Auditing Problem Test Bank 1

AUDITING PROBLEMS TEST BANK - 1 PROBLEM NO. 1 The following are selected unadjusted account balances and adjusting information of TANYING CORP. for the year ended December 31, 2017. Retained earnings, January 1 Sales salaries and commissions Advertising expense Legal services Insurance and licenses Travel expense – sales representatives Depreciation expense – sales/delivery equipment Depreciation expense – office equipment Interest revenue Utilities Telephone and postage Office supplies inventory Miscellaneous selling expenses Dividends Dividend revenue Interest expense Allowance for doubtful accounts (credit balance) Officers’ salaries Sales Sales returns and allowances Sales discounts Gain on sale of assets Inventory, January 1 Inventory, December 31 Purchases Freight in Accounts receivable, December 31 Income from discontinued operations (before income taxes) Loss on sale of equipment Ordinary shares outstanding

P 1,322,010 75,000 48,270 6,675 23,040 13,680 18,300 12,600 1,650 19,200 4,425 6,540 8,220 99,000 15,450 13,560 480 109,800 1,353,000 11,700 2,640 23,460 269,100 61,650 424,800 16,575 783,000 120,000 217,800 117,000

Adjusting information: (a)

Cost of inventory in the possession of consignees as of December 31, 2017, was not included in the ending inventory balance.................................................P55,800

(b)

After preparing an analysis of aged accounts receivable, a decision was made to increase the allowance for doubtful accounts to a percentage of the ending accounts receivable balance.......................................................................................2%

(c) Purchase returns and allowances were unrecorded. They are computed as a percentage of purchases (not including freight in).......................................................6% (d)

Sales commissions for the last day of the year had not been accrued. Total sales for the day...................................................................................................P9,180 Average sales commissions as a percent of sales.........................................................3%

(e)

No accrual had been made for a freight bill received on January 2, 2018, for goods received on December 29, 2017..................................................................P1,710

Page (f)

2

An advertising campaign was initiated November 2, 2017. This amount was recorded as “Prepaid advertising” and should be amortized over a six-month period. No amortization was recorded...................................................................P5,454 Freight charges paid on sold merchandise were netted against sales. Freight charges on sales during 2017..............................................................................P10,500

(g)

Interest earned but not accrued............................................................................P1,680

(h)

Depreciation expense on a new forklift purchased March 1, 2017, had not been recognized. (Assume all equipment will have no salvage value and the straight-line method is used. Depreciation is calculated to the nearest month.) Purchase price....................................................................................................P23,400 Estimated life in years.................................................................................................10

(i)

A “real” account is debited upon the receipt of office supplies. Office supplies on hand at year-end..............................................................................................................P3,675

(j)

Income tax rate (on all items)..................................................................................30%

