AP-5903_PPE & Intangibles.-supporting notes.pdf

PROBLEM NO. 1 - White Corporation Nondepreciable: Land, 1/1/05 Cash paid on purchase of land Mortgage assumed on the land bought, including interest at 16% Realtor’s commission Legal fees, realty taxes and documentation expenses Amount paid to relocate persons squatting on the property Cost of tearing down an old building on the land Amount recovered from the salvage of the building demolished Land, 12/31/05 Depreciable: Land improvements Balance, 1/1/05 Cost of fencing the property Building Balance, 1/1/05 Amount paid to a contractor for the building erected Building permit fees Excavation expenses Architect’s fee Machinery and equipment Balance, 1/1/05 Invoice cost of machinery acquired Freight, unloading, and delivery charges Customs duties and other charges Allowances, hotel accommodations, etc., paid to foreign technicians during instillation and test run of machines Total depreciable PPE, 12/31/05

2,500,000 10,000,000 16,000,000 1,200,000 200,000 400,000 300,000 (600,000) 30,000,000

1

560,000 440,000

1,000,000

2

3,600,000 8,000,000 50,000 250,000 100,000

12,000,000

3

17,000,000 30,000,000

4 5

6,600,000 8,000,000 240,000 560,000

1,600,000

PROBLEM NO. 2 - Black Company Entry made a. Office equipment Cash

400,000

Should be entry Office equipment 400,000 Purchase disc. lost Cash

392,000 8,000

Adjusting journal entry Purchase disc. lost Office equipment

*

8,000 8,000

400,000

*(P400,000 x 2%)

b. Machinery Cash

140,000

(entry made reconstructed from the depreciation information; P28,000 x 5)

Freight in Cash Depreciation exp Acc. Dep.

4,000

28,000

Machinery 140,000 FC/Interest exp Cash Machinery 4,000 Cash Depreciation exp 28,000 Acc. Dep.

(140,000/5 )

c. Machinery Bonds payable

Depreciation exp Acc. Dep.

128,000 12,000

FC/Interest exp Machinery

12,000 12,000

140,000 4,000

26,400

Machinery 4,000 Freight in Acc. Dep. 26,400 Depreciation exp

4,000 4,000 1,600 1,600

[(128,000+4,000)/5]

400,000

54,000

Machinery 400,000 Discount on BP Bonds payable

360,000 40,000

Depreciation exp 54,000 Acc. Dep.

48,000

[(400,000-40,000)/5 *9/12]

Discount on BP Machinery

40,000 40,000

400,000 Acc. Dep. 48,000 Depreciation exp

6,000

Interest exp 3,000 Discount on BP

3,000

Allowance for DA Loss on exchange Machinery

28,000 2,000

Machinery 110,000 Treasury stock

30,000

Equipment 450,000 Gain on exchange 50,000

50,000

6,000

[(36,000-4,000)/5 *9/12]

Interest exp Discount on BP

3,000

3,000

[(40,000/10)*9/12]

d. Machinery Accts receivable

Treasury stock Machinery e. Equipment Investment in Tyler

f. Machinery Cash

g. Machinery-new Cash Machinery-old

140,000

140,000

450,000

20,000

102,000

Machinery 140,000 Allowance for DA Loss on exchange Accts receivable

110,000 28,000 2,000

Treasury stock 140,000 Machinery

110,000

Equipment 450,000 Investment in Tyler Gain on exchange

500,000

140,000

Machinery-new 20,000 Accumulated dep. Machinery-old Cash

140,000 280,000

Machinery-new 80,000 Loss on trade-in 22,000 Cash Machinery-old

90,000 12,000

h. None

30,000

50,000

Machinery-new Accumulated dep. 400,000 Machinery-old 20,000

120,000 280,000

Loss on trade-in Machinery-new

12,000

400,000

12,000

80,000 22,000

Land 200,000 Building 400,000 APIC-donated capital Depreciation exp Acc. Dep.

30,000

Land 200,000 Building 400,000 600,000 APIC-donated capital

4,000 4,000

Depreciation exp Acc. Dep.

600,000

4,000 4,000

[(P400,000/25)*3/12]

i. Building Cash

4,000,000 4,000,000

Land 2,000,000 Deferred income-govt grant

Government grants are "assistance by government Building in the form of transfers of resources to an enterprise Cash in return for past or future compliance with certain conditions relating to the operating activities of the enterprise". Grants related to nondepreciable assets Depreciation exp Acc. Dep. requiring fulfillment of certain conditions should be recognized as income over the periods which bear (P4,000,000/25) the cost of meeting the conditions.

