PROBLEM 1: The following following independent independent situations relate to the acquisition/self acquisition/self construct construct of various property, property, plant, and equipment items. Answer the question/s at the end of each situation 1. BRAD!T, BRAD!T, !"#. has has constructed constructed a production production equipment needed needed for the company$s e%pansion program. Bradpit received a 1,&'',''' (id from a reputa(le manufacturer for the construction of the equipment. The costs of direct direct material material and direct direct la(or incurr incurred ed to construct construct the equipment were were )*',''' and *'',''', respectively. !t is estimated that incremental overhead costs for construction amount to 1+' of direct la(or costs. -i%ed costs e%cluding interest of 0,1'',1'' were incurred during the construction period. This amount was allocated to construction on the (asis of total prime costs the sum of direct la(or and direct material. The prime costs incurred to construct the new equipment amounted to 2& of the total prime costs incurred for the period. The company$s policy is to capitali3e all possi(le costs on self construction pro4ects. To To assists in in 5nancing the the construction construction of the production production equipment, equipment, Bradpit Bradpit (orrowed (orrowed 1.& million at the (eginning of the *6month construction period. The loan was for 0 years with interest at 1' 7hat is the total cost of the self6constructed equipment8 A. 2 2,01',''' #. 2,'01,''' B. 0 0,*1',''' D. 2,09&,''' 0. The followi following ng transact transactions ions relat relate e to !:; #;:A"< #;:A"< The national government grants grants the company company a large large tract of land to (e used as a plant site. The land$s fair value is determined to (e 1,*0','''. !mpo #ompany issued 09',''' ordinary shares par valu, &' in e%change for land and (uilding. The fair value of the property is determined to (e 1*,0'',''' with the following allocation= >and 2,*'',''' Building 10,*'',''' P16,200,000 !mpo #ompany$s ordinary shares are not listed on the stoc? e%change, (ut its records show that a (loc? of 0,''' shares was sold (y a shareholder a year ago at @' per share, and another (loc? of +,''' shares was sold (y another shareholder 9 months ago at *2 per share. •
•
•
!mpo #ompany constructed machinery during the year. "o entry was made to remove from the accounts for material, la(or, and overhead the following costs that are properly chargea(le chargea(le to the machinery account. Raw material used 0&',''' -actory supplies used 19,''' Direct la(or costs incurred 20',''' !ncremental overhead caused (y construction of machinery e%cluding e%cluding factory supplies used &+,''' -i%ed overhead rate applied to regular manufacturing operations *' of direct la(or cost The cost of similar similar machinery machinery would (e 99',''' 99',''' if it had had (een purchased purchased from from a dealer. dealer.
The entries required required to record record these transaction transaction should include >and Buildings :achiner y A. &,&+','' 12,@0',' 92+,''' ' '' B. &,)@&,&& 1&,0++,+ 91*,''' * ++ #. &,@&@,@@ 1+,+90,0 @9',''' 9 00 D. &,00','' 10,*'',' 92+,''' ' '' 2. AA! #;:A"< #;:A"< is a ma4or supplier supplier of computer parts and and accessories. To improve delivery services to customers, the company acquired four new truc?s on Culy 1, 0'10. Descri(ed (elow are the terms of acquisition for each truc?.
Truc? Truc? "o. "o. 1 "o. "o. 0
>ist rice rice Terms *'' * '',' ,''' '' Acqui cquirred a cash cash paym paymen entt of & &&* &*,' ,''' '' 9'',' 9'',''' '' Ac Acqui quire red d for for a down down paymen paymentt of of 9', 9',''' ''' cash cash and and a 16ye 16year ar,, non6i non6inte ntere rest6 st6 (earing note with a face amount of @0','''. There was no esta(lished cash price for the equipment. The prevailing interest interest rate for this type of note is 1'. "o. "o. 2 *+',' *+',''' '' Ac Acqui quire red d in in e%c e%chan hange ge for a comp compute uterr pac? pac?age age that that the the compan company y car carrie ries s in in inventory. The computer pac?age cost +9',''' and is normally sold (y agai #o. for *'9,'''. "o. "o. + &*',' &*',''' '' Ac Acqui quire red d (y (y is issu suing ing +',''' +',''' of aga agaii #o.$s #o.$s ordin ordinary ary shar shares. es. The The shar shares es have have a par value per share of 1' and a mar?et value per share of 12. 7hat is the total cost of the truc?s purchased on Culy 1, 0'108 A. 0 0,+19,&+& #. 0,+9+,''' B. 0 0,+&9,&+& D. 0,&0+,''' +. ;n march 11, 0'10, RA:B; RA:B; #;:A"< #;:A"< acquired acquired the plant assets assets of !na #orporation #orporation in e%cahange for &',''' ordinary shares 1'' par value, which had a fair value per share of 19' on the date of the purchase of the property. The property had the following appraised value= >and 1,*'',''' Building +,9'',''' :achinery and equipment 2,0'',''' Below is a summary of Ram(o$s Ram(o$s cash outows (etween the acquisition date and Decem(er 0), the date when it 5rst occupied the (uilding. Repairs to (uilding +0',''' #onstruction of (ases for machinery to (e installed later &+',''' Driveways and par?ing lots +99,''' Remodeling of oEce space in (uilding, including new partitions and walls *++,''' Fpecial assessment (y the city government government on land @0,''' ;n Decem(er 0@, Ram(o paid cash for machinery, 1,10',''' su(4ect to a 0 cash discount and freight on machinery of +0,'''. #ompute the total cost of each of the following= A. >and B. Build uildin ings gs #. :achin :achinery ery and and equip equipmen mentt
PROBLEM 2: The following following G acquisitions acquisitions for selected companies= companies= a. -RG"# ;R" ;R" #;:A"< #;:A"< acquired acquired land, land, (uildings, (uildings, and equipment from from a 5nancially 5nancially distressed distressed company, Ban?rupt #orp., for a lump sum price of 0,9'','''. ;n the acquisition date, Ban?rupt$s assets had the following (oo? and fair values= Book Fair values values >and 9'',''' *'',''' Buildings 1,''',''' 1,+'',''' equipment 1,0'',''' 1,0'',''' -rench orn decided to ta?e a conservative position (y recording the ower of the two values for each G item acquired. The following entry was made= >and *'',''' Buildings 1,''',''' Gquipment 1,0'',''' #ash 0,9'',''' (. TRH:GT, !"#. purchased purchased factory factory equipment equipment (y ma?ing a 0'',''' cash down payment and signing a 26year 2'',''', 1' note paya(le. The acquisition was recorded as follows= -actory equipment &2',''' #ash 0'',''' "ote paya(le 2'','''
Truc? Truc? "o. "o. 1 "o. "o. 0