Compute the adjusted balances of the following: 1. Net sales A. P1,363,500

C. P1,353,000

D. P1,342,500

2. Cost of goods available for sale A. P684,900 B. P824,697

C. P686,697

D. P779,913

3. Inventory, December 31, 2015 A. P61,500 B. P61,350

C. P56,250

D. P117,450

4. Distribution costs A. P181,649

B. P167,513

C. P178,013

D. P176,453

5. Administrative expenses A. P207,345 B. P193,785

C. P194,265

D. P194,595

6. Allowance for doubtful accounts A. P15,660 B. P16,140

C. P15,180

D. P480

7. Total income A. P817,143

C. P779,913

D. P822,153

8. Income from continuing operations before taxes A. P231,360 B. P436,795 C. P218,995

D. P239,695

9. Office supplies inventory A. P6,540 B. P3,675

C. P2,865

D. P 0

C. P250,289

D. P216,296

10. Net income A. P237,296

B. P1,349,160

B. P811,653

B. P210,299

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PROBLEM NO. 2 The following accounts were included in the unadjusted trial balance of BUNCHING COMPANY as of December 31, 2017: Cash......................................................................................P 963,200 Accounts receivable.................................................................2,254,000 Inventory................................................................................6,050,000 Accounts payable....................................................................4,201,000 Accrued expenses......................................................................431,000 During your audit, you noted that Bunching Company held its cash books open after year-end. In addition, your audit revealed the following: 1. Receipts for January 2018 of P654,600 were recorded in the December 2017 cash receipts book. The receipts of P360,100 represent cash sales and P294,500 represent collections from customers, net of 5% cash discounts. 2. Accounts payable of P372,400 was paid in January 2018. The payments, on which discounts of P12,400 were taken, were included in the December 2017 check register. 3. Merchandise inventory is valued at P6,050,000 prior to any adjustments. information has been found relating to certain inventory transactions:

The following

a. The invoice for goods costing P175,000 was received and recorded as a purchase on December 31, 2017. The related goods, shipped FOB destination, were received on January 4, 2018, and thus were not included in the physical inventory. b. A P182,000 shipment of goods to a customer on December 30, 2017, terms FOB destination, are not included in the year-end inventory. The goods cost P130,000 and were delivered to the customer on January 3, 2018. The sale was properly recorded in 2018. c. Goods costing P637,500 were shipped on December 31, 2017, and were delivered to the customer on January 3, 2018. The terms of the invoice were FOB shipping point. The goods were included in the 2017 ending inventory even though the sale was recorded in 2017. d. Goods costing P217,500 were received from a vendor on January 4, 2018. The related invoice was received and recorded on January 6, 2018. The goods were shipped on December 31, 2017, terms FOB shipping point. e. Goods valued at P275,000 are on consignment with a customer. These goods are not included in the inventory figure. f.

Goods valued at P612,800 are on consignment from a vendor. These goods are not included in the physical inventory.

Determine the adjusted balances of the following on December 31, 2017: 11. Cash A. P963,200

B. P681,000

C. P668,600

D. P693,400

12. Accounts receivable A. P2,908,600

B. P2,564,000

C. P2,254,000

D. P2,548,500

13. Inventory A. P6,035,000

B. P6,080,000

C. P5,860,000

D. P5,010,000

14. Accounts payable A. P4,790,900

B. P4,615,900

C. P4,573,000

D. P4,603,500

15. Current ratio A. 2.00

B. 1.83

C. 1.84

D. 2.01

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4

PROBLEM NO. 3 The following are independent situations: The Machinery account of PAKO COMPANY contains the following entries during the year: Date 2017 Jan. 1 June 30 Sept. 30 Oct. 31 Dec. 1 Dec. 31

Item

Debit

Balance Purchased four new machines Installation cost of new machines Proceeds from sale of old machine, cost P150,000; accumulated depreciation, P105,000 Repairs of machinery Cash paid for trade-in of old machines—cost, P90,000; accumulated depreciation, P36,000. Cash price of new machine, P270,000 Balance Total

P1,800,000 1,080,000 48,000

Credit

P 66,000 75,000 225,000 P3,228,000

3,162,000 P3,228,000

16. What is the correct balance of the Machinery account on December 31, 2017? A. P3,162,000

B. P3,057,000

C. P3,048,000

D. P2,958,000

17. Assuming depreciation is recorded on a monthly basis at 10% a year, how much was the depreciation charge for 2017? A. P234,150

