Intermediate accounting by robles empleo ch 5 answers

If an insurance was acquired, the amount of premiums paid may be charged to the building being constructed.. The self-constructed asset should be charged for the actual costs incurred in

PROBLEMS

Land (6,750,000 x 2,187,500/5,625,000) 2,625,000 Office building (6,750,000 x 2,000,000/5,625,000) + 120,000 2,520,000 Warehouse (6,750,000 x 937,500/5,625,000) 1,125,000 Manager’s residence (6,750,000 x 500,000/5,625,000) 600,000

5.2 (Chang Corporation)

Present value of 24 monthly installments

5-3 (Urban Corporation)

Land ImprovementsLand Building

Demolition of old building 300,000

Legal fees for land acquisition 150,000

Assessment by the city government for sewer

Fixed overhead allocated to building

Salvage from the demolished building (70,000)

Compensation for injury to construction worker is chargeable to loss; this expenditure could have been avoided had the company obtained insurance on its workers If an insurance was acquired, the amount of premiums paid may be charged to the building being constructed

Profit on construction is not recognized anywhere in the accounts The self-constructed asset

should be charged for the actual costs incurred in its completion.

Modifications to the new building per instruction by the building inspectors is charged to loss since this expenditure is not a necessary expense for the asset This was incurred as a result of the company’s negligence and could have been avoided had proper planning been done

*Landscaping costs may be charged to the land account if there is an indication that such an expenditure is permanent in nature

5-4 (Doy Company)

Legal fees for purchase contract and recording ownership 50,000

Proceeds from sale of salvaged materials (10,000)

5-5 (Yu Corporation)

Land Improvements Buildings Machinery andEquipment Balances, December 31, 2008 P 10,000 P 900,000 P 980,000 Cost of fencing the property 110,000

Paid to a contractor for building erected 2,000,000

Allowances, etc to technicians during

Balances, December 31, 2009 P120,000 P3,020,000 P3,580,000 The interest of P150,000 is an imputed interest and is not recognized anywhere in the financial statements

The royalty payments of machines purchased is charged to operating expense for the period

Total cost to be allocated P22,150,000 Allocation:

Land 22,150,000 x 10,000/25,000 P 8,860,000 Building22,150,000 x 12,500/25,000 P 11,075,000 Equipment 22,150,000 x 2,500/25,000 P 2,215,000

d Cash price

Present value of the disposal costs

5.7 (Planters Company and Producers Company)

Books of Planters Company

Accumulated Depreciation-Building 540,000

1,000,000-540,000 = 460,000 book value

460,000 – 400,000 = 60,000 loss

Books of Planters Company

Accumulated Depreciation-Equipment 320,000

600,000-320,000 = 280,000

280,000 – 350,000 = 70,000 gain

5-8 (Far East Company)

Allocated fixed costs (20% 700,000) 140,000

Capitalized interest: (300,000 x 10% x 6/12) 15,000

b Average accumulated expenditures: (697,500/2) P348,500

Capitalized interest:

Total capitalized interest P 18,900

5-9 (Metro Company)

Less interest income earned on temporary investment of loan ( 85,000)

1,000,000 x 10% x 3/12 25,000

Less interest income earned on temporary investment of loan 40,000

c Computation of average accumulated expenditures:

1,000,000 x 9/12 750,000 1,200,000 x 5/12 500,000 1,000,000 x 3/12 250,000 400,000 x 0/12

-Average accumulated expenditures P1,900,000

Computation of weighted average interest rate:

(10% x 1,200,000) + (12% x 1,600,000) 11.14% 1,200,000 + 1,600,000

Interest of specific borrowing:

Less interest earned 20,000 P140,000 Interest on general borrowing:

300,000 x 11.14% 33,420

Less capitalized interest: (1,900,000 x 10.625%*) 201,875

* 680,000 ÷ 6,400,000 = 10.625%

5-10 (Lim Company)