>ist rice rice Terms *'' * '',' ,''' '' Acqui cquirred a cash cash paym paymen entt of & &&* &*,' ,''' '' 9'',' 9'',''' '' Ac Acqui quire red d for for a down down paymen paymentt of of 9', 9',''' ''' cash cash and and a 16ye 16year ar,, non6i non6inte ntere rest6 st6 (earing note with a face amount of @0','''. There was no esta(lished cash price for the equipment. The prevailing interest interest rate for this type of note is 1'. "o. "o. 2 *+',' *+',''' '' Ac Acqui quire red d in in e%c e%chan hange ge for a comp compute uterr pac? pac?age age that that the the compan company y car carrie ries s in in inventory. The computer pac?age cost +9',''' and is normally sold (y agai #o. for *'9,'''. "o. "o. + &*',' &*',''' '' Ac Acqui quire red d (y (y is issu suing ing +',''' +',''' of aga agaii #o.$s #o.$s ordin ordinary ary shar shares. es. The The shar shares es have have a par value per share of 1' and a mar?et value per share of 12. 7hat is the total cost of the truc?s purchased on Culy 1, 0'108 A. 0 0,+19,&+& #. 0,+9+,''' B. 0 0,+&9,&+& D. 0,&0+,''' +. ;n march 11, 0'10, RA:B; RA:B; #;:A"< #;:A"< acquired acquired the plant assets assets of !na #orporation #orporation in e%cahange for &',''' ordinary shares 1'' par value, which had a fair value per share of 19' on the date of the purchase of the property. The property had the following appraised value= >and 1,*'',''' Building +,9'',''' :achinery and equipment 2,0'',''' Below is a summary of Ram(o$s Ram(o$s cash outows (etween the acquisition date and Decem(er 0), the date when it 5rst occupied the (uilding. Repairs to (uilding +0',''' #onstruction of (ases for machinery to (e installed later &+',''' Driveways and par?ing lots +99,''' Remodeling of oEce space in (uilding, including new partitions and walls *++,''' Fpecial assessment (y the city government government on land @0,''' ;n Decem(er 0@, Ram(o paid cash for machinery, 1,10',''' su(4ect to a 0 cash discount and freight on machinery of +0,'''. #ompute the total cost of each of the following= A. >and B. Build uildin ings gs #. :achin :achinery ery and and equip equipmen mentt
PROBLEM 2: The following following G acquisitions acquisitions for selected companies= companies= a. -RG"# ;R" ;R" #;:A"< #;:A"< acquired acquired land, land, (uildings, (uildings, and equipment from from a 5nancially 5nancially distressed distressed company, Ban?rupt #orp., for a lump sum price of 0,9'','''. ;n the acquisition date, Ban?rupt$s assets had the following (oo? and fair values= Book Fair values values >and 9'',''' *'',''' Buildings 1,''',''' 1,+'',''' equipment 1,0'',''' 1,0'',''' -rench orn decided to ta?e a conservative position (y recording the ower of the two values for each G item acquired. The following entry was made= >and *'',''' Buildings 1,''',''' Gquipment 1,0'',''' #ash 0,9'',''' (. TRH:GT, !"#. purchased purchased factory factory equipment equipment (y ma?ing a 0'',''' cash down payment and signing a 26year 2'',''', 1' note paya(le. The acquisition was recorded as follows= -actory equipment &2',''' #ash 0'',''' "ote paya(le 2'','''
!nterest paya(le
2','''
c. THBA #;. #;. purchased purchased store store equipment for 9'',''', 9'',''', terms 0/1', n/2'. The company too? the discount and made the following entry when it paid for the acquisition= Building +&,''',''' #ash +2,''',''' ro5t on construction 0,''',''' Prepare the necessary correcting entry for each acquisition. acquisition.
PROBLEM 3: FAI;;"G #;:A"< acquires a new manufacturing equipment on Canuary 1, 0'10, on installment (asis. The deferred payment contract provides for a down payment of 2'',''' and an 96year note for 2,1'+,1*'. The note is to (e paid in 9 equal annual installment payments of 299,'0', including 1' interest. interest. The payments are to (e made on Decem(er 21 of each year, (eginning Decem(er 21, 0'10. The equipment has a cash price equivalent of 0,2@','''. Fa%ophone$s 5nancial year6end is Decem(er 21. 1. 7hat is the acquisit acquisition ion cost cost of the the equipme equipment nt A. 2 2,+'+,1*' #. 0,2@',''' B. 0 0,9'+,1*' D. 2,1''+,1*' 0. The amount to (e recogni3ed recogni3ed on on Canuary 1, 0'10, as discount on note paya(le paya(le is A. 1 1,'2+,1*' #. 90@,1*' B. 21',+1* D. ' 2. The amount amount of intere interest st e%pense e%pense to (e recogn recogni3ed i3ed in 0'10 0'10 is A. ' #. 21',+1* B. 199,9)9 D. 0'@,''' +. The amount amount of intere interest st e%pense e%pense to (e recogn recogni3ed i3ed in 0'12 0'12 is A. 21',+1* #. 0'@,''' B. 199,9)9 D. ' &. The carryin carrying g value of the the note paya(le paya(le at Decem(er Decem(er 21, 21, 0'12, is A. 1 1,*9),9&9 #. 1,210,'*0 B. 1 1,999,)9' D. 1,@'','90
PROBLEM 4: ;B;G #;R. acquired land and an old (uilding in e%change for 2,''',''' cash and &'',''' ordinary shares with a par value of 1& per share. The company$s stoc? was selling for +' per share when the acquisition was made. ;(oe incurred the following costs in connection with the acquisition= >egal fees to complete the transaction roperty ta% for previous year #ost to demolish the old (uilding Falvage value of demolished (uilding
1&',''' 9&',''' 20&,''' 1)+,'''
1. 7hat is the the total total cost of the (uildi (uilding ng purchas purchased ed (y ;(oe #orp.8 #orp.8 A. ' #. 02,121,''' B. 02,''',''' D. 11,*21,''' 0. 7hat is is the total total cost cost of the land land acquired acquired (y (y ;(oe #orp.8 #orp.8 A. 11,*21,''' #. 1,''',''' B. 0+,121,''' D. 02,9*),'''
PROBLEM 5: Jarious equipment used (y BAF
a(or costs ;verhead costs 5%ed 6 +','''L varia(le *','''
+&',''' 2*,''' 19&,''' 1'','''
ain on self6construction !nstallation cost
)ore e"ui#$en %#urc*ase'(: #ash paid for equipment -reight and insurance cost while in transit #ost of moving equipment into place at store 7age cost for technicians to test equipment !nsurance premium paid during 5rst year of operation on the equipment Fpecial plum(ing 5%tures required for this equipment Repair cost incurred in 5rst year of operations related to this equipment
@+,''' 9,*''
1@&,''' 2,&'' 1,0'' @,''' &,0'' 9,0'' 1,+&'
PROBLEM 6: #G>>; #;R. has (een e%periencing a signi5cant increase in customers$ demand for its product. To e%pand its production capacity, #ello decided to purchase equipment form ede Htang on Canuary 0, 0'10. #ello issues a 0,+'','' &6year, non6interest6(earing note to ede Htang for the new equipment when the prevailing mar?et rate of interest for o(ligations of this nature is 10. The company will pay oK the note in 5ve +9',''' installments due at the end of each year over the life of the note. #ello$s 5nancial year6end is Decem(er 21. The appropriate present value factor of an ordinary annuity of 1 at 10 for & periods is 2.*'+@9. 1. 7hat is the cost of the new equipment8 A. 0,110,''' #.1,@2',0)+ B. 1,+&@,)21 D. 0,+'',''' 0. 7hat amount of interest e%pense should (e reported in #ello$s income statement for the year ended Decem(er 21, 0'108 A. 1@+,)&1 #. 02',+'' B. 0'@,*2& D. 099,''' 2. 7hat is the carrying value of the note at Decem(er 21, 0'1+8 A. 1,++',''' #. 1,+9',)20 B. 911,00* D. 1,1&0,99'
PROBLEM +: Descri(ed (elow are transactions related to H!TAR #;:A"<. a. The national government gives the company a large tract of land. The condition attached to this government grant is that uitar is to construct a plant facility on the site to provide employment opportunity to its residents. The fair value of the land is determined to (e + million. (. 1&',''' ordinary shares with a par value of 0' per share are issued in e%change for land and (uilding. The fair values of the land and (uilding acquired are &,+'',''' and 19,)'',''', respectively. c. The company$s stoc? is currently selling at 1@& per share. d. Ftill included in the material, direct la(or, and overhead accounts are amounts that are properly chargea(le to the machinery account. These represent costs of a machinery constructed (y uitar during the current year. These costs are= :aterials used -actory supplies used Direct la(or incurred !ncremental overhead over regular arising form construction of machinery e%cluding factory supplies used -i%ed overhead rate applied to regular manufacturing operations
2@&,'' ' 0@,''' +&','''
91,''' *' of direct la(or cost #ost of similar machinery if it had (een purchased from an outside dealer 1,20',' '' Prepare journal entries to record these transactions.