B. P300,000

C. P316,200

D. P227,400

On June 30, 2017, the GENLUNA COPPER MINES, INC. purchased a copper mine for P14,580,000. The estimated capacity of the mine was 1,620,000 tons. Genluna Copper Mines expects to extract 15,000 tons of ore a month with an estimated selling price of P50 per ton. Production started immediately after some new machines costing P1,800,000 were bought on June 30, 2017. These new machines had an estimated useful life of 15 years with a scrap value of 10% of cost after the ore estimate has been extracted from the property, at which time the machines will already be useless. Genluna’s books show the following expenses for 2017: Depletion expense...........................................P1,215,000 Depreciation—Machinery......................................120,000 18. Recorded depletion expense was A. Overstated by P270,000. B. Understated by P270,000. C. Overstated by P405,000 D. Understated by P405,000. 19. Recorded depreciation expense was A. Understated by P60,000. B. Overstated by P60,000. C. Understated by P30,000. D. Overstated by P30,000. BULKAN COMPANY purchased a machine for P300,000 on January 1, 2014, with the following additional items paid or incurred: Separation pay for laborer laid off upon acquisition of new machine.....................P3,600 Loss on sale of machine replaced.........................................................................3,900 Transportation in.................................................................................................3,000 Installation cost.................................................................................................12,000 The new machine is estimated to have a useful life of 10 years and a residual value of P12,000. On January 1, 2017, new parts which cost P37,800 were added to the machine so as to reduce its fuel consumption, but with no change in its estimated life or residual value. 20. The annual depreciation charge on the machine for 2015 was A. P34,080 B. P35,494 C. P36,450

D. P35,700

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5

PROBLEM NO. 4 Presented below are unrelated situations. 1. HARLINGTON COMPANY buys and sells securities expecting to earn profits on short-term differences in price. During 2017, Harlington Company purchased the following trading securities: Fair Value Security Cost Dec. 31, 2017 A P 585,000 P 675,000 B 900,000 486,000 C 1,980,000 2,034,000 Before any adjustments related to these trading securities, Harlington Company had net income of P2,700,000. 21. What is Harlington’s net income after making any necessary trading security adjustments? A. P2,430,000 B. P2,286,000 C. P2,934,000 D. P2,700,000 22. What would Harlington’s net income be if the fair value of security B were P855,000? A. P2,601,000 B. P2,799,000 C. P2,700,000 D. P2,655,000 2. LABADA CO.’s portfolio of trading securities includes the following on December 31, 2016: 15,000 ordinary shares of Camias Co. 30,000 ordinary shares of Ganda Co.

Cost P1,431,000 1,638,000 P3,069,000

Fair Value P1,251,000 1,710,000 P2,961,000

All of the above securities have been purchased in 2016. In 2017, Labada Co. completed the following securities transactions: Mar. 1

Sold 15,000 shares of Camias Co. ordinary shares at P93, less brokerage commission of P13,500.

April 1

Bought 1,800 ordinary shares of Waston, Inc. at P135 plus commission, taxes, and other transaction costs of P4,950.

The Labada Co. portfolio of trading securities appeared as follows on December 31, 2017: Cost Fair Value 30,000 ordinary shares of Ganda Co. P1,638,000 P1,740,000 1 1,800 ordinary shares of Waston, Inc. 247,950 225,0002 P1,885,950 P1,965,000 1 2

Net of P19,500 estimated transaction costs that would be incurred on the sale of the securities. Net of P4,500 estimated transaction costs that would be incurred on the sale of the securities.

23. What amount of unrealized gain on these securities should be reported in the 2017 income statement? A. P31,050

B. P79,050

C. P84,000

D. P36,000

24. What is the gain on the sale of Camias Co. ordinary shares on March 1, 2017? A. P144,000

B. P27,000

C. P130,500

D. P13,500

25. What amount should be reported as trading securities in Labada’s statement of financial position on December 31, 2017? A. P1,965,000

B. P1,989,000

C. P1,885,950

D. P1,909,950

Page 6 PROBLEM NO. 5 On January 1, 2016, SAMSON MFG. CO. began construction of a building to be used as its office headquarters. The building was completed on June 30, 2017.

Expenditures on the project were as follows: January 3, 2016 March 31, 2016 June 30, 2016 October 31, 2017 January 31, 2017 March 31, 2017 May 31, 2017

P2,500,000 3,000,000 4,000,000 3,000,000 1,500,000 2,500,000 3,000,000

On January 3, 2016, the company obtained a P5 million construction loan with a 10% interest rate. The loan was outstanding all of 2016 and 2017. The company’s other interest-bearing debts included a long-term note of P25 million with an 8% interest rate, and a mortgage of P15 million on another building with an interest rate of 6%. Both debts were outstanding during all of 2016 and 2017. The company’s fiscal year-end is December 31. 26. What is the amount of capitalizable interest in 2016? A. P3,400,000

