Non Current Operating Assets

Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

1. B 6. A

2. B 7. A

MULTIPLE CHOICE - THEORIES 3. A 4. B 8. C 9. D

5. D 10. A

Problem 1 (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: 1. Land Building Equipment Other Operating Expenses Salaries and Commission Expense 2.

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 2 = P130,000 10% x 1,160,000 x 8/12 = 77,333

5,000,000 800,000

116,667 77,333

Problem 2 (Gay Company) Discount on Notes Payable (5% x 850,000) Equipment

42,500

42,500

Problem 3 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 7 NON-CURRENT OPERATING ASSETS

Depreciation Expense – Machinery Accumulated Depreciation – Machinery (284,579 x 10%) – 28,300 = 158 Problem 4 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 5 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 7 NON-CURRENT OPERATING ASSETS

Problem 6 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 5 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 7 Silver Company Equipment Balance, 1/01/12 6/01/12 Purchase of Machine 14 P15,000 + 3,500 09/01/12 Sold Machine 8 8,000 x 10% x 4 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 7 NON-CURRENT OPERATING ASSETS

Accumulated Depreciation – Equipment Depreciation Expense – Equipment 6,440 – 6,050

390

390

Problem 8 Conquer Company

January 1 Balances May 1 Acquisition P60,000 + P4,000 Oct. 1 Sale 20,000 x 10% x 2 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 9 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 7 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 6 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: 1. 2. 3. 4. 5. 6. 7. 8. 9. 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 7 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 – 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 b. Adjusted Balances: 1. Land 2. Land Improvements 3. Accumulated Depreciation – Land Improvements 4. Building 5. Accumulated Depreciation – Buildings 6. Machinery and Equipment 7. Accumulated Depreciation – Machinery and Equipment 8. Automobiles and Trucks 9. 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 7 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 3 Carrying amount 1/1/12 78,750 / 5 =

15,750 P105,000 ( 26,250) P 78,750 P 15,750

b. Depreciation Expense – Machine B Accumulated Depreciation – Machine B P240,000 / 6 = 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 / 7 = 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 7 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 7 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 7 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) / 3 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. 1 Accumulated Impairment – Licensing Agreement 1 70% x 60,000 = 42,000

34,700

34,700

5,500 5,500 42,000

Licensing Agreement No. 2 Unearned Revenue (Correction: advance collection of 2013, instead of 2011 revenue)

4,000

Selling and Administrative Expenses Accumulated Amortization – Licensing Agreement No. 2 60,000 / 10 = 6,000

6,000

42,000

4,000

6,000

Solutions – Chapter 7 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 7 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 7 NON-CURRENT OPERATING ASSETS Multiple Choice 1. 2. 3. 4. 5. 6. 7. 8. 9. 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: 1. B

2. A

P300,000/10 x 7/12 = (300,000 x 6/10) + 36,000 x 5/12 8 Depreciation expense for 2012 Carrying value as of August 1, 2012 Overhaul costs Depreciation – Aug. 1 – Dec. 31, 2012 - January 1 – June 30, 2013 216,000 / 8 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

3. C

Correct depletion for 2012 P4,860,000 / 1,620,000 x (15,000 tons x 6 months) = Recorded depletion Overstatement in depletion

4. A

Estimated useful life in years = 15 years Estimated mining period = 1,620,000 / 15,000 = 108 months or 9 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 7 NON-CURRENT OPERATING ASSETS 5. C

Remaining machines at December 31, 2010 = Machines 2 and 4 only Cost allocated to Machine 2 P1,200,000 x 500,000/1,500,000

P 400,000

Accumulated Depreciation of Machines 2 and 4 Machine 2 400,000 x 5/10 = Machine 4 500,000 / 10 x 6/12 Total 6. C

7. B 8. 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

9 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

9. 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 7 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 7 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 1 ( P4,300,000 – 250,000) / 5 x 8/12 = Machine 2 (4,800,000 – 300,000) / 6 = Machine 3 (5,920,000 – 400,000 ) / 5 = 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 / 2 = 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 2 years Accumulated depreciation, building 12/31/2011 33. B Depreciation Expense – Machine 2 (2012) Cost of Machine 2 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) / 4 = 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 7 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 7 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 / 8 = 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 7 NON-CURRENT OPERATING ASSETS

1. 2. 3. 4. 5. 6. 7. 8. 9. 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 6 years which is 12 – 6; shorter than 10 – 6 + 6 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