PROBLEM : The following information relates to !A"; #;:A"<.
a. ;n Culy 1, iano purchased the plant assets of and 1',&'',''' Building 21,&'',''' :achinery and equipment 01,''',''' T;TA> *2,''',''' iano issued &&', shares of its 1'' par value ordinary share capital in e%change for the a(ove plant assets. ;n the acquisition date, the stoc? had a fair value of 1*' per share. (. iano e%pended the following amounts in cash (etween Culy 1 and Decem(er 0', the date when the company 5rst occupied the (uilding= Fpecial assessment (y #ity on land Repairs to (uilding #onstruction of (ases for machinery and equipment acquired Driveways and par?ing lots Remodeling of oEce space in (uilding, including new partitions and walls
&+',''' 2,1&',''' +,'&',''' 2,**','''
c. ;n Decem(er 02, iano paid cash for machinery, @,9'',''', su(4ect to a 0 cash discount, and freight on machinery of 21&,''' 1. >and A. 1',&+',''' #. 1+,0'',''' B. 1+,@'',''' D. 11,'+',''' 0. Buildings A. 2),+9',''' #. 21,&'',''' B. 2@,)9',''' D. 2',''',''' 2. :achinery and equipment A. 20,''),''' #. 22,''),''' B. 09,)&),''' D. 01,''',''' +. >and improvements A. +,0'',''' #. &+',''' B. 2,**',''' D. ' &. The entry to record the purchase of and of 00,***,**@ #. #redit to ;rdinary Fhare #apital of *2,''',''' B. #redit to Fhare remium of 9,''','''D. De(it to :achinery and Gquipment of 0),222,222
PROBLEM -: The following items are included in the G section of the audited statement of 5nancial position of DRH:F #;R. as of Decem(er 21, 0'11= >and 2,+&','' ' Buildings 12,2&','' ' >easehold improvements ),)'',''' :achinery and equipment 12,10&,'' ' The following transactions occurred during 2012: a. >and A was acquired for 10,@&','''. !n connection with the acquisition, Drums paid a @*&,''' commission to a real estate agent. #osts of &0&,''' were incurred to clear the land. During the course of clearing the land, tim(er and gravel were recovered and sold for 1)&,''' (. >and B with an old (uilding was acquired for *,2'','''. ;n the acquisition date, the fair value of the land was +,&'',''' and the fair value of the (uilding was 1,9'','''. The old (uilding was demolished at a cost of *1&,''' shortly after acquisition. A new (uilding was constructed for +,)&',''' plus the following costs= G%cavation fees &@',' '' Architectural design fees 1*&,'' ' Building permit fee 2@,&''
!mputed interest on funds used during construction stoc? 5nancing
10@,&' ' The building was completed and occupied on December 0! 2012. c. >and # was acquired for ),@&',''' with the intention of selling it within 10 months from the date of purchase. d. During Decem(er 0'10, costs of 1,22&,''' were incurred to improve leased oEce spce. The related lease will terminate on Decem(er 21, 0'1+, and is not e%pected to (e renewed. e. A group of machine was purchased under a royalty agreement that provides for payment of royalties (ased on units of production for the machines. The invoice price of the machine was 1,2'&,''', freight costs were +),&'', installation costs were 2*,''', and royalty payments for 0'10 were 0*0,&''. Based on the preceding information, determine the (alances of the following G items as of Decem(er 21, 0'10= 1. >and A. 0+,01',''' #. 22,)*',''' B. 02,++&,'''q D. 0+,+'&,''' 0. Buildings A. 1),0'',''' #. 1),'@0,&'' B. 0',9@0,&'' D. 01,''',''' 2. >easehold improvements A. ),)'',''' #. 1,22&,''' B. ' D. 11,02&,''' +. :achinery and equipment A. 1+,@@9,''' #. 1+,0&2,''' B. 1+@,&1&,&'' D. 1+,+2',''' &. >and # should (e reported in the company$s Decem(er 21, 0'10, statement of 5nancial position under A. G #. "on current assets held for sale B. !nventories D. other non current assets
PROBLEM 10: A##;RD!;" #;:A"< incurred the following e%penditures in 0'10= urchase of land @,9'','' ' >and survey 1'+,''' -ees for search of title for land 10,''' Building permit fee @',''' Temporary quarters for construction crews 01&,''' ayments to tenants of old (uilding for vacating )0,''' premises #ost to demolish old (uilding )+',''' G%cavation of (asement 0'',''' Fpecial assessment for street pro4ect +',''' Dividends 1'',''' Damages awarded for in4uries sustained in construction 1*9,''' no insurance #ost of construction &9,''','' ' #ost of paving par?ing lot ad4oining (uilding 9'',''' #ost of shru(s, trees, and other landscaping **',''' A portion of the (uilding site had (een temporarily used (y Accordion to operate a car par? while the (uilding was (eing constructed. A total of 20&,''' was earned (y Accordion from this incidental activity. 1. 7hat is the cost of land A. 9,9)*,''' #. ),*+9,''' B. 9,)99,''' D. 1',++9,''' 0. 7hat is the cost of the land improvements A. **',''' #. 1,+*',''' B. 1,&'',''' D. 9'','''
2. 7hat is the cost of the (uilding A. &9,+&9,''' B. &9,1*','''
#. &9,0&0,''' D. &9,09&,'''
PROBLEM 11: ARF!#;RD, !"#. constructs equipment for its own use. The account (elow proceeds from sale of old equipment Raw material used in construction of new equipment >a(or in construction of new machine #ost of installation #ost of testing the equipment :aterial spoiled in machine trial runs ro5t on construction
009,''' 1+@,''' 22,*'' 0&,''' @,0'' @0,'''
"n analysis of the details in the account disclosed the following: a. The old equipment, which was removed (efore the installation of the new one, had (een fully depreciated. (. #ash discounts received on the payments for materials used in construction totaling ),''' were reported in the purchase discounts account c. The factory overhead account shows a (alance of 9@*,''' for the year ended Decem(er 21, 0'10L this (alance e%ceeds normal overhead on regular plant activities (y appro%imately &',@'' and is attri(uta(le to equipment construction d. A pro5t was recogni3ed on construction for the diKerence (etween costs incurred and the price at which the equipment could have (een purchased e. 7hile testing the equipment, sample items were produced. These were sold for &,''' which was credited to miscellaneous revenue. 1. 7hat is the total cost of the new equipment8 0. repare individual 4ournal entries to correct the accounts as of Decem(er 21, 0'10. Assume that the nominal accounts are still open
PROBLEM 12: #<:BA>F, !"#. completed the following transactions during 0'10= Can. 1 urchased real property for 19,9+@,&'', which included a charge of &+@,&'' representing property ta% for the current year that had (een prepaid (y the vendor. ;f the total purchase price, 0' is determined to (e applica(le to land and the (alance to (uildings. A mortgage of 11,0&',''' was assumed (y cym(als on the purchase. #ash was paid for the (alance. -e(. &
:ay 0'
#ym(als e%pended 999,''' to recondition the (uilding (ecause previous owners had neglected the normal maintenance and repair requirement on the (uilding The garage in the rear of the (uilding was demolished, 12&,''' (eing recovered on the salvage material. #ym(als immediately constructed a warehouse. The cost of such construction was 0,'09,''', which was not materially diKerent from the (ids made on the construction, city inspectors discovered that #ym(als failed to comply with the (uilding safety code and thus ordered the company to ma?e e%tensive modi5cations to the warehouse. The cost of such modi5cations, which could have (een avoided, was 099,'''.