Average accumulated expenditures P1,585,000

a Interest of specific borrowing (3,000,000 x 12%) P 360,000

Less interest revenue earned from temporary investments of

b Interest on specific borrowing (1,200,000 x 12% ) P 144,000

Less interest revenue earned from temporary investments of specific borrowing 49,000

P 95,000

Interest on general borrowings

* 1,585,000 – 1,200,000 = 385,000

** 680,000 ÷ 5,600,000 = 12.14%

5-11 a

b

Accumulated Depreciation-Machine (old) 340,000

Cash 880,000 (850,000–340,000)-(1,200,000–880,000)=190,000 loss

5-12 (Tan Company)

a Depreciation charges for 2008 and 2009

a SL (800,000 – 80,000) / 8 = 90,000

90,000 x 9/12= 67,500 90,000

b Hrs worked 720,000/100,000 hrs = 7.20/hr.7.20 x 4,500 hrs = 32,400 7.20 x 5,500 hrs = 39,600

c Units of output 720,000/900,000 units = 0.80/unit080 x 40,000 units = 32,000 0.80 x 60,000 units = 48,000

d SYD 720,000 x 8/36 x 9/12 = 120,000 720,000 x 7.25/36 =145,000

e DDB 2/8 = 25%

25% x 800,000 x 9/12=150,000 800,000-150,000=650,00025% x 650,000 = 162,500

f 150%

DB

1.5/8 = 18.75%

18.75% x 800,000 x 9/12= 112,500

800,000-112,500=687,500 18.75% x 687,500) = 128,906

b Carrying amount of the asset at the end of 2009

Depreciation Method Cost Accum Depr Carrying amount

c Units of output 800,000 80,000 720,000

f 150% declining balance 800,000 241,406 558,594

5-13 (Real Company)

a 2/5 = 40%; 26,400 ÷ 40% = 66,000

b 12,000 x 5 years = 60,000; 66,000 – 60,000 = 6,000

c Carrying amounts, end of year 3

Straight-line (66,000 – 36,000) = P30,000 Sum-of-the-years digits(66,000 – 48,000) = P18,000 Double-declining balance (66,000 – 52,744) = P13,256 The method with the lowest carrying amount at time of sale will yield the highest amount

of gain on disposal Therefore, the double-declining balance method will provide the highest gain on disposal at the end of year 3

5-14 (De Oro Company)

a Method 1 - Straight-line method

Method 2 - Sum-of-the-years digits method

320,000 ÷ 80,000 = 4 year life 320,000 x 4/10 = 128,000 320,000 x 3/10 = 96,000 Method 3 - 150% declining-balance method

1.5 ÷ 4 = 37.5%

37.5% x 340,000 = 127,500 37.5% x (340,000-127,500) = 79,688

Sum-of-the-years digits method

320,000 x 2/10 64,000 150% declining balance method

37.5% x (340,000-127,500-79,688) 49,804

5-15 (Citi Company)

a Depreciation Expense for 2008

Double-declining balance method

Sum-of-the-years digits method

720,000 x 8/36 x 1/2 80,000 Depreciation Expense for 2009

Double declining

Sum-of-the-years’ digits method

720,000 x 8/36 x 1/2 P80,000 720,000 x 7/36 x ½ 70,000 P150,000

b Carrying (book) value at December 31, 2009

Double-declining balance method Date Depreciation Expense for the year CV, end 12/31/08 800,000 x 25% X ½ = P100,000 P700,000 12/31/09 700,000 x 25% = 175,000 525,000 Sum of the years’ digit method

Cost P800,000 Accumulated Depreciation, 12/31/09 (720,000 x 11.5/36) 230,000

Carrying value, 12/31/09 P 570,000

5-16 (Total Company)

1 The company changes to the sum-of-the-years digits method

Less accumulated depreciation (1,100,000 ÷ 10) x 4 440,000 Carrying amount of the asset, beginning of 5th year P 760,000 Revised depreciation for the 5th year

760,000-100,000 = 660,000; 660,000 x 6/21 P 188,571

2 It was estimated that the asset’s remaining life is 5 years

Revised depreciation for the 5th year

(760,000 – 100,000) / 5 years P 132,000

5-17 (Chartered Company)