2,000,000

2,000,000

4,000,000 4,000,000 160,000

80,000 Income from govt. grant

160,000

Depreciation exp Acc. Dep.

160,000 160,000

(P4,000,000/25)

80,000 Income from govt. grant

Deferred income-govt g

Deferred income-govt g (P2,000,000/25)

Land 2,000,000 Deferred income-govt grant

80,000

(P2,000,000/25)

80,000

Page 1 of 4

PROBLEM NO. 3 - Blue Corporation 1) Land [(10,000 shares x P120) +P98,000] Land and building Additional paid in capital 2) Land Land and building

1,298,000 1,098,000 200,000 60,000 60,000

3) Organization expenses Land Building Land and building

9,500 4,000 1,500 15,000

4) Building Land and building

700,000

5) Building Land and building

600,000

700,000

600,000

6) Insurance expense (26,000 x 1/2) Prepaid insurance Land and building

13,000 13,000 26,000

7) Building Land and building

200,000

8) Retained earnings Land and building

500,000

Adjusted balances Land AJE no. 1 AJE no. 2 AJE no. 3

200,000

500,000

1,298,000 60,000 4,000

Building AJE no. 3 AJE no. 4 AJE no. 5 AJE no. 7

1,362,000 9) Land and building Depreciation expense Accumulated depreciation Should be depreciation (1,501,500 / 25 x 6/12) Recorded depreciation Overstatement in depreciation expense Land and building account Unadjusted balance AJE no. 1 AJE no. 2 AJE no. 3 AJE no. 4 AJE no. 5 AJE no. 6 AJE no. 7 AJE no. 8 AJE no. 9

1,500 700,000 600,000 200,000 1,501,500

31,990 1,960 30,030 30,030 31,990 1,960

3,167,010 (1,098,000) (60,000) (15,000) (700,000) (600,000) (26,000) (200,000) (500,000) 31,990 -

PROBLEM NO. 4 - Green Company Adjusted bal. Machine 1 - sold 8/31 Machine 2 - destroyed 12/1 Machine 3 - traded in 9/30 Machine 4 Machine 5 Machine 6 Machine 7 Machine 8 Total

90,000 198,000 108,000 216,000 216,000 828,000

Orig. cost

Months

90,000 remaining 90,000 11 90,000 9 90,000 12 198,000 4 108,000 3 216,000 1 216,000 1

Depreciation 5,625 20,625 16,875 22,500 16,500 6,750 4,500 4,500 97,875

PROBLEM NO. 5 - Red Company Question No. 1 - B

Buildings (150% declining balance) Balance, 1/1/05 Depreciation for 2005: Book value, 1/1/05 (P30,000,000 - P6,577,500) 150% declining balance rate (1/25 x 150%)

6,577,500 6,577,500 23,422,500 6%

1,405,350 7,982,850

Accumulated dep - Buildings, 12/31/05 Question No. 2 - D

Machinery and Equipment (Straight line) Balance, 1/1/05 Depreciation for 2005: M & E balance, 1/1/05 Less machine destroyed by fire Remainder of beginning balance Depreciation rate (1/10 years) Depreciation on remainder of beginning bal. Depreciation on machine destroyed by fire (P575,000 x 10% x 3/12) Depreciation on machine purchased on 7/1/05 [(P7,000,000+P125,000+P625,000) x 10% x 6/12]

6,250,000 22,500,000 575,000 21,925,000 10% 2,192,500 14,375 387,500

2,594,375 (287,500) 8,556,875

Machine destroyed by fire (P575,000 x 5/10) Accumulated dep - Machinery & Equip., 12/31/05 Question No. 3 - B

Delivery equipment (SYD) Balance, 1/1/05 Depreciation for 2005: Depreciation on 1/1/05 balance (see info (e)) Less depreciation on truck traded-in (P450,000 x 2/10*) Depreciation on remainder of beginning bal. Depreciation on truck purchased on 1/2/05 (P600,000 x 4/10*) Truck traded-in (P450,000 - P135,000) Accumulated dep - Delivery Equip., 12/31/05

2,115,000 450,000 90,000 360,000 240,000

600,000 (315,000) 2,400,000

* SYD = (4+3+2+1) = 10 Question No. 4 - A

Leasehold improvements (Straight line) Depreciation for 2004 (P4,200,000 x 8/80*) Remaining lease term (5/1/04 to 12/31/10) Useful life (8 years x 12) Shorter - remaining lease term

