Solution manual practical auditing by empleo (2013 ed ) practical auditing by empleo (chapter 7 non current operating assets

Solutions – Chapter NON-CURRENT OPERATING ASSETS B A B A MULTIPLE CHOICE - THEORIES A B C D D 10 A Problem (Pine Company) Land 25.8M x 8.4/28 Building 25.8M x 14/28 Equipment 25.8M x 5.6/28 Correct cost P7,740,000 12,900,000 5,160,000 Adjusting Entries: Land Building Equipment Other Operating Expenses Salaries and Commission Expense Recorded Cost Difference P7,000,000 P 740,000 9,000,000 3,900,000 4,000,000 1,160,000 740,000 3,900,000 1,160,000 Depreciation Expense – Building 130,000 Depreciation Expense – Equipment 77,333 Accumulated Depreciation – Building Accumulated Depreciation – Equipment 5% x 3,900,000 x 8/1 = P130,000 10% x 1,160,000 x 8/12 = 77,333 5,000,000 800,000 116,667 77,333 Problem (Gay Company) Discount on Notes Payable (5% x 850,000) Equipment 42,500 42,500 Problem Lakeside Company a Machinery Raw materials used in construction P176,000 – 4,000 P172,000 Labor 50,000 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 Correct Cost P284,579 b Adjusting entries: Machinery Loss on Disposal of Old Machine Purchase Discounts Profit on Construction Machinery Tools Accumulated Depreciation – Machinery (old) Factory Overhead Control Provision for Machine Dismantling Machinery (old) Machinery Tools P15,000 P15,000 1,579 3,000 4,000 24,000 15,000 120,000 25,000 22,579 120,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS Depreciation Expense – Machinery Accumulated Depreciation – Machinery (284,579 x 10%) – 28,300 = 158 Problem Emem Corporation 158 Land Building Organization Fees Land site and old building P8,150,000 Corporate organization costs Title clearance fees 25,000 Cost of razing old building 220,000 Sale of scrap ( 25,000) Salaries Stock bonus to corporate promoters Real estate tax Cost of construction Total correct cost P8,370,000 158 Others P50,000 Org’n Exp 30,000 Org’n Exp P18,000,000 P18,000,000 300,000 Salaries Exp 100,000 Org’n Exp (or – APIC) 25,000 Taxes Expense Adjusting Entries Land Building Organization Expenses Taxes Expense Miscellaneous Revenues Administrative Salaries Land, Buildings and Equipment 8,370,000 18,000,000 180,000 25,000 25,000 300,000 26,900,000 Problem Electro Corporation Correct cost: Down payment PV of future payments P100,000 x 3.6048 Total cost P50,000 360,480 P410,480 Correct Depreciation 410,480 / 15 x ½ P13,683 Adjusting Entries: Discount on Notes Payable (500,000 – 360,480) Machine Interest Expense Discount on Notes Payable 360,480 x 12% x 10/12 Accumulated Depreciation Depreciation Expense 13,683 – 18,333 139,520 139,520 36,048 36,048 4,650 4,650 Solutions – Chapter NON-CURRENT OPERATING ASSETS Problem Flames Company Accumulated Depreciation – Machine Loss on Replacement of Machine Parts Machinery (40,000/10 x 5) Machinery Repairs Expense 20,000 20,000 40,000 50,000 Accumulated Depreciation Depreciation Expense 7,000 Cost Removed part Replacement Revised gross cost Accumulated depreciation, 12/31/11 200,000/10 x Removed accumulated depreciation Carrying value after overhaul 50,000 7,000 P200,000 ( 40,000) 50,000 P210,000 100,000 ( 20,000) 2012 depreciation 130000/(10-5+5) Recorded depreciaition Adjustment (80,000) P130,000 P 13,000 20,000 P 7,000 Problem Silver Company Equipment Balance, 1/01/12 6/01/12 Purchase of Machine 14 P15,000 + 3,500 09/01/12 Sold Machine 8,000 x 10% x Depreciation for 2012 60,500 x 10% Balances, December 31, 2012 P 50,000 18,500 ( 8,000) _ P60,500 Adjusting Entries: Accumulated Depreciation Loss on Sale of Equipment