Less accumulated depreciation 30,000 x (5+4) / 15 18,000

Depreciation expense for 2009 (14,000 x 7/28) P 3,500

5-18 (Standard Company)

Less accumulated depreciation:

2008 20% x 256,000 51,200 295,200

Depreciation expense for 2009

204,800 – 10,000 = 194,800; 194,800 ÷ 5 years P 38,960

5.19 (Koh Trading)

Carrying amount of the asset, January 1, 2009 P153,600 Estimated remaining life in years ÷ 8 Depreciation expense for year ended December 31, 2009 P 19,200

5-20 (Carmi Company)

Less: Accumulated Depreciation, August 1, 2009(378,000–35,000)/5 x 2 137,200 Carrying value, August 1, 2009 P240,800

Depreciation (August – December, 2009, see below 22,567 Carrying value, December 31, 2009 P298,233 Depreciation for 2009

(378,000 – 35,000)/5 x 7/12 P40,017 (320,800 – 50,000) / (5 – 2) + 2 = 270,800 / 5 x 5/12 22,567

5-21 (Chu, Inc.)

Accumulated depreciation at January 1, 2008 (528,000 x 4/8) P264,000 Revised depreciation expense for 2008

528,000-264,000 = 264,000; 264,000 / 2 yrs 132,000 Accumulated depreciation at December 31, 2009 P396,000

5-22 (Allied Company)

Development costs incurred and capitalized during 2007 750,000

Estimated supply of mineral resources ÷3,500,000 Depletion expense per ton P 1.30 Number of tons removed during 2008 x 550,000 Depletion expense for 2008 P 715,000 Depletable cost, January 1, 2008 (see above) P4,550,000 Less depletion expense for 2008 ( 715,000) Add development costs incurred and capitalized during 2009 961,000 Depletable cost for 2008 P4,796,000 Revised estimated supply of mineral resource, 2009 ÷4,360,000 Revised depletion rate per ton P 1.10 Number of tons removed during 2009 700,000 Depletion expense for 2009 P 770,000

5.23 (Ong Exploration Company)

Salvage value ( 6,000,000) Restoration costs at present value (2,500,000 x 0.4632) 1,158,000

Estimated recovery from the property ÷10,000,000 Depletion rate per metric ton P 4.1658 Resources extracted during 2008 x 1,000,000 Depletion expense for 2008 P 4,165,800 Depletable cost, 2008 (see above) P41,658,000 Depletion expense for 2008 ( 4,165,800) Development costs 750,000 New depletable cost for 2008 P38,242,200 Remaining number of metric tons (9,250,000-1,000,000) ÷ 8,250,000 Revised depletion per metric ton (rounded) P 4.64 Number of metric tons removed during 2009 x 1,500,000 Depletion expense for 2009 P 6,960,000

5.24 (Family Mining Company)

Depletion rate per ton:

4,000,000 + 400,000 – 200,000

Depreciation expense per ton:

300,000 – 20,000

a Cost of ending inventory

2,000 units x 6 months 12,000 Production cost per unit

(8.00 + 3.00 + 0.20) x 11.20 Ending Inventory, December 31, 2008 P134,400

b Cost of goods sold

18,000 units x 6 months 108,000 Production cost per unit x 11.20 Cost of goods sold for 2008 P1,209,600

Less depletion expense for 2008

20,000 units x 6 months 120,000 Depletion rate per ton x 3.00 360,000 New depletable cost for 2009 P3,840,000 Revised estimated recovery at January 1, 2009 ÷ 800,000 Revised depletion rate for 2009 P 4.80

Less depreciation expense for 2008 (120,000 units x 0.20) 24,000

Revised estimated recovery at January 1, 2009 ÷ 800,000 Revised depreciation rate for 2009 P 0.32

5-25 (Yap Machine Shop)

a

Accumulated Depreciation-Building 450,000

Land 800,000

Accumulated Depreciation-Equipment 250,000

Accumulated Depreciation-Equipment 15,000

b

Property, Plant and Equipment (Net)