Cune 1
The company acquired a new machine in e%change for its own ordinary shares with a mar?et value of *'',''' par )','''. The new machine has a mar?et value of @&','''
Culy 1
Another machine was acquired (y #ym(als. ayment was made (y issuing (onds with a face value of 1,&'',''' and (y paying cash of &+','''. The machine$s fair value is 1,)&','''
"ov.
;n Feptem(er 1, the company engaged an independent contractor for par?ing
0'
lots and landscaping at a cost of 1,*29,'''. The wor? was completed and paid for on "ovem(er 0'
Dec. 21
Because the company$s 5nancial year6end is Decem(er 21, the (usiness was closed to permit ta?ing the year end inventory. ;n this same date, required redecorating and repairs were completed at a cost of 00&,'''
1. The 4ournal entry to record the acquisition of real property on Canuary 1 should include a A. De(it to land of 19,9+@,&'' #. credit to mortgage paya(le of 19,2'',''' B. de(it to (uildings of 1&,'@9,''' D. credit to #ash of @,&)@,&'' 0. The transactions completed during 0'10 should result in a net income in the Buildings Account of A. 1@,@'),''' #. 1@,9&),''' B. 1@,+01,''' D. 1@,*+*,''' 2. The total additions to :achinery should (e A. 0,@)',''' #. 0,&&',''' B. 0,*+',''' D. 0,@'',''' +. The entry to record the acquisition of a new machine on Cune 1 should include a A. De(it to :achinery of @&',''' #. #redit to Fhare premium of &+',''' B. #redit to ;rdinary Fhares of @&',''' D. De(it to :achinery of *'',''' &. The entry to record the acquisition of a new machine on Culy 1 should include a A. De(it to Bond Discount of )',''' #. #redit to Bonds paya(le of )*',''' B. De(it to :achinery of 0,'+',''' D. #redit to Bond remium of ))','''
PROBLEM 13: BA"C; #;:A"< was organi3ed in Cune 0'10. !n your audit of the company$s noo?s, you 5nd the following land, (uildings, and equipment account. 201 .e/i re'i 2 Cune @ ;rgani3ation fees *',''' 1 >and site and old (uilding )+&,''' & 2 #orporate organi3ation costs )',''' ' Culy 2 Title clearance fees &&,0'' Aug. 0 #ost of ra3ing old (uilding *',''' ) Fept 1 Falaries of Ban4o #ompany e%ecutives 19',''' . Dec. 1 Ftoc? (onus to corporate promoters, *,''' ordinary & shares, 2'',''' &' per share mar?et value 1 Real property ta% +2,0'' & 0 #ost of new (uilding completed and occupied on this &,0&',' ' date '' and account should (e ad4usted (y a A. "et De(it of 1,'0+,0'' #. "et De(it of 1,'*',0'' B. "et De(it of )*0,+'' D. #redit of 2*,''' 2. The cost of the new (uilding is
A. &,+1&,''' B. &,&2&,'''
#. &,2&&,''' D. &,0&','''
PROBLEM 14: The audited statement of 5nancial position of J!;>!" #;. as of Decem(er 21, 0'11, shows the following property, plant, and Gquipment items= >and Buildings >easehold improvements :achinery and equipment Automo(iles
1,@&','' ' 1&,''','' ' 0,1*',''' 11,0&','' ' 1,@0','''
#iolin $o. completed the following transactions during 2012: Can. & Acquired a plant facility consisting of land and a (uilding in e%change for @&',''' & shares of Jiolin$s ordinary share capital. ;n this date, Jiolin$s ordinary shares had a mar?et price of 0& per share. The fair values of the land and (uilding are &,*0&,''' and 1*,9@&,''', respectively :arc 0' "ew par?ing lots, streets, and sidewal?s at the acquired plant facility were h completed at a total cost of &,@*',''' Culy 1 :achinery and equipment were purchased at a total invoice cost of 1,0&','''. Additional costs of +&,''' for delivery and )9,''' for installation were incurred. Fept. 1 Jiolin purchased a new automo(ile for *@&,''' "ov. 2 Jiolin purchased for 1',&'',''', a tract of land for undetermined future use. Dec. 0' A machine with a cost of +0&,''' and a carrying value of 9),0&' at date of disposition was scrapped without cash recovery Based on the preceding information, calculate the Decem(er 21, 0'10, (alances of the following accounts= 1. >and A. *,+2@,&'' #. @,2@&,''' B. 0+,0&',''' D. 1@,9@&,''' 0. >and improvement A. 10,0+',''' #. ' B. 1*,0*',''' D. &,@*',''' 2. Buildings A. 0),'*0,&'' #. 2@,*2&,''' B. 21,9@&,''' D. 1&,''',''' +. :achinery and equipment A. 10,&&2,@&' #. 10,'@&,''' B. 10,019,''' D. 10,2'@,0&'
PROBLEM 15: ;RA" #;R. has decided to e%pand its production capacity to meet the increased demand for its product. !n line with this, the company recently made several acquisitions of property, plant, and equipment. These transactions are descri(ed (elow= c"uisiion 1 ;n Cune 1, 0'10, ;rgan purchased equipment from Dongon #ompany under a deferred payment plan. ;rgan issued a 1,''',''' four6year non6interest6(earing not to Dongon for the new equipment. The loan agreement provides that ;rgan is to pay oK the note in four equal installments due at the end of each of the ne%t four years. !n the date of the acquisition, the prevailing mar?et rate of interest for o(ligations of this nature was 1'. The following costs were incurred to complete the transaction= -reight 01,0&' !nstallation 0&,''' The following are the appropriate factors for the time value of money at a 1' rate of interest= -uture value of 1 for + periods 1.+* -uture value of an ordinary annuity for + periods +.*+ resent value of 1 for + periods '.*9
resent value of an ordinary annuity for + periods
2.1@
c"uisiion 2 ;n Decem(er 1, 0'10, ;rgan purchased several assets of a small company. The lump sum price or M(as?et priceN amounted to 1',&'',''' and included the assets listed (elow= Book value Fair value :achinery and 2,''',''' 0,&'',''' equipment >and 0,''',''' +,''',''' Building 2,&'',''' *,''',''' P,500,000 P12,500,000 Totals During the 5scal year ended :ay 21, 0'12, ;rgan incurred +'',''' for interest e%pense in connection with the 5nancing of these assets.