Equipment 8,000 – (1,000 - 400) Net proceeds P1,000 – 400 Carrying value P8,000 – 3,200 Loss on sale Equipment Repairs and Maintenance 3,200 4,200 7,400 P 600 4,800 P4,200 3,500 3,500 Accumulated Depreciation P 28,000 ( 3,200) 6,050 P 30,850 Solutions – Chapter NON-CURRENT OPERATING ASSETS Accumulated Depreciation – Equipment Depreciation Expense – Equipment 6,440 – 6,050 390 390 Problem Conquer Company January Balances May Acquisition P60,000 + P4,000 Oct Sale 20,000 x 10% x Dec 31 Depreciation (223,000 – 20,000) x 10% 20,000 x 10% x ½ 64,000 x 10% x ½ December 31, 2010 Balances Equipment Accumulated Depreciation P 223,000 P 44,000 64,000 (20,000) ( 4,000) P20,300 1,000 3,200 _ P267,000 24,500 P 64,500 Adjusting Entries Equipment Operating Expenses 4,000 Loss on Sale of Equipment Accumulated Depreciation Equipment 4,000 4,000 Accumulated Depreciation Depreciation Expense 24,700 – 24,500 4,000 8,000 200 200 Problem Berol Giant Corporation Audit Adjusting Entries Rent Expense (50,000 x 9/12) Prepaid Rent Finance Lease Liability Machinery and Equipment 375,000 125,000 3,540,000 Profit on Construction Building 150,000 Land Improvement Land 500,000 4,040,000 150,000 500,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS Accumulated Depreciation – Machinery and Equipment 2,880,000 Gain on Sale of Machinery Machinery and Equipment 4,800,000 – 2,600,000 Cost P4,800,000 Accumulated depreciation 480,000/10 x 2,880,000 Carrying value P1,920,000 Proceeds 2,600,000 Gain on Sale of M and E P 680,000 Land Building Unearned Income from Government Grant 6,000,000 24,000,000 Depreciation Expense – Building 511,667 Accumulated Depreciation – Building 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 Per client 515,000 Adjustment P 511,667 Unearned Income from Government Grant Income from Government Grant 30,000,000/25 x ½ 680,000 2,200,000 600,000 Accumulated Depreciation – Machinery and Equipment 312,000 Depreciation Expense – Machinery and Equipment 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 Accumulated Depreciation – Land Improvements 500,000 / 10 x ½ = 25,000 25,000 511,667 600,000 312,000 25,000 b Adjusted balances: 10 11 12 Land Land Improvements Accumulated Depreciation – Land Improvements Buildings Accumulated Depreciation – Buildings Machinery and Equipment Accumulated Depreciation – Machinery and Equipment Unearned Income from Government Grant Depreciation Expense – Land Improvements Depreciation Expense – Buildings Depreciation Expense – Machinery and Equipment Amortized Income from Government Grant 30,000,000 P48,250,000 500,000 25,000 37,600,000 7,026,667 33,700,000 18,055,000 29,400,000 25,000 1,026,667 3,610,000 600,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS Problem 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% New P12,800,000 x 6% 2012 Depreciation – Building P560,760 768,000 P1,328,760 B Machinery and Equipment Method – straight-line Useful life – 10 years Old including scrapped in December P7,750,000/10 New P290,000/10 x 6/12 2012 Depreciation – Machinery 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 – (P810,000 + 235,200) x 30% Sold New P650,000 x 30% x 4/12 2012 Depreciation – Automobiles and Trucks P775,000 14,500 P789,500 P4,580,000 P1,060,440 235,200 65,000 P1,360,640 D Leasehold Improvements Method – straight line Useful life – years Lease term : original years upon completion of the improvement Remaining useful life = – = years Remaining lease term = – + = years 2012 Depreciation: (P2,210,000 – 1,105,000) / = P 221,000 E Land Improvements Method – straight-line Useful life – 12 