B. P1,043,750

C. P663,125

D. P500,000

27. What is the amount of capitalizable interest in 2017? A. P630,625

B. P654,663

C. P361,707

D. P799,663

28. What amount of interest should be expensed in 2016? A. P2,736,875

B. P2,356,250

C. P2,900,000

D. P 0

29. What amount of interest should be expensed in 2017? A. P2,769,375

B. P3,038,293

C. P2,600,337

D. P2,745,337

30. What is the total cost of the building (including the interest capitalized in 2016 and 2017)? A. P24,600,000

B. P20,817,788

C. P20,905,457

D. P20,630,625

Page 7 PROBLEM NO. 6 At the beginning of year 1, an entity grants to a senior executive 30,000 share options. The grant is conditional upon the executive remaining in the entity’s employ until the end of year 3. The share options can be exercised if the entity’s share price increases from P20 at the beginning of year 1 to above P30 at the end of year 3. If the share price is above P30 at the end of year 3, the share options can be exercised at any time during the next five years, i.e., by the end of year 8. The entity estimates the fair value of the share options on grant date to be P5 per option. This estimate takes into account the following market condition: The possibility that the share price will exceed P30 at the end of year 3, i.e., the share options become exercisable; and The possibility that the share price will not exceed P30 at the end of year 3, i.e., the share options will be forfeited.

The following actual events occurred in years 1 to 3: Year 1 The share price has increased to P24. The entity’s estimate of the fair value of the options is P4 at the end of year 1. This takes into account whether the market condition will be satisfied by the end of year 3. Year 2 The share price has decreased to P22. However, the entity remains optimistic that the share price target will be met by the end of year 3. The estimated fair value of the share options is P3. Again, this estimate takes into account the market condition noted above. Year 3 The share price only reaches P28 by the end of year 3. The estimated fair value of the share options is zero, as the market condition has not been satisfied. 31. Compensation expense for year 1 A. P30,000

B. P40,000

C. P50,000

D. P60,000

C. P50,000

D. P60,000

C. P40,000

D. P50,000

C. P90,000

D. P100,000

32. Compensation expense for year 2 A. P30,000

B. P40,000

33. Compensation expense for year 3 A. P 0

B. P30,000

34. Share options outstanding at the end of year 2 A. P70,000

B. P80,000

35. Cumulative compensation expense for the three-year period A. P 0

B. P70,000

C. P100,000

D. P150,000

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PROBLEM NO. 7 The following independent situations relate to the audit of shareholders’ equity. Answer the questions at the end of each situation. BRANDY CO. was organized at the beginning of the current year. The following shareholders’ equity accounts are included in the entity’s year-end trial balance. Preference share capital, P100 par, authorized 100,000 shares, issued and outstanding, 66,000 shares Preference share capital subscribed, 6,000 shares Share premium – preference Subscriptions receivable – preference Ordinary share capital, P10 par value, authorized 200,000 shares, issued and outstanding, 72,000 shares Ordinary share capital subscribed, 72,000 shares Share premium – ordinary Subscriptions receivable – ordinary

P6,600,000 600,000 240,000 360,000 720,000 720,000 2,850,000 1,080,000

The following current year transactions relate to Brandy Co.’s shareholders’ equity: 

Immediately after Brandy Co. was organized, it received subscriptions to 60,000 preference shares. Subscriptions to ordinary shares were also received on the same date.



During the year, subscriptions were received for an additional 12,000 preference shares at a price of P120 per share.



Cash payments were received from subscribers at frequent intervals for several months after subscription. The company’s policy is to issue share certificates only upon full payment of the share subscription.



Also during the current year, Brandy Co. issued 24,000 ordinary shares in exchange for a tract of land with a fair value of P690,000.