5-26 (Pat Corporation)

a Depreciation and amortization expense for year ended December 31, 2009

Buildings 1.5/25 = 6%; (12,000,000-2,631,000) x 6% P 562,140 Machinery and Equipment

Based on beginning balance (9,000,000 x 10%) 900,000

Less depreciation of machine destroyed 230,000 x 10% x 9/12 17,250 P 882,750 New machine

2,800,000 + 50,000 + 250,000=310,000 3,100,000 x 10% x 6/12 155,000

Automotive Equipment

Based on beginning balance 180,000 Less depreciation of car traded 180,000 x 2/10 36,000 P 144,000 New car

240,000 x 4/10 96,000

Leasehold Improvement

b Gain ( loss) from disposal of assets

Car traded in

Fair value of car traded in

(240,000 – 200,000) P 40,000 Book value of car traded 54,000 P(14,000) Machine destroyed by fire

Book value of machine (230,000 x 4/10 ) 92,000 63,000 Net gain from disposal of assets P 49,000

5-27

a

3,600,000-2,400,000 = 1,200,000 (50% Inc.) 50% x 4,000,000 = 2,000,000

50% x 1,600,000 = 800,000 b.

Accumulated Depreciation-Equipment 600,000 3,600,000 ÷ 6 yrs = 600,000

1,200,000 ÷ 6 yrs = 200,000

Accumulated Depreciation-Equipment 600,000

c

1/1/09 Accumulated Depreciation-Equipment 600,000

Accumulated Depreciation-Equipment 500,000

2,000,000 ÷ 4 yrs = 500,000

1,200,000-200,000-200,000-400,000=400,000 400,000 ÷ 4 yrs = 100,000

Original 1/1/07 1/1/07 07-08 12/31/08 1/1/09 1/1/09 12//31/09 Cost 4.000M +2.00M 6.000M - 6.00M -1.00M 5.00M 5.00M Accum 1.600M +0.80M 2.400M +1.20M 3.60M -0.60M 3.00M 3.50M

CV 2.400M +1.20M 3.600M -1.20M 2.40M -0.40M 2.00M 1.50M

5.28 (Lu Company)

2009

Jan 1 Impairment Loss - Machinery 131,250

Accumulated Depreciation-Machinery 131,250 (450,000 ÷ 8 yrs) x 3 yrs = 168,750

500,000 – 168,750 = 331,250 331,250 – 200,000 = 131,250

Accumulated Depreciation-Machinery 90,000 (200,000 – 20,000)÷ 2 yrs = 90,000

MULTIPLE CHOICE QUESTIONS Theory

Problems

MC26 d

MC27 d 14,400,000 x 5/20 = 3,600,000

MC28 c 200,000 + 3,000 + 6,000 = 209,000

MC29 c (800,000 – 20,000) x 12/78 x 9/12 = 90,000

MC30 c 780,000 x 11.25/78 = 112,500; 90,000 + 112,500 = 202,500

800,000 – 202,500 = 597,500 MC31 a 4,500,000 + 30,000 + 6,000 + 40,000 + 60,000 = 4,636,000 Land

10,000 + 50,000 + 90,000 + 45,000 + 150,000 + 9,800,000 = 10,145,000 Building MC32 c 1,800,000 x 10% = 180,000; 180,000 – 45,000 = 135,000

2,500,000 – 1,800,000 = 700,000 700,000 x 9% = 63,000; 135,000 + 63,000 = 198,000 MC33 c 4,000,000 x 10% x 6/12 = 200,000

750,000 x 12% x 6/12 = 45,000; 200,000 + 45,000 = 245,000

MC34 c 1,000,000 + (4,000,000÷ 2) = 3,000,000; 2,000,000 x 10% = 200,000

1,000,000 x 11% = 110,000; 200,000 + 110,000 = 310,000 MC35 a 4,500,000 + 1,320,000 + 77,000 + 53,000 = 5,950,000 total depreciable cost