years 2012 Depreciation: P1,920,000 / 12 x 9/12 b Adjusted Balances: Land Land Improvements Accumulated Depreciation – Land Improvements Building Accumulated Depreciation – Buildings Machinery and Equipment Accumulated Depreciation – Machinery and Equipment Automobiles and Trucks Accumulated Depreciation – Automobiles and Trucks 10 Leasehold Improvements 11 Accumulated Depreciation – Leasehold Improvements P 120,000 P16,200,000 1,920,000 120,000 24,800,000 3,892,760 7,870,000 2,611,250 5,258,750 3,059,360 2,210,000 1,326,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS Problem 11 Adjusting Entries a Depreciation Expense – Machine A Accumulated Depreciation Cost Acc Depreciation 1/1/12 105,000 / 12 x Carrying amount 1/1/12 78,750 / = 15,750 P105,000 ( 26,250) P 78,750 P 15,750 b Depreciation Expense – Machine B Accumulated Depreciation – Machine B P240,000 / = P 40,000 Impairment Loss Accumulated Depreciation – Machine B Carrying value 12/31/12 P240,000 x 3.5/6 Recoverable amount Impairment loss 40,000 40,000 15,000 15,000 P140,000 125,000 P 15,000 c Depreciation Expense – Building A Accumulated Depreciation – Building A Carrying value 1/1/12 P6,300,000 x 15/20 = P4,725,000 2012 Depreciation = P4,725,000 x 15/120 = P 590,625 590,625 d Retained Earnings Accumulated Depreciation – Building B Carrying value 12/31/11 P5,250,000 x 7/10 = P3,675,000 Recoverable amount 3,500,000 Impairment loss in 2011 P 175,000 175,000 Depreciation Expense – Building B Accumulated Depreciation – Building B 3,500,000 / = P 500,000 500,000 Accumulated Depreciation – Building B Gain - Recovery of Previous Impairment Carrying value, 12/31/12 3,500,000 – 500,000 = Recoverable amount Increase in value Limit on recovery 175,000 x 6/7 100,000 e Depreciation Expense – Building Accumulated Depreciation – Building 12,000,000 / 20 x 6/12 15,750 590,625 175,000 500,000 100,000 P3,000,000 3,100,000 P 100,000 P 150,000 300,000 300,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS Investment Property – Land 8,000,000 Investment Property – Building 12,000,000 Accumulated Depreciation – Building (PPE) (12M/20 x 4.5)2,700,000 Land Building Revaluation Surplus Investment Property – Land Investment Property – Building Fair Value Gain on Investment Property Problem 12 Gotham Company Based on Cost Land Building, net of accumulated depreciation P15,000,000 14,000,000 500,000 400,000 6,500,000 12,000,000 4,200,000 900,000 As of December 31, 2011 Based on Balance of Revalued Amt Revaluation Surplus P20,000,000 P5,000,000 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 = Land Building, net of accumulated depreciation Based on Previous Revaluation P20,000,000 Based on New Revalued Amt Difference P22,000,000 P2,000,000 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 Pertaining to land P5,000,000 Pertaining to building 6,000,000 Total P11,000,000 -(300,000) P(300,000) P2,000,000 2,850,000 P4,850,000 12/31/12 Final P7,000,000 8,550,000 P15,550,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS Problem 13 (Ecstacy Company) Adjusting Entries Franchise Prepaid Rent Retained Earnings Patents Research and Development Expense (400,000+1,600,000) Goodwill Formula (or Patent) Legal Fees Intangible Assets 420,000 280,000 160,000 740,000 2,000,000 2,784,000 350,000 126,500 Retained Earnings (3/24 x 280,000) Rent Expense (1/2 x 280,000) Prepaid Rent 35,000 140,000 Retained Earnings (6/60 x 420,000) Amortization Expense – Franchise Accumulated Amortization – Franchise 42,000 84,000 Amortization Expense – Patents Accumulated Amortization – Patents 740,000 /10 x 10/12 61,667 