36. What is the total subscription price of the ordinary shares originally subscribed? A. P4,290,000

B. P3,840,000

C. P3,600,000

D. P4,050,000

37. How much was collected from the subscribers of preference shares? A. P1,440,000

B. P5,640,000

C. P7,440,000

D. P7,080,000

38. The company’s statement of financial position at the end of the current year should report contributed capital of A. B. C. D.

Preference P7,440,000 7,080,000 6,480,000 6,840,000

Ordinary P4,290,000 3,210,000 2,490,000 360,000

Page 9 The following shareholders’ equity accounts are included in the statement of financial position of CONDESSA CO. on December 31, 2016. Preference share capital, 8%, P100 par (200,000 shares authorized, 60,000 shares issued and outstanding) Ordinary share capital, P5 par (2,000,000 shares authorized, 600,000 shares issued and outstanding) Share premium Retained earnings Total

P6,000,000 3,000,000 3,750,000 3,500,000 P16,250,000

During 2017, Condessa took part in the following transactions concerning equity. 1. Paid the annual 2016 P8 per share dividend on preference shares and a P2 per share dividend on ordinary shares. These dividends had been declared on December 31, 2016. 2. Purchased 81,000 shares of its own outstanding ordinary shares for P40 per share. 3. Reissued 21,000 treasury shares for land valued at P900,000. 4. Issued 15,000 preference shares at P105 per share. 5. Declared a 10% stock dividend on the outstanding ordinary shares when the shares are selling for P45 per share. 6. Issued the stock dividend. 7. Declared the annual 2017 P8 per share dividend on preference shares and the P2 per share dividend on ordinary shares. These dividends are payable in 2018. 8. Reported net income of P9,900,000 for the current year. 39. What is the retained earnings balance (before appropriation for treasury shares) on December 31, 2017? A. P9,182,000

B. P718,000

C. P6,782,000

D. P11,000,000

40. What amount should be reported as total shareholders’ equity on December 31, 2017? A. P25,997,000

B. P23,597,000

C. P21,197,000

D. P14,415,000

Page 10 PROBLEM NO. 8 The following independent situations relate to the audit of intangible assets. questions at the end of each situation.

Answer the

CABOOM LABORATORIES holds a valuable patent (No. 112170) on a device that prevents certain types of air pollution. Caboom does not manufacture or sell the products and processes it develops; it conducts research and develops products which it patents, and then assigns the patents to manufacturers on a royalty basis. The history of Patent No. 112170 is as follows: Date 2007-2008 Jan. 2009 Mar. 2010 Jan. 2010 Nov. 2011 April 2013 May 2017

Activity

Cost

Research conducted to develop device Design and construction of a prototype Testing of models Legal and other fees to process patent application; patent granted June 2008 Engineering activity necessary to advance the design of the device to the manufacturing stage Research aimed at modifying the design of the patented device Legal fees paid in a successful patent infringement suit against a competitor

P1,259,100 262,800 126,000 186,150 244,500 129,000 102,000

Caboom assumed a useful life of 17 years when it received the initial device patent. On January 1, 2015, it revised its useful life estimate downward to 5 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1 and no amortization for the year if the cost is incurred after June 30. Caboom’s reporting date is December 31, 2017. Compute the carrying value of Patent No. 112170 on each of the following dates: 41. December 31, 2010 A. P180,675

B. P186,150

C. P293,788

D. P175,200

42. December 31, 2014 A. P223,200

B. P52,560

C. P131,400

D. P122,640

43. December 31, 2017 A. P120,560

B. P78,840

C. P52,560

D. P98,550

BARTOLO COMPANY has provided information on intangible assets as follows: 

A patent was purchased from Valenzuela Company for P4,000,000 on January 1, 2016. Bartolo estimates the remaining useful life of the patent to be 10 years. The patent was carried in Valenzuela’s accounting records at a net book value of P4,000,000 when Valenzuela sold it to Bartolo.



During 2017, a franchise was purchased from Delco Company for P960,000. The contract which runs for 10 years provides that 5% of revenue from the franchise must be paid to Delco. Revenue from the franchise for 2017 was P5,000,000. Bartolo takes a full year amortization in the year of purchase.