c"uisiion 3 ;n :arch 1, 0'10, ;rgan e%changed a num(er of used equipment plus cash for vacant land ad4acent to its plant facility. The land acquired is intended to (e used for a par?ing lot. The equipment had a com(ined carrying value of 1,@&',''', as ;rgan had recorded 1,''',''' of accumulated depreciation against these assets. The equipment had a fair mar?et value of 0,2'',''' at the time of the transaction. To complete this transaction, ;rgan paid )&',''' cash for the land. -or each of the three acquisitions descri(ed a(ove, determine the value at which ;rgan #ompany should record the acquired assets= 1. Acquisition 1 purchase of equipment A. @)0,&'' #. 1,'+*,0&' B. 929,@&' D. 1,0'*,0&' 0. Acquisition 0 purchase of machinery and equipment, land, and (uildings Mac*iner an' Lan' /uil'in! e"ui#$en A. 2,@'&,990 0,+@',&99 +,202,& 2' B. 2,''',''' 0,''',''' 2,&'','' ' #. 0,&'',''' +,''',''' *,''','' ' D. 0,1'',''' 2,2*',''' &,'+','' '
PROBLEM 16: #AR!>>>;" #A;:A"< is contemplating to e%change a machine used in its operations. #arillon received the following oKers from interested companies. a. Ayi #ompany oKered a similar machine plus 2+&,''' cash (. Butsoy #ompany oKered to e%change a similar machine c. ;neng #ompany oKered to e%change a similar machine, (ut wanted 10',''' in addition to #arillon$s machine. !n addition, #arillon inquired from Foraya #orp., a dealer in machine #arillon is to pay 1,2)&,''' cash plus the trade in of its old machine in order to acquire a new unit. resented (elow are the machine$s cost, accumulated depreciation, and fair value=
#ost Accumulated Depreciation -air value
arillon 0,+'',' '' @&','''
i 1,9'',' '' *@&,'''
1,29','' '
1,'2&,'' '
Buso 0,0'&,' '' 1,'*&,'' ' 1,29','' '
Onen! 0,+'',' '' 1,10&,'' ' 1,&'','' '
)oraa 1,)&',' '' 66666 0,@@&,'' '
-or each of the a(ove e%change situations, prepare the 4ournal entries to record the e%change on the (onds of each company. Assume that all e%change situations have commercial su(stance.
PROBLEM 1+: ;n Culy 1, 0'10, #AFTA"GTF, !"#. e%changed machines with Bondat #ompany. The following facts pertain to these assets. asane Bon'a s s sses sse ;riginal cost 099,''' 22,'' ' Accumulated depreciation 12&,''' 1&*,'' to date of e%change ' -air mar?et value at date of 19',''' 00&,'' e%change ' #ash paid (y #astanets +&,''' #ash received (y Bondat +&,''' Although the fair values of the assets involved in the e%change had (een relia(ly determined, certain cash ow calculations made (y (oth companies provided that this e%change transaction lac?s commercial su(stance. 7hat entry should (e made on the (oo?s of each company to record the e%change
PROBLEM 1: ;" #;:A"< started construction of its administration (uilding at and estimated cost of &',''',''' on Canuary 1, 0'10. The construction is e%pected to (e completed (e Decem(er 21, 0'1+. ong has the following de(t o(ligations outstanding furing 0'10= #onstruction loan 10 interest, paya(le semi annually, issued Decem(er 21, 0'11 Fhort term loan 1' interest, paya(le monthly, and principal paya(le at maturity on :ay 21, 0'12 >ong term loan 11 interest, paya(le on Canuary 1 of each year. rincipal paya(le on Canuary 1, 0'1*
0',''',' '' 1+,''','' ' 1',''','' '
Assume that the weighted6average of the accumulated e%penditures during 0'10 was 2*,''',''' 7hat amount of interest incurred in 0'10 would (e included in the cost of the (uilding (eing constructed8 A. +,)'',''' #. 0,+'',''' B. +,'*@,0'' D. '
PROBLEM 1-: :ARA#AF #;:A"< constructs its own (uildings. !n 0'11, a total of 1,009,&'' interest was included as part of the cost of a new (uilding 4ust (eing completed. The following is a summary of construction e%penditures in 0'10= Accumulated in 0'11, including capitali3ed interest :arch 1 Feptem(er 1 Decem(er 21 Total
19,009,& '' @,''',''' +,''',''' &,''',' '' 2+,009,& ''
%aracas has the following outstanding loans at December 1! 2012: 10 note related directly to new (uildingL Term, & years from (eginning of 1',''','
construction eneral (orrowings= 1' note issued prior to construction of new (uildingL term, 1' years 9 note issued prior to construction of new (uildingL term , & years
''
&,''','''
1',''','' '
1. The capitali3ation rate is A. 9.*@ #. 10 B. 1' D. 9 0. The average accumulated e%penditures in 0'10 is A. 0&,911,92+ #. 2+,009,&'' B. 0+,1**,**@ D. 0&,2)&,1*@ 2. The amount of avoida(le interest for 0'10 is A. 2,*&*,&'' #. 0,@2),&1@ B. 0,&'',''' D. 0,&2+,@*1 +. The amount of capitali3ation interest in 0'10 is A. 0,&'',''' #. 0,@2),&1@ B. 0,&2+,@*1 D. 1,0'',''' &. The total cost of the new (uilding is A. 2&,&'',''' #. 2*,@*2,0*1 B. 2*,@09,&'' D. 0@,9)&,1*@
PROBLEM 20: ;n Canuary 1, 0'10, J!;>A #;R;RAT!;" contracted with :ega #onstruction #ompany to construct a (uilding for +',''',''' on land that Jiola purchased several year ago. The contract provides that Jiola is to ma?e 5ve payments in 0'10, with the last payment scheduled for the date of completion. The following was completed on Decem(er 21, 0'10. Jiola made the following payments during 0'10= Canuary 1 :arch 21 Cune 2' Feptem(er 2' Decem(er 21 Total
+,''',''' 9,''',''' 10,0'',''' 9,9'',''' @,''',''' P40,000,0 00
Jiola had the following de(t outstanding at Decem(er 21, 0'11= a. A 10, +6year note dated Canuary 1, 0'10, with 1@,''',' interest compounded quarterly. Both principal and '' interest are paya(le on Decem(er 21, 0'1&. This loan relates speci5cally to the (uilding pro4ect. (. A 1', 1'6year note dated Decem(er 21, 0''9 with simple interestL interest paya(le annually on Decem(er 21
10,''','' '
c. A 10, &6year note dated Decem(er 21, 0'1', with simple interestL interest paya(le annually on Decem(er 21
1+,''','' '
The following present and future value factors are ta?en from the present and future value ta(les= 3 12 -uture value of 1 for= + periods 1.10&&1 1.&@2&0 1* periods 1.*'+@1 *.12'2) resent value of 1 forL + periods
'.999+)
'.*2&&0
1* periods
'.*021@
'.1*210
1. !n the computation of the avoida(le interest for 0'10, the appropriate capitali3ation rate is A. 11 #. 10 B. 11.22 D. 11.'9 0. 7hat is the average accumulated e%penditures in 0'108 A. 2,222,222 #. 0',''',''' B. 19,2'',''' D. +',''',''' 2. 7hat is the total avoida(le interest cost in 0'108 A. 0,0@@,@1' #. 0,09',)*' B. 0,19+,'+' D. 0,+**,'@' +. 7hat is the amount of interest that should (e capitali3ed in 0'108 A. 0,19+,''' #. &,'12,*@' B. 0,+**,'@' D. 0,0@@,@1' &. Jiola$s income statement for 0'10 should include interest e%pense of A. &,'12,*9' #. 0,0@@,@1' B. 0,@2&,)*' D. '
PROBLEM 21: Fome parts of BAFF #;:A"<$s factory (uilding were replaced during 0'10. a. The outside corrugated covering on the factory walls was removed and replaced. The 4o( was done (y a reputa(le construction 5rm and will e%tend the life of the (uilding (y four years. The cost of the new wall was 19),'''. The cost of the old wall was determined to (e 1&','''. The (uilding is 0& depreciated. (. Dust 5lters installed in the interior of the factory were replaced at a cost of )','''. :anagement (elieves that the new 5lters will reduce health ha3ards and thus reduce employee (ene5t costs. The original 5lters cost +&,''' and are one6third depreciated. repare 4ournal entries (ased on the preceding information.