6,860,500 175,000 126,000 61,667 Problem 14 (Mandy Moore Corporation) Adjusting Entries Research and Development Expense Patents Rent Expense (91,000 x 5/7) Prepaid Rent (91,000 – 65,000) General and Administrative Expense / Share Premium Discount on Bonds Payable Advertising and Promotions Expenses Other Operating Expenses Share Premium – Ordinary Share Intangible Assets 940,000 75,000 65,000 26,000 * 36,000 84,000 207,000 241,000 250,000 1,424,000 * If there is no share premium from the same transaction/ If share premium results from the same transaction Solutions – Chapter NON-CURRENT OPERATING ASSETS Problem 14 (Kookabar Enterprises) Retained Earnings Patents 750,000 x 7/10 = 525,000 525,000 525,000 Patents 4,975,000 Accumulated Amortization – Patents 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 Cost of Goods Sold 910,714 Accumulated Amortization – Patents (P2,100,000 – 1,050,000) / years =P 350,000 (P9,95,000 – 2,100,000) / 14 years = 560,714 2012 Amortization P 910,714 Selling and Administrative Expenses Franchise Agreement 450,000 Selling and Administrative Expenses Accumulated Amortization – Franchise Agreement 50,000 /5 = 10,000 100,000 4,975,000 910,714 450,000 Retained Earnings Organization Costs 440,000 Retained Earnings (45,000 + 100,000) Goodwill 145,000 100,000 440,000 145,000 Problem 16 (Yuka Sato Corporation) Equipment Patents Cost of Goods Sold Accumulated Amortization – Patents 93,500 / 17 = 5,500 Impairment Loss – Licensing Agreement No Accumulated Impairment – Licensing Agreement 70% x 60,000 = 42,000 34,700 34,700 5,500 5,500 42,000 Licensing Agreement No Unearned Revenue (Correction: advance collection of 2013, instead of 2011 revenue) 4,000 Selling and Administrative Expenses Accumulated Amortization – Licensing Agreement No 60,000 / 10 = 6,000 6,000 42,000 4,000 6,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS Retained Earnings Goodwill 30,000 Equipment Miscellaneous Receivables Leasehold Improvements 15,000 6,100 Retained Earnings Cost of Goods Sold Accumulated Depreciation – Leasehold Improvements 15,000/ 10 = 1,500 1,500 1,500 Retained Earnings Organization Costs 32,000 30,000 21,100 3,000 32,000 Problem 17 Genuine Company (1) Audit Adjusting Entries Patents Accumulated Amortization – Patents 200,000 Professional Fees and Other Legal Expenses Patents 120,000 Amortization of Patents Accumulated Amortization – Patents 100,000 Impairment Loss – Patents Accumulated Amortization – Patents Carrying value before impairment P700,000 Value in use = 140,000 x 3.7908 = 530,712 Impairment loss P169,288 169,288 200,000 120,000 100,000 Professional Fees and Other Legal Expenses Trademarks 70,000 Amortization of Trademarks (150,000/3) Accumulated Amortization – Trademarks 50,000 Discount on Notes Payable Franchise Face value of the note Present value when issued 200,000 x 3.1699 Initial discount 166,020 P800,000 633,980 P166,020 169,288 70,000 50,000 166,020 Solutions – Chapter NON-CURRENT OPERATING ASSETS Retained Earnings 63,398 Interest Expense 49,738 113,136 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 Franchise Retained Earnings 16,602 Franchise Accumulated Amortization 83,398 16,602 Amortization of Franchise 83,398 Accumulated Amortization – Franchise Correct cost of franchise = 200,000 + 633,980 = 833,980 Recorded amortization ( 10 year life) Correct amortization 833,980/10 Adjustment 83,398 100,000 83,398 16,602 Retained Earnings Organization Costs 40,000 Goodwill (285,000/ 19 ) Retained Earnings 15,000 Advertising Expense Goodwill 165,000 (2.) 