112,500 + 66,000 + 9,625 + 13,250 = 201,375 total depreciation expense 5,950,000 ÷ 201,375 = 29.5 yrs

MC36 a 4,800,000 + 1,400,000 + 82,000 + 53,000 = 6,335,000 total cost

201,375 ÷ 6,335,000 = 3.18%

MC37 d 4,500,000 ÷ 40 yrs = 112,500

MC38 c 77,000 x 6/36 = 12,833

MC39 a 240,000 – 12,000 = 228,000; 228,000 ÷ 120 mos = 1,900 per mo

1,900 x 63 mos = 119,700 240,000 – 119,700 = 120,300; 120,300 – 130,000 = 9,700 MC40 c 270,000 x (8+7)/36 = 112,500

270,000 ÷ 8 = 33,750; 33,750 x 2 = 67,500 112,500 – 76,500 = 45,000

MC41 b 1.5/5 = 30% depreciation rate; 600,000 x 30% x ½ = 90,000

600,000 – 90,000 = 510,000; 510,000 x 30% = 153,000 MC42 a 90,000 x (5+4+3)/15 = 72,000 reported accum depreciation under SYD

90,000 x 2/15 = 12,000 MC43 b 240,000 ÷ 40 = 6,000; 240,000 x 90 x.90 x 10 = 19,440; 72,000 x 2/10 = 14,400 MC44 c 160,000/4 = 40,000; 400,000/40,000 = 10 years

240,000 – 40,000 = 200,000; 200,000 – 65,000 = 135,000 MC45 d (900,000 – 300,000) / 3 yrs = 100,000

600,000 + 100,000 = 700,000 MC46 a 900,000 – 420,000 = 480,000; 480,000 – 300,000 = 180,000

MC47 d 42,000 x 55 = 2,310,000; 2,310,000/7 = 330,000; 330,000 + 5,000 = 335,000 MC48 c 49,200,000 – 43,755,000 = 5,445,000; 5,445,000 ÷ 4.5 years = 1,210,000/yr

1,210,000 x 40 yrs = 48,400,000; 49,200,000 – 48,400,000 = 800,000 MC49 b 20,500 – 6,000 = 14,500; 14,500 – 16,800 = 2,300

MC50 b 40,000 – 30,000 = 10,000; 20,000 – 10,000 = 10,000 Gain

MC51 c 54,000,000 – 6,000,000 + 7,200,000 = 55,200,000; 55,200,000 ÷ 2,400,000 = 23 MC52 a 3,400,000 – 200,000 + 800,000 = 4,000,000

4,000,000 ÷ 4,000,000 = 1.00 per ton; 1.00 x 375,000 tons = 375,000 MC53 d P0 for Quarry No 1 since the asset is only being leased

1,000,000 – 300,000 = 700,000; 700,000 ÷ 100 M = 0.007 per ton 0.007 x 1,380,000 = 9,660

MC54 b 007 x 40,000,000 = 280,000; 700,000 – 280,000 = 420,000

420,000 ÷ 20,000,000 = 0.21; 0.21 x 1,380,000 = 28,980 MC55 b 3,600,000 ÷ 800,000 = 4.50; 4.50 x 60,000 = 270,000

96,000 – 6,000 = 90,000; 90,000 ÷ 800,000 = 0.1125 0.1125 x 60,000 = 6,750

MC56 c (8,600,000-600,000) ÷ 40 yrs = 200,000; 200,000 x 5 yrs = 1,000,000

8,600,000-1,000,000-600,000 = 7,000,000; 7,000,000 ÷ 30 yrs = 233,333 MC57 d 8,000,000 – 1,000,000 – 233,333 = 7,366,667

7,500,000 – 7,366,667 = 133,333 MC58 c 160,000 x 10 yrs = 1,600,000; 4,000,000 – 1,600,000 = 2,400,000

3,240,000 – 2,400,000 = 840,000 MC59 b 4,000,000 ÷ 160,000 = 25 years; 25 – 10 = 15 years remaining

3,240,000 ÷ 15 = 216,000