PROBLEM 22: #ABARA #;:A"<, whose accounting year ends on Decem(er 21, provides delivery services for pac?ages to (e ta?en (etween the city and the airport. ;n Canuary 1, 0'11, the company acquired a delivery van from Togo Truc?s. The company paid a cash of 1,'0',''' to Togo, which included registration fees of 0','''. !nsurance costs for the 5rst year amounted to 0+,'''. The truc? is e%pected to have a useful life of 5ve years. At the end of its useful life, the asset is e%pected to (e sold for +9',''' with costs relating to the sale amounting to 9,'''. ;n Canuary 1, 0'10, #a(ara$s management decided to add another vehicle, a at top, to the eet. This vehicle was acquired from a liquidation auction at a cash price of *'','''. The vehicle needed some repairs for the elimination of rust cot +*,''' and the replacement of all tires cost 10,+''. The company (elieved it would use the at6top for another two years and then sell it. G%pected selling price was 2'',''' with selling costs estimated to (e 9,'''. ;n Canuary 1, 0'10, a radio communication system was installed in (oth vehicles at a cost per vehicle of *,'''. This was not e%pected to have any material eKect on the future selling price of either vehicle. !nsurance costs for 0+,''' for the 5rst vehicle and 19,''' for the newly acquired vehicle. ;n Canuary 1, 0'12, the at6top that had (een acquired at auction (ro?e down. The company thought a(out acquiring a new vehicle to replace this one (ut, after considering the costs, decided to repair the at6top instead. The vehicle was given a ma4or overhaul at a cost of 12','''. Although this was a ma4or e%pense, management (elieved that the company would ?eep the vehicle for another two years. The estimated selling price in the three year$s time is 0+',''', with selling costs estimated at *,'''. !nsurance costs for 0'12 were the same as for the previous year. 1. 7hat is the cost of the delivery van acquired on Canuary 1, 0'118 A. 1,'++,''' #. 1,'0',''' B. 1,'&0,''' D. 1,''',''' 0. 7hat is the cost of the at6top vehicle purchased on Canuary 1, 0'108 A. *&9,+'' #. *10,+'' B. *'',''' D. *+*,'''
2. 7hat is the depreciation e%pense for 0'108 A. 1'),*'' #. 1++,+'' B. 1'&,*'' D. 1'+,''' +. 7hat is the depreciation e%pense for 0'128 A. 2'',*'' #. 0)2,''' B. 0)1,0'' d. 0)2,2'' &. 7hat is the depreciation e%pense for 0'128 A. 021,922 #. 010,&'' B. 0)2,2'' D. 02',222
PROBLEM 23: FG" #;:A"< constructed a (uilding for use (y the administration section of the company. The completion date was Canuary 1, 0''+, and the construction cost was 1*,9'','''. The company e%pected to remain in the (uilding for the ne%t 0' years, at which time the (uilding would pro(a(ly have no real salvage value and have to (e demolished. !t is e%pected that demolition costs will amount to 2'','''. !n Cune 0'11, following a storm that wrea?ed vast destruction in the city, the roof of the administration (uilding was considered to (e in poor shape so the company decided to replace it. ;n Canuary 1, 0'10, a new roof was installed at a cost of +,+'','''. The new roof was of a diKerent material to the old roof, which was estimated to have cost only 0,9'',''' in the original construction, although at the time of construction it was thought that the roof would last for the 0' years that the company e%pected to use the (uilding. Because the company spent the money replacing the roof, it thought that it would delay construction of a new (uilding, there(y e%tending the original life of the (uilding form 0' years to 0& years. 1. !f the roof were treated as a separate component of the (uilding the total depreciation e%pense for 0'10 would (e A. @&',''' #. *'*,**@ B. *91,&** D. *@0,''' 0. !f the roof were no treated as a separate component of the (uilding the total depreciation e%pense for 0'10 would (e A. 1,1@9,+*0 #. 9&1,111 B. 9*1,)++ D. @&','''
PROBLEM 24: ;n Canuary 1, 0'10, TF!"G>AF A!R>!"GF acquired a new airplane for a total cost of 0'' million. A (rea?down of the costs to (uild the airplane was given (y the manufacturers= Aircraft (ody
*',''',' '' 9',''','' '
Gngines 0 -ittings= Feats #arpets Glectrical equipment #oc?pit
passenger seats
•
Gquipment food preparation
0',''','' ' 1,''',''' +,''',''' 2',''','' ' &,''','''
At costs include installation and la(or costs associated with the relevant part. !t is e%pected that the aircraft will (e ?ept for 1' years and then sold. The main value of the aircraft at that stage is the (ody and the engine. The e%pected selling price is +0 million, with the (ody and engines retaining proportionate value. #osts in relation to the aircraft over the ne%t ten years are e%pected to (e as follows=
ircraf /o' This requires an annual inspection for crac?s and wear and tear, at a cost of 1'',''' En!ines
Gach engine has an e%pected life of four years (efore (eing sold for scrap. !t is e%pected that the engines will (e replaced in 0'1* for )' million and again in 0'0' for 10' million. These engines are e%pected to incur annual maintenance costs of * million. The manufacturer has informed #hordophone Airlines that a new prototype engine with an e%tra 1' capacity should (e on the mar?et in 0'19, and that e%isting engines could (e upgraded at a cost of 0' million.
Fiin!s Feats are replaced every three years. G%pected replacement costs are 0+ million in 0'1& and 2' million in 0'01. The repair of torn seats and faulty mechanisms is e%pected to cost 0 million per annum. #arpets are replaced every & years. They will (e replaced in 0'1@ at an e%pected cost of 1.2 million, (ut will not (e replaced (efore the aircraft is sold in 0'00. #leaning costs per annum amount to 0'','''. The electrical equipment such as the TJ for each seat has an annual repair cost of 2'','''. !t is e%pected that, with the improvements in technology, the equipment will (e totally replaced in 0'19 (y su(stantially (etter equipment at a cost of @ million. The electrical equipment in the coc?pit is tested frequently at an e%pected annual cost of & million. :a4or upgrades to the equipment are e%pected every two years at e%pected costs of & million in 0'1+, * million in 0'1*, *.) million in 0'19 and 9.0 million in 0'0'. The upgrades will ta?e into eKect the e%pected changes in technology. E"ui#$en Foo' #re#araion This incurs annual costs for repair and maintenance of +'','''. The equipment is e%pected to (e totally replaced in 0'19. 1. The total aircraft (ody6related e%penses for 0'10 would (e A. +,+'',''' #. 0,)&',''' B. +,2'',''' D. *,1'',''' 0. The total engine related e%penses for 0'10 would (e A. 01,&'',''' #. 0*,''',''' B. 1*,111,111 D. 0',''',''' 2. The total e%penses related to aircraft 5ttings for 0'10 would (e A. 19,'22,22+ #. 1&,2**,**@ B. 2','22,22+ D. 1',&22,22+ +. The total e%penses related to the food preparation equipment for 0'10 would (e A. 1,022,222 #. 922,222 B. 1,+'',''' D. +'',''' &. The total annual depreciation e%pense using the components approach is A. 1&,9'',''' #. 0',''',''' B. 2+,&**,**@ D. 2&,&**,**@
PROBLEM 25: :A"D;>!" #;R. uses diKerent ?inds of machines in its manufacturing process. !t constructs some of these machines itself and acquires others from the manufacturers. The following information relates to two machines that it has recorded in 0'10. Mac*ine %#urc*ase'( #ash paid for equipments #ost of transporting machine insurance and transport >a(or cost of installation (y e%pert 5tter >a(or cost of testing equipment !nsurance cost for 0'10 #ost of trading for personnel who will use the machine #ost of safety rails and platforms surrounding machine #ost of water devices to ?eep machine cool #ost of ad4ustments to machine during 0'10 to ma?e it operate more eEciently
Mac*ine B %self onsruce'( #ost of material to construct machine >a(or cost to construct machine Allocated overhead cost electricity, factory space, etc.