The following research and development costs were incurred by Bartolo in 2017: Materials and equipment P284,000 Personnel 378,000 Indirect costs 204,000 P866,000 Bartolo estimates that these costs will be recouped by December 31, 2020. The materials and equipment purchased have no alternative uses.



On January 1, 2017, because of recent events in the field, Bartolo estimates that the remaining life of the patent purchased on January 1, 2016 is only 5 years from January 1, 2017.

44. What is the total carrying value of Bartolo’s intangible assets on December 31, 2017? A. P3,744,000

B. P4,864,000

C. P2,880,000

D. P3,681,500

45. What is the total amount of charges against income for 2017? A. P2,428,000

B. P1,932,000

C. P1,648,000

D. P1,116,000

Page 11 PROBLEM NO. 9 The following are two (2) unrelated situations. 1. The December 31 year-end financial statements of SAMOA COMPANY contained the following errors: Dec. 31, 2016 Dec. 31, 2017 Ending inventory P48,000 understated Depreciation expense P11,500 understated

P40,500 overstated -------

An insurance premium of P330,000 was prepaid in 2016 covering the years 2016, 2017, and 2018. The entire amount was charged to expense in 2016. In addition, on December 31, 2017, a fully depreciated machinery was sold for P75,000 cash, but the sale was not recorded until 2018. There were no other errors during 2016 and 2017, and no corrections have been made for any of the errors. Ignore income tax effects. 46. What is the total effect of the errors on Samoa’s 2016 net income? A. P123,500 overstatement B. P27,500 overstatement C. P192,500 understatement D. P177,500 understatement 47. What is the total effect of the errors on the amount of Samoa’s working capital at December 31, 2017? A. P75,500 overstatement B. P40,500 overstatement C. P225,500 understatement D. P144,500 understatement 48. What is the total effect of the errors on the balance of Samoa’s retained earnings at December 31, 2017? A. P156,000 understatement B. P87,000 overstatement C. P133,000 understatement D. P85,000 understatement 2. CHILE CO. reported pretax incomes of P505,000 and P387,000 for the years ended December 31, 2016 and 2017, respectively. However, the auditor noted that the following errors had been made: a. Sales for 2016 included amounts of P191,000 which had been received in cash during 2016, but for which the related goods were shipped in 2017. Title did not pass to the buyer until 2017. b. The inventory on December 31, 2016 was understated by P43,200. c. The company’s accountant, in recording interest expense for both 2016 and 2017 on bonds payable, made the following entry on an annual basis: Interest expense Cash

75,000 75,000

The bonds have a face value of P1,250,000 and pay a nominal interest rate of 6%. They were issued at a discount of P75,000 on January 1, 2016, to yield an effective 7% rate. d. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2016 and 2017. Repairs of P42,500 and P47,000 had been incurred in 2016 and 2017, respectively. In determining depreciation charges, Chile applies a rate of 10% to the balance in the Equipment account at the end of the year. 49. What is the corrected pretax income for 2016? A. P303,200

B. P225,300

C. P311,700

D. P307,450

C. P575,392

D. P488,992

50. What is the corrected pretax income for 2017? A. P480,042

B. P484,292

Page 12 PROBLEM NO. 10 The following are two (2) unrelated situations. OMEGA COMPANY sells its products in expensive, reusable containers. The customer is charged a deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery. Omega accounts for the containers not returned within the time limit as being sold at the deposit amount. Information for 2017 is as follows: Containers held by customers at December 31, 2016, from deliveries in: 2015 2016 Containers delivered in 2017 Containers returned in 2017 from deliveries in: 2015 2016 2017