83,398 40,000 15,000 165,000 Adjusted Balances (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Gross cost of patents ……………………………………………………………………….P1,000,000 Carrying value of patents, December 31, 2011…………………………………… 800,000 Amortization of patents for 2012……………………………………………………… 100,000 Impairment loss on patents – 2012…………………………………………………… 169,288 Amortization of patents for the year 2013 = 530,712/5 ……………………… 106,142 Total expenses relating to the Trademark = 70,000 + 50,000……………… 120,000 Correct cost of the franchise……………………………………………………………… 833,980 Discount on notes payable, 12/31/12 = 166,020 – 113,136…………………… 52,884 Interest expense for 2012 relating to the Notes Payable……………………… 49,738 Carrying value of the Franchise, 12,31,12 (833,980 – 166,796)……………… 667,184 Initial cost of goodwill 285,000 ÷ 19/20 ………………………………………… 300,000 Net adjustment to Retained Earnings, 1/1/12……………………………………… 71,796 dr Solutions – Chapter NON-CURRENT OPERATING ASSETS Multiple Choice 10 11 12 13 14 15 16 17 18 19 20 B A C A C C B C D B D D C C B C B C C B 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 B C D D A B A D B C C C B A B C C B B D A C D C Supporting computations: B A P300,000/10 x 7/12 = (300,000 x 6/10) + 36,000 x 5/12 Depreciation expense for 2012 Carrying value as of August 1, 2012 Overhaul costs Depreciation – Aug – Dec 31, 2012 - January – June 30, 2013 216,000 / x 6/12 Carrying value, June 30, 2013 Proceeds from sale Loss from sale P17,500 11,250 P 28,750 P180,000 36,000 ( 11,250) ( 13,500) P191,250 185,000 P 6,250 C Correct depletion for 2012 P4,860,000 / 1,620,000 x (15,000 tons x months) = Recorded depletion Overstatement in depletion A Estimated useful life in years = 15 years Estimated mining period = 1,620,000 / 15,000 = 108 months or years Use unit of output method, since mining period is shorter than life in years P270,000 405,000 P135,000 Correct depreciation = (P600,000 x 90%) / 1,620,000 x 90,000 tons Recorded depreciation Overstatement in depreciation P 30,000 40,000 P 10,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS C Remaining machines at December 31, 2010 = Machines and only Cost allocated to Machine P1,200,000 x 500,000/1,500,000 P 400,000 Accumulated Depreciation of Machines and Machine 400,000 x 5/10 = Machine 500,000 / 10 x 6/12 Total C B C P200,000 25,000 P225,000 = Land Cash paid P 800,000 FV of shares issued 8,000 x 107 856,000 Cost of removal of old buildings 98,000 Examination of title 13,000 Legal work for construction contract Insurance premium during period of construction 22,800 x 2/24 Special tax assessment 40,000 Superintendent’s salary Construction costs (600,000 + 400,000 + 400,000) Correct cost P1,807,000 Correct cost of building Depreciation for 2012 = P1,462,500 / 50 x 6/12 Building P 18,600 1,900 42,000 1,400,000 P 1,462,500 P1,462,500 P 14,625 through 12 Audit Adjusting Entries: Buildings and Equipment Accumulated Depreciation – Buildings and Equipment Gain on Exchange of Buildings and Equipment Buildings and Equipment 10,000 30,000 10,000 Buildings and Equipment Accumulated Depreciation – Buildings and Equipment Buildings and Equipment 10,000 60,000 Buildings and Equipment Loss on Exchange of Buildings and Equipment Buildings and Equipment 240,000 80,000 50,000 70,000 320,000 D Net decrease in cost of buildings and equipment P180,000 10 B Net decrease in accumulated depreciation P 90,000 11 D Cost assigned to equipment received P20,000 carrying value + cash paid of P10,000 = P 30,000 12 D Net gain on exchange (see audit adjustments) P830,000 13 C Land as Property, Plant and Equipment P8,000,000 + 4,000,000 + 7,000,000 