0&',''' ),''' 1&,''' 10,&'' +,&'' @,&'' 19,''' 0+,''' 00,&''
01',''' 10),''' **,'''
Allocated interest cost of 5nancing machine #ost of installation ro5t saved (y self6construction Fafety inspection cost prior to use 1. 7hat is the cost of machine A8 A. 29',&'' B. 2&9,''' 0. 7hat is the cost of machine B8 A. +@1,''' B. +1@,'''
2',''' 2*,''' +&,''' 10,'''
#. 209,''' D. 2&',&'' #. +92,''' D. +29,'''
PROBLEM 26: FTAR #;:A"< commenced operations on Canuary 1, 0'11. During the following year, the company acquired a tract of land, demolished the (uilding on the land and (uilt a new factory. Gquipment was acquired for the factory and, in Feptem(er 0'10, the plant was ready to commence operation. A gala opening was held on Feptem(er 19, with the #ity :ayor opening the factory. The 5rst items were ready for sale on Feptem(er 0&. During this period, the following cash inow and outows occurred. •
•
•
• •
• • • • • •
7hile searching for a suita(le (loc? of land, Ftar placed an option to (uy with three real estate agents at a cost of 1''' each. ayment for option fees Receipt of loan from (an? ayment to settlement agent for title search, stamp duties, and settlement fees ayment of delinquent property ta%es assumed (y Ftar #ompany ayment for land ayment ayment ayment ayment ayment ayment
for demolition of old (uilding from sale of material from old (uilding to architect to #ity all for approval of (uilding construction for safety fence around construction site to construction contractor for factory (uilding
ayment for e%ternal driveways, par?ing (ays and safety lighting ayment of interest on construction loan ayment for safety inspection on (uilding ayment for equipment ayment of freight and insurance costs on delivery of equipment ayment of installation cost on equipment ayment -or safety equipment surrounding equipment ayment for removal of safety fence ayment for new fence surrounding the factory ayment for advertisements in the newspaper a(out the forthcoming factory and its (ene5ts to the community ayment for opening ceremony ayment to ad4ust equipment to more eEcient operating levels su(sequent to initial operation 1. 7hat is the cost of the land A. 1,019,''' #. 1,1**,''' B. 1,01*,''' D. 1,0@1,''' 0. 7hat is the cost of the (uilding A. 2,0@),''' #. 2,0'',''' B. 2,09+,''' D. 2,02+,''' 2. 7hat is the cost of the land improvements A. *0',''' #. 11+,''' B. *&+,''' D. 12+,''' +. 7hat is the cost of the equipment • • • • • • • • •
2,''' 2,''',' '' 1'',''' &',''' 1,''',' '' 10',''' &&,''' 02',''' 10',''' 2+,''' 0,+'',' '' &+',''' +'',''' 2',''' *+',''' &*,''' 10',''' 11',''' 0',''' 9','''
•
•
&,''' *','''
•
22,'''
A. )&),''' #. )'2,''' B. 9+),''' D. 1,2&),''' &. The amount to (e reported as e%penses e%cluding depreciation in Ftar$s income statement is A. *',''' #. *&,''' B. 1'',''' D. *@,'''
PROBLEM 2+: -!DD>G #;:A"< uses a large num(er of machines designed to produce garments. These machine are generally depreciated at 1' per annum on a straight6line (asis. !n general, machines are estimated to have a residual value on disposal of 1' of cost. At Canuary 1, 0'10, -iddle had a total of @2 machines, and its statement of 5nancial position showed a total cost of 1,0*',''' and accumulated depreciation of 2)',''' During 2012! the following transaction occurred: ;n :arch 1, 0'10, a new machine was acquired for +&,'''. This machine replaced two other machines. ;ne of the two replaced machines was acquired on Canuary 1, 0'') for 0+,*''. !t was traded in on the new machine with -iddler ma?ing cash payment of 0*,+'' on the new machine. The second replaced machine had a cost 0@,''' on ;cto(er 1, 0''), and was sold for 01,)''. ;n Culy 1, 0'10, a machine that had cost 10,''' on Canuary 1, 0''2, was retired from use and sold for scrap for 1,&''. ;n Culy 1, 0'10, a machine that had (een acquired on Culy 1, 0'') for 01,''' was repaired (ecause its motor had (een damaged from overhauling. The motor was replaced at a cos of 1+,+''. !t was e%pected that this would e%tend the life of the machine (y and e%tra two years. ;n ;cto(er 1, 0'10, -iddle 5tted a new form of arm ro a machine used for putting special designs onto garments. The arm cost 2,*''. The machine had (een acquired on ;cto(er 1, 0''') for 2','''. The arm can (e used on a num(er of other machines when acquired and has a 1&6year life. !t will not (e sold when any particular machine is retired, (ut retained for use on other machines. •
•
•
•
1. 7hat amount of gain loss should (e recogni3ed on the sale of the second replaced machine on march 1, 0'108 A. @@0 #. @@0 B. 1,+0& D. 1,+0& 0. 7hat amount of gain loss should (e recogni3ed on the machine sold for scrap on Culy 1, 0'108 A. )'' #. )'' B. 0+' D. 0+' 2. 7hat amount of depreciation should (e provided in 0'10 on the machine whose motor was replaced on Culy 1, 0'108 A. 1,9)' #. 0,)@0 B. 0,+21 D. @,*2+ +. 7hat amount of depreciation should (e provided in 0'10 on the machine arm installed on ;cto(er 1, 0'108 A. 10) #. *' B. &+ D. '
PROBLEM 2: AR #;:A"<, whose 5nancial year6end is Decem(er 21, purchased a new manufacturing equipment on April 1, 0''&. The equipment has a special component that requires replacement (efore the end of the equipment$s useful life. The equipment was initially recogni3ed in two accounts= one is for the main unit and the other for the special component. arp uses the straight6line method of depreciation for all of its manufacturing equipment. Depreciation is recorded to the nearest month, residual values (eing disregarded. ;n April 1, 0'11, the special component is removed from the main unit and is replaced with a similar component. The component is e%pected to have a residual value of appro%imately 0& of cost at the end of the main unit$s useful life. Because of its materiality, the residual value will (e considered in calculating depreciation. Fpeci5c information a(out this equipment is as follows=
Main uni urchase price in 0''&
19@,0''
Residual value Gstimated useful life
12,0'' 1' years
o$#onen 1 urchase price Residual value Gstimated useful life
2',''' @&' * years
o$#onen 2 urchase price
+&,@&'
