machinery P789,500
C Automobiles and Trucks
Method - 150% declining balance
Depreciation rate = 1.5/5 = 30%
Old (not sold)
(P13,200,000 – P8,620,000) = P4,580,000 P4,580,000 – (P810,000 + 235,200) x 30% P1,060,440
New P650,000 x 30% x 4/12 65,000
2012 Depreciation – Automobiles and Trucks P1,360,640
D Leasehold Improvements
Method – straight line
Useful life – 8 years
Lease term : original 6 years upon completion of the improvement
Remaining useful life = 8 – 3 = 5 years
Remaining lease term = 6 – 3 + 4 = 7 years
2012 Depreciation: (P2,210,000 – 1,105,000) / 5 = P 221,000
E Land Improvements
Method – straight-line
Useful life – 12 years
2012 Depreciation: P1,920,000 / 12 x 9/12 P 120,000
b Adjusted Balances:
2 Land Improvements 1,920,000
3 Accumulated Depreciation – Land Improvements 120,000
4 Building 24,800,000
5 Accumulated Depreciation – Buildings 3,892,760
6 Machinery and Equipment 7,870,000
7 Accumulated Depreciation – Machinery and Equipment 2,611,250
8 Automobiles and Trucks 5,258,750
9 Accumulated Depreciation – Automobiles and Trucks 3,059,360
10 Leasehold Improvements 2,210,000
11 Accumulated Depreciation – Leasehold Improvements 1,326,000
Trang 7Problem 11
Adjusting Entries
a Depreciation Expense – Machine A 15,750
Acc Depreciation 1/1/12 105,000 / 12 x 3 ( 26,250) Carrying amount 1/1/12 P 78,750 78,750 / 5 = P 15,750
b Depreciation Expense – Machine B 40,000
Accumulated Depreciation – Machine B 40,000
P240,000 / 6 = P 40,000 Impairment Loss 15,000
Accumulated Depreciation – Machine B 15,000
Carrying value 12/31/12 P240,000 x 3.5/6 P140,000 Recoverable amount 125,000 Impairment loss P 15,000
c Depreciation Expense – Building A 590,625
Accumulated Depreciation – Building A 590,625
Carrying value 1/1/12 P6,300,000 x 15/20 = P4,725,000
2012 Depreciation = P4,725,000 x 15/120 = P 590,625
d Retained Earnings 175,000
Accumulated Depreciation – Building B 175,000
Carrying value 12/31/11 P5,250,000 x 7/10 = P3,675,000 Recoverable amount 3,500,000 Impairment loss in 2011 P 175,000 Depreciation Expense – Building B 500,000
Accumulated Depreciation – Building B 500,000
3,500,000 / 7 = P 500,000 Accumulated Depreciation – Building B 100,000
Gain - Recovery of Previous Impairment 100,000
Carrying value, 12/31/12 3,500,000 – 500,000 = P3,000,000
Recoverable amount 3,100,000 Increase in value P 100,000 Limit on recovery
175,000 x 6/7 P 150,000
e Depreciation Expense – Building 300,000
Accumulated Depreciation – Building 300,000
12,000,000 / 20 x 6/12
Trang 8Investment Property – Land 8,000,000
Investment Property – Building 12,000,000
Accumulated Depreciation – Building (PPE) (12M/20 x 4.5)2,700,000
Revaluation Surplus 4,200,000 Investment Property – Land 500,000
Investment Property – Building 400,000
Fair Value Gain on Investment Property 900,000
Problem 12
Gotham Company
As of December 31, 2011
Based on Cost Based on
Revalued Amt Balance of Revaluation
Surplus
Building, net of accumulated
depreciation 14,000,000 20,000,000 6,000,000 (a) Depreciation expense on the building for the year 2012:
P20,000,000 / 20 years = P1,000,000
(b) Revaluation surplus transferred to Retained Earnings = P6,000,000 / 20 = P300,000 (c) Balance of revaluation surplus at December 31, 2012 statement of financial position =
Based on Previous Revaluation
Based on New Revalued Amt Difference
Building, net of accumulated
depreciation 19,000,000 21,850,000 2,850,000
Balance of Revaluation Surplus at December 31, 2012 statement of financial position:
12/31/11 Balance Realized in 2012 New Revaluation 12/31/12 Final Pertaining to land P5,000,000 - P2,000,000 P7,000,000 Pertaining to building 6,000,000 (300,000) 2,850,000 8,550,000 Total P11,000,000 P(300,000) P4,850,000 P15,550,000
Trang 9Problem 13
(Ecstacy Company)
Adjusting Entries
Research and Development Expense (400,000+1,600,000) 2,000,000
Goodwill 2,784,000
Formula (or Patent) 350,000
Legal Fees 126,500
Retained Earnings (3/24 x 280,000) 35,000
Rent Expense (1/2 x 280,000) 140,000