420,000 80 months 96 months 80 months

*

Question No. 5 - C

Machine destroyed by fire: Amount recovered from insurance company Less book value of machine: Cost Accumulated depreciation (see above) Gain on machine destroyed by fire Truck traded-in: Trade-in value (P600,000 - P500,000) Less book value of truck traded-in Loss on truck traded-in Net gain on asset disposals

387,500 575,000 (287,500)

287,500 100,000 100,000 135,000 (35,000) 65,000

PROBLEM NO. 6 - Josef, Inc. Question No. 1 - B Acquisition cost Less residual value Depletable cost Total estimated reserves Depletion rate Tons mined Depletion for 2005

10,400,000 800,000 9,600,000 8,000,000 1.20 800,000 960,000

Question No. 2 - D Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 80%] Depreciation - Machinery [(P1,600,000-P320,000/4] Total

64,000 320,000 384,000

Question No. 3 - B Depletion (see no. 1) Direct labor Depreciation (see no. 2) Miscellaneous mining overhead Total available for sale Divide by tons mined Cost per ton Unsold tons (800,000 - 640,000) Inventory, 12/31/05

960,000 640,000 384,000 128,000 2,112,000 800,000 2.64 160,000 422,400

Question No. 4 - A Cost of sales (640,000 tons x P2.64)

1,689,600

Question No. 5 - C Sales (640,000 x P4.4) Less cost of sales (see no. 4) Gross profit Operating expenses Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 20%] Net income Realized depletion (640,000 tons x P1.2) Maximum amount that may be declared as dividends

2,816,000 1,689,600 1,126,400 (576,000) (16,000) 534,400 768,000 1,302,400

PROBLEM NO. 7 - Pink Corporation Journal entries for 2005: 1/2 Organization expenses Cash 1/15 Advertising expense

233,000 233,000 15,000

Cash 4/1 Patents

15,000 492,500

Cash 5/1 Licences (P300,000 x 2/3)

Trademark Common stock (6,000 x P50) 7/1 Building

492,500 200,000 100,000 300,000 1,310,000

Cash 12/31 Research and Development expense

1,310,000 1,750,000

Cash

1,750,000

Question no. 1 - A See journal entry for April 1. Note: Cost of internally developed patent includes only the licensing and other related legal fees in securing the patent rights. Question no. 2 - B See journal entry for May 1. Question no. 3 - C See journal entry for May 1. Question no. 4 - C Cost Patent Licences Trademark Less amortization Patent (P492,500/6 x 9/12) Licences (P200,000/6 x 8/12) Trademark (P100,000/6 x 8/12) Carrying value, 12/31/04

492,500 200,000 100,000 61,563 22,222 11,111

792,500

94,896 697,604

Question no. 5 - C Organization expenses (Jan. 2 transaction) Advertising expense (Jan. 15 transaction) R and D expense (Dec. 31 transaction) Total

233,000 15,000 1,750,000 1,998,000

PROBLEM NO. 8 - Silver Corporation Question No. 1 - A Trademark* Goodwill* Customer list (P220,000/3) Total amortization

73,333 73,333

*The useful life is indefinite, so no amortization expense is recognized.

Question No. 2 - B Trademark: Carrying value Recoverable amount (P10,000/0.06) Goodwill*: Carrying value of Hayo Manufacturing unit (P2,700,000 + P1,500,000 - P1,800,000) Recoverable amount (P250,000 x 12.0416) Customer list Carrying value (P220,000 - P73,333) Recoverable amount: 2006: (P120,000 x 0.9434) 2007: (P80,000 x 0.8900) Total impairment loss

300,000 166,667

133,333

2,400,000 3,010,400

-

146,667 113,208 71,200

184,408

133,333

*Since goodwill does not generate cash flows independently from other assets or group of assets, the recoverable amount of goodwill as an individual asset cannot be determined. Therefore, the recoverable amount is determined for the cash generating unit to which goodwill belongs.

Question No. 3 - C Cost Less impairment loss Carrying value, 12/31/05

300,000 133,333 166,667

Question No. 4 - A Since goodwill is not amortized and is not impaired as of 12/31/05, the carrying value is P1,500,000. Question No. 5 - B Cost Less amortization for 2005 Carrying value, 12/31/05 PROBLEM NO. 9 1B 2B 3D 4A 5C 6A 7A 8D 9D 10 D

220,000 73,333 146,667

11 12 13 14 15 16

D B A A D A