1. 7hat is the depreciation charge to (e recogni3ed for the year 0''&8 A. 1@,@)' #. 1*,@'* B. 02,@0' D. 1*,9'' 0. 7hat is the depreciation charge to (e recogni3ed for the year 0'118 A. 2',1&+ #. 09,&+9 B. 02,@0' D. 0*,+'+ 2. 7hat is the depreciation charge to (e recogni3ed for the year 0'108 A. 0@,0)9 #. 19,@0' B. 2',1&9 D. 0&,@)9
PROBLEM 2-: OATA"A #;R. commenced operations early in 0'10. During its 5rst nine months, Oatana acquired real estate for the construction of a (uilding and other facilities. ;perating equipment was purchased and installed, and the company (egan operating activities in April 0'10. The company$s accountant, who was not sure how to record some of the transactions, opened a roperty, lant, and Gquipment G ledger account and recorded de(its and credits to this account as follows= a. #ost of real estate purchased as a (uilding site 1,@'','' ' (. aid architect$s fee for design of new (uilding 02',''' c. aid for the demolition of an old (uilding on the (uilding site purchased in 1. 09',''' d. aid property ta% on the real estate purchased as a (uilding site in 1. 1@,''' e. aid e%cavation costs for the new (uilding 1&',''' f. :ade the 5rst payment to the (uilding 0,&'',''' contractor g. aid for equipment to (e installed in the new 1,+9',''' (uilding h. Received from sale of salvaged material form demolishing the old (uilding *9,''' i. :ade the 5nal payment to the (uilding 2,&'',''' contractor 4. !mputed interest on Oatana$s own construction 00',''' fund ?. aid freight on equipment purchased 1),''' l. aid installation costs of equipment +1,''' m. aid for repair of equipment damaged during 0@,''' installation P10,0-+, G >edger Account Balance 000 Based on the preceding information, determine the amount to (e charged to each of the following= 1. >and A. 1,)10,''' #. 0,1+),''' B. 1,)0),''' D. 0,'11,''' 0. >and improvements A. 90,''' #. 1&',''' B. *9,''' D. ' 2. Building A. *,29',''' #. *,&)0,''' B. *,*'',''' D. *,''',''' +. :anufacturing equipment
A. 1,+9',''' B. 1,&'@,''' &. G%penses e%cluding depreciation A. *9,''' B. ++,'''
#. 1,&+1,''' D. 1,&*9,''' #. 00',''' D. 0@,'''
PROBLEM 30: F;" :A"H-A#THR!" #;:A"<$s accounts at Decem(er 21, 0'11, included the following (alances= :achinery at cost Accumulated depreciation machinery Jehicles at costL purchased "ovem(er 01, 0'1' Accumulated depreciation vehicles >and at costL purchased ;cto(er 0&, 0''9 Building at costL purchased ;cto(er 0&, 0''9 Accumulated depreciation (uilding
0@2,''' 1++,*'' 1+',+'' &9,)*9 0+2,''' &&@,1*' 9&,9+0
Details of machines owned at December 1! 2011 are as follows: Mac*i Purc*ase os seful Resi'ual ne .ae Life 7alue 1 ;ct. @, 0''9 10),'' & years @,&'' ' 0 -ec. +, 0'') 1++,''' * years ),''' "dditional information: Fon calculates depreciation to the nearest month and uses straight6line depreciation for all deprecia(le assets e%cept vehicles, which are depreciated on the diminishing (alance at +' per annum Fon$s 5nancial year6end is Decem(er 21 The vehicles account (alance reects the total paid for two identical delivery vehicles, each of which cost @',0'' ;n acquiring the land and (uilding, Fon estimated the (uilding$s useful life and residual value at 0' years and 1&,''', respectively •
• •
•
The following transactions occurred from &anuary 1! 2012: 2012 Can. 2 Bought a new machine machine 2 for a cash price of 1@1,'''. -reight charges of 1,20* and installation costs of &,0@+ were paid in cash. The useful life and residual value were estimated at 5ve years and 10,''', respectively Cune 00
Bought a second6hand vehicle for +&,*'' cash. Repainting costs of 1,)*& and four new tires costing 1,'2& were paid for in cash.
Aug. 09
G%changed machine 1 for oEce furniture that had a fair value of 2@,&'' at the date of e%change. The fair value of machine 1 at the date of e%change was 2+,&''. The oEce furniture originally cost 1'9,''' and, to the date of e%change, had (een depreciated (y @0,2'' in the previous owner$s (oo?s. Fon estimated the oEce furniture$s useful life and residual value at eight years and 1,*0', respectively.
Dec. 21
Recorded depreciation
2013 April 2' :ay 0&
Cune 0*
aid for repairs and maintenance on the machinery amounting to 0,@9+ Fold on of the vehicles (ought on "ovem(er 01, 0'1', for 1),9'' cash !nstalled a fence around the property at cost of 1*,&''. The fence
has an estimated useful life of 1' years and 3ero residual value. De(it the cost to a land !mprovements asset account Dec. 21
2014 Can. &
Cune 0'
;ct. +
Dec. 21
Recorded Depreciation
;verhauled machine 0 at a cost of 2*,''', after which Fon estimated its remaining life at one additional year and revised its residual value to 1&,''' Traded in the remaining vehicle (ought on "ovem(er 01. 0'1', for a new vehicle. A trade6in allowance of 11,1'' was received and *),)'' was paid in cash Fcrapped the vehicle (ought on Cune 00, '10, as it had (een so (adly damaged in a traEc accident that it was not worthwhile repairing it Recorded depreciation
1. :achine 2, purchased on Canuary 2, 0'10, should (e recorded at A. 1@1,''' #. 1*&,''' B. 1@@,*'' D. 1&),''' 0. The second6hand vehicle purchased on Cune 00, 0'10, should (e recorded at A. +&,*'' #. +@,&*& B. +*,*2& D. +9,*'' 2. The oEce equipment on August 09, 0'10, should (e recorded at A. 2+,&'' #. 2&,@'' B. 2@,&'' D. 22,90& +. The gain to (e recogni3ed on the e%change of machine 1 for oEce furniture on august 09, 0)10, should (e A. 1,9@& #. 2,*@& B. ' D. *@& &. The total depreciation for 0'10 is A. 1+0,1)9 #. 1+0,@1* B. 10*,2)1 D. 1+0,&)1 *. The gain loss to (e recogni3ed on the sale of vehicle on :ay 0*, 0'12, is A. &&9 #. &&9 B. +,*2' D. +,*2' @. The total depreciation e%pense for 0'12, is A. 110,)9@ #. 11@,+2+ B. 11@,'&) D. 11*,+2' 9. After the overhaul, machine 0$s revised annual depreciation is A. 00,&*' #. 0*,1'' B. &',1)0 D. 22,2'' ). 7hat is the cost of the new vehicle acquired on Cune 0', 0'1+8 A. 91,''' #. &9,9'' B. *),)'' D. )1,2)9 1'.The total depreciation e%pense for 0'1+ is A. 11+,*@9 #. 119,019 B. 119,&)2 D. 1'9,099
PROBLEM 31:
9 @',''' 0''* 1' years *,0'' Fum6of6years6 digits
Accumulated depreciation through 0'11
+*,+''
))E8 E 1'0,''' 0''@ 1&,''' hours *,''' 7or?ing hours
@',+''
R 1*',''' 0''9 1& years 1',''' Ftraight6 line
1*',''' 0'1' 1' years 1',''' Dou(le Declining (alance
2','''
20,'''
0*,''' Asset C
0*,'''
(. ;n Decem(er 21, it was determined that