85,000 240,000

57,500 140,000 157,000

325,000 430,000

354,500

51. How much revenue from container sales should be recognized for 2017? A. P127,500

B. P267,500

C. P27,500

D. P85,000

52. What is the total amount of Omega Company’s liability for returnable containers at December 31, 2017? A. P373,000

B. P400,500

C. P267,500

D. P430,000

DP, INC., a dealer of household appliances, sells washing machines at an average price of P8,100. The company also offers to each customer a separate 3-year warranty contract for P810 that requires the company to provide periodic maintenance services and to replace defective parts. During 2017, DP sold 300 washing machines and 270 warranty contracts for cash. The company estimates that the warranty costs are P180 for parts and P360 for labor. Assume sales occurred on December 31, 2017. DP’s policy is to recognize income from the warranties on a straight-line basis. In 2018, DP incurred actual costs relative to 2017 warranty sales of P18,000 for parts and P36,000 for labor. 53. What liability relative to these transactions would appear on the December 31, 2017, statement of financial position and how would it be classified? A. B. C. D.

Current P145,800 P72,900 P72,900 P0

Noncurrent P72,900 P72,900 P145,800 P218,700

54. What amount of warranty expense would be reported for 2017? A. P18,000

B. P 0

C. P 36,000

D. P54,000

55. What liability relative to the 2017 warranties would be reported on December 31, 2018, and how would it be classified? A. B. C. D.

Current P145,800 P72,900 P72,900 P145,800

Noncurrent P72,900 P72,900 P145,800 P0

Page 13 PROBLEM NO. 11 The TGR Company commenced operations on January 1, 2013. account is shown below. Date Jan. 1, 2013 Purchase

Particulars

Debit P157,200 120,000 132,000

Sept. 30, 2013 Purchase on installment Payments from Sept. to Dec. Oct. 3, 2013 Freight and installation Dec. 31, 2013 Depreciation 2014 Installment payments for acquisition on Sept. 30, 2013 June 30, 2014 Purchase Dec. 31, 2014 Depreciation June 30, 2015 Acquisition – trade in of old machine Dec. 31, 2015 Depreciation Jan. 1, 2016 Sale Dec. 31, 2016 Depreciation Oct. 1, 2017 Sale Dec. 31, 2017 Depreciation

The company’s machinery Credit

Balance P409,200

72,000 6,000 P97,440 144,000 240,000 154,752 150,000 153,802 71,250 108,791 24,000 82,233

481,200 487,200 389,760 533,760 773,760 619,008 769,008 615,206 543,956 435,165 411,165 328,932

a) On September 30, 2013, a machine was purchased on an installment basis. The list price was P180,000, but 12 payments of P18,000 each were made by the company. Only the monthly payments were recorded in the machinery account starting with September 30, 2013. Freight and installation charges of P6,000 were paid and charged to the machinery account on October 3, 2013. b) On June 30, 2015, a machine was purchased for P240,000, 2/10, n/30, and recorded at P240,000 when paid for on July 5, 2014. c) On June 30, 2015, the machine acquired for P157,200 was traded for a larger one having a list price of P279,000. Allowance of P129,000 was received on the old machine, the balance of the list price being paid in cash and charged to the machinery account. d) On January 1, 2016, the machine acquired on January 1, 2013 with cost of P132,000 was sold for P75,000. The cost of removal and crating totaled P3,750. e) On October 1, 2017, the machine purchased on January 1, 2013 was sold for P24,000 cash. Assume a 5-year useful life for TGR Company’s machinery. 56. What is the total amount of gain on the sale/trade-in of the machinery acquired on January 1, 2013? A. P50,400 B. P40,200 C. P36,450 D. P86,850 57. What is the adjusted balance of the Machinery account on December 31, 2017? A. P694,200 B. P705,000 C. P700,200 D. P703,950 58. What is the adjusted balance of the Accumulated depreciation on December 31, 2017? A. P465,600 B. P457,140 C. P462,240 D. P397,740 59. What is the correct total depreciation provision for the years 2013-2017? A. P737,400 B. P734,040 C. P728,940 D. P669,540 60. The entry to correct the depreciation provision for the years 2013-2017 should include a debit (credit) to Depreciation Expense Retained Earnings A. P75,807 P61,215 B. (P18,492) P79,707 C. P18,492 (P79,707) D. P75,807 P55,249

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