Prepaid Rent 175,000 Retained Earnings (6/60 x 420,000) 42,000
Amortization Expense – Franchise 84,000
Accumulated Amortization – Franchise 126,000 Amortization Expense – Patents 61,667
Accumulated Amortization – Patents 61,667
740,000 /10 x 10/12
Problem 14
(Mandy Moore Corporation)
Adjusting Entries
Research and Development Expense 940,000
Rent Expense (91,000 x 5/7) 65,000
Prepaid Rent (91,000 – 65,000) 26,000
General and Administrative Expense / Share Premium * 36,000
Discount on Bonds Payable 84,000
Advertising and Promotions Expenses 207,000
Other Operating Expenses 241,000
Share Premium – Ordinary Share 250,000 Intangible Assets 1,424,000
* If there is no share premium from the same transaction/ If share premium results from the same transaction
Trang 10Problem 14
(Kookabar Enterprises)
750,000 x 7/10 = 525,000
Accumulated Amortization – Patents 4,975,000
To reinstate the gross cost of the patents and related Accumulated Amortization
(5,500,000 – 525,000) ÷ 7/14 Total cost is therefore P9,950,000 Accumulated amortization = 9,950,000 x 7/14 = P4,975,000
Accumulated Amortization – Patents 910,714
(P2,100,000 – 1,050,000) / 3 years =P 350,000 (P9,95,000 – 2,100,000) / 14 years = 560,714
2012 Amortization P 910,714 Selling and Administrative Expenses 450,000
Selling and Administrative Expenses 100,000
Accumulated Amortization – Franchise Agreement 100,000
50,000 /5 = 10,000 Retained Earnings 440,000
Retained Earnings (45,000 + 100,000) 145,000
Problem 16
(Yuka Sato Corporation)
Accumulated Amortization – Patents 5,500
93,500 / 17 = 5,500 Impairment Loss – Licensing Agreement No 1 42,000
Accumulated Impairment – Licensing Agreement 1 42,000
70% x 60,000 = 42,000 Licensing Agreement No 2 4,000
Unearned Revenue 4,000
(Correction: advance collection of 2013,
instead of 2011 revenue)
Selling and Administrative Expenses 6,000
Accumulated Amortization – Licensing Agreement No 2 6,000
60,000 / 10 = 6,000
Trang 11Retained Earnings 30,000
Miscellaneous Receivables 6,100
Leasehold Improvements 21,100
Accumulated Depreciation – Leasehold Improvements 3,000
15,000/ 10 = 1,500
Organization Costs 32,000
Problem 17
Genuine Company
(1) Audit Adjusting Entries
Accumulated Amortization – Patents 200,000 Professional Fees and Other Legal Expenses 120,000
Accumulated Amortization – Patents 100,000 Impairment Loss – Patents 169,288
Accumulated Amortization – Patents 169,288
Carrying value before impairment P700,000 Value in use = 140,000 x 3.7908 = 530,712 Impairment loss P169,288 Professional Fees and Other Legal Expenses 70,000
Amortization of Trademarks (150,000/3) 50,000
Accumulated Amortization – Trademarks 50,000 Discount on Notes Payable 166,020
Face value of the note P800,000 Present value when issued
200,000 x 3.1699 633,980 Initial discount P166,020
Trang 12Retained Earnings 63,398
Discount on Notes Payable
Date Periodic Payment Interest Principal Bal of Principal 1/1/11 P633,980 12/31/11 P200,000 P63,398 P136,602 497,378 12/31/12 200,000 49,738 150,262 347,116
Accumulated Amortization – Franchise 83,398
Correct cost of franchise = 200,000 + 633,980 = 833,980 Recorded amortization ( 10 year life) 100,000 Correct amortization 833,980/10 83,398 Adjustment 16,602
(2.) Adjusted Balances
(a) Gross cost of patents ……….P1,000,000 (b) Carrying value of patents, December 31, 2011……… 800,000 (c) Amortization of patents for 2012……… 100,000 (d) Impairment loss on patents – 2012……… 169,288 (e) Amortization of patents for the year 2013 = 530,712/5 ……… 106,142 (f) Total expenses relating to the Trademark = 70,000 + 50,000……… 120,000 (g) Correct cost of the franchise……… 833,980 (h) Discount on notes payable, 12/31/12 = 166,020 – 113,136……… 52,884 (i) Interest expense for 2012 relating to the Notes Payable……… 49,738 (j) Carrying value of the Franchise, 12,31,12 (833,980 – 166,796)……… 667,184 (k) Initial cost of goodwill 285,000 ÷ 19/20 ……… 300,000 (l) Net adjustment to Retained Earnings, 1/1/12……… 71,796 dr