P19,000,000 = Solutions – Chapter NON-CURRENT OPERATING ASSETS 14 C Building as Property, Plant and Equipment P12,000,000 + P16,000,000 = P28,000,000 15 B Depreciation Expense – Investment Property (P8,000,000 / 20) x ½ = P 16 C Equipment P24,000,000 – 800,000 = P23,200,000 17 B Accumulated Depreciation – Equipment P8,000,000 – 320,000 = P 7,680,000 18 C Investment Property Land of P6,000,000 + Building, P7,800,000 = P13,800,000 19 C 7,500,000 + 8,500,000 = P16,000,000 20 B Carrying value Cost Accumulated depreciation (P320,000 – P20,000) Carrying value Fair value less cost to sell (520,000 – 50,000) 200,000 P800,000 300,000 P500,000 P 470,000 Hence, the assets held for sale shall be measured at the lower amt P470,000 21 B Impairment loss 500,000 – 470,000 = P 30,000 22 C 1,500,000 + 1,800,000 P3,300,000 23 D 860,000 + 5,000,000 = P5,860,000 24 D 3,000,000 + 2,000,000 + 2,500,000 + 540,000 = P8,040,000 25 A Eggs P100,000 P 100,000 26 B Machinery, December 31, 2010 12/31/09 01/03/2010 08/28/2010 Balance 12/31/10 P9,100,000 5,920,000 ( 4,300,000) P10,720,000 27 A Accumulated Depreciation – Machinery 12/31/2010 12/31/09 08/28/10 12/31/10 Depreciation for 2010 12/31/10 Balance P4,820,000 (3,172,500) 2,394,000 P 4,041,500 28 D Vehicles 12/31/2010 12/31/2009 06/22/10 12/31/2010 P 4,680,000 1,620,000 P 6,300,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS 29 C Accumulated Depreciation – Vehicles 12/31/2009 12/31/2010 Depreciation for 2010 On beg Bal not sold (4,680,000 – 1965,600) x 40% = New = 1,620,000 x 40% x 6/12 P 1,965,600 P 1,085,760 324,000 30 C Depreciation Expense – Machinery (2010) Machine ( P4,300,000 – 250,000) / x 8/12 = Machine (4,800,000 – 300,000) / = Machine (5,920,000 – 400,000 ) / = Total depreciation expense, machinery for 2010 31 C Gain or loss on vehicle sold on May 25, 2011 Cost of vehicle sold Accumulated depreciation 12/31/2009 2010 depreciation 1,085,800 / = 2011 depreciation 814,300 x 40% x 5/12 Carrying value Selling price Loss on sale 1,409,760 P3,375,360 P 540,000 750,000 1,104,000 P2,394,000 P2,340,000 P982,800 542,900 135,700 32 C Accum Depreciation – Building, Dec 31, 2011 12/31/2009 2010 and 2011 depreciation 903,600 x years Accumulated depreciation, building 12/31/2011 33 B Depreciation Expense – Machine (2012) Cost of Machine Accumulated depreciation – 12/31/2011 (4,800,000 – 300,000) / x 59 months/ 72 months = Carrying value 12/31/11 Overhaul cost Carrying value after overhaul Depreciation expense – 2012 (P2,312,500 – 500,000) / = 34 A Carrying value of land, December 31, 2012 1,661,400 P 678,600 660,000 P 18,600 P2,861,400 1,807,200 P4,668,600 P4,800,000 3,687,500 P1,112,500 1,200,000 P2,312,500 P453,125 P8,100,000 35 B Accumulated Depreciation – Land Improvements, Dec 31, 2010 (550,000/10) x 1.5 = P 82,500 36 C (100,000 X 98%) + 5,000 = P103,000 37 C Carrying value = 180,000 – 180,000 x 10% x 7.5 Selling price Gain on sale P 45,000 54,000 P 9,000 38 B 2012 Depreciation (500,000 – 180,000) x 10% = 180,000 x 10% x 9/12 = 103,000 x 10% x 9/12 = Total P 32,000 13,500 7,725 P 53,225 Solutions – Chapter NON-CURRENT OPERATING ASSETS 39 B 500,000 – 180,000 + 103,000 P423,000 40 D 2,000,000 x 9/10 x 1/5 = P 360,000 41 A 42,000 + 100,000 + 102,000 = P 244,000 42 C Cost = 180,000 + (336,000/112%) = (P480,000 /10 ) Carrying value of franchise, 12/31/2012 P480,000 ( 48,000) P432,000 43 D 125,000 + 48,000 + 27,000 = P200,000 44 C 300,000 + (36,000 x 9/12 ) = P 327,000 Summative Exercise Elegant Builders Audit Adjustments: Other Receivables Representation and Advertising Supplies Expense Repairs and Maintenance Petty Cash Fund 5,600 5,200 3,054 6,500 Accounts Receivable – Current Bank Charges Cash Trade Payables 84,200 2,100 600 Accounts Receivable Allowance for Doubtful Accounts 36,000 Sales 35,000 20,354 86,900 36,000 Accounts Receivable – current Sales 35,000 20,000 Accounts Receivable – current 20,000 Accounts Receivable Advances from Customers 14,000 Other Non-current Financial Assets Accounts Receivable 120,000 120,000 Sales 145,000 145,000 Accounts Receivable – current 14,000 Solutions – Chapter NON-CURRENT OPERATING ASSETS Purchases Trade Payables Doubtful Accounts Expense Allowance for Doubtful Accounts Inventory, end Cost of goods sold Net Purchases Inventory, beginning Other Operating Income Trading Securities – PS Bank 60,000 60,000 162,364 162,364 2,693,200\ 5,887,200 6,555,000 2,025,400 86,400 86,400 Trading Securities – SM Gain on Sale of Trading Securities 8,000 Trading Securities – PS Bank Trading Securities – SM Unrealized Gains on Trading Securities 93,600 50,000 Equipment Transportation Expense Repairs and Maintenance 14,600 Depreciation and Amortization Accumulated Depreciation – Equipment 14,600 / = 1,825 8,000 143,600 3,600 11,000 1,825 1,825 Accumulated Depreciation – Leasehold Improvements 19,333 Depreciation and Amortization 19,333 Utilities Expense Salaries Expense Repairs and Maintenance Trade Payables and Accrued Expenses 44,400 26,350 3,820 Interest Expense Interest Payable 12,205 74,570 12,205 Other Operating Income Additional Paid in Capital Land 1,040,000 Retained Earnings Dividends Payable 1,650,000 Income Tax Expense Income Tax Payable 1,000,000 40,000 1,650,000 142,354 142,354 Solutions – Chapter NON-CURRENT OPERATING ASSETS 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 D A A D B 375,250 – 84,200 = 291,050 546,750 – 226,000 – 900 = 319,850 years which is 12 – 6; shorter than 10 – + see audit adjustments Petty cash fund Cash in bank Trading securities, at cost Trading securities, at market Unrealized gain or loss on trading securities Accounts receivable Allowance for doubtful accounts Other Receivables – current Merchandise inventory Prepaid expenses Land Equipment Accumulated Depreciation – Equipment Net book value of leasehold improvements Other Non-current Financial Assets Trade Payables and Accrued Expenses Notes Payable and Accrued Interest Dividends Payable Income Tax Payable Additional Paid in Capital Retained Earnings Net Sales Net Purchases Salaries and Commissions Repairs and Maintenance Supplies Expense Bank Charges Interest Expense Other Operating Income Transportation Expense Depreciation and Amortization Doubtful Accounts Expense Representation & Advertising Ordinary Share Capital Profit Answer 4,646 3,471,200 650,000 793,600 143,600 gain 4,614,200 352,284 30,600 2,693,200 60,920 5,960,000 934,600 691,825 193,333 120,000 1,681.475 912,205 1,650,000 142,354 1,950,000 482,161 9,000,000 5,887,200 1,226,350 59,320 73,054 14,100 76,205 151,600 1,400 135,492 162,364 325,200 11,000,000 332,161 ... Earnings 15,000 Advertising Expense Goodwill 165,000 (2 .) 83,398 40,000 15,000 165,000 Adjusted Balances (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Gross cost of patents ……………………………………………………………………….P1,000,000... transaction Solutions – Chapter NON- CURRENT OPERATING ASSETS Problem 14 (Kookabar Enterprises) Retained Earnings Patents 75 0,000 x 7/ 10 = 525,000 525,000 525,000 Patents 4, 975 ,000 Accumulated Amortization... 142,354 Solutions – Chapter NON- CURRENT OPERATING ASSETS 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 D A A D B 375 ,250 – 84,200 = 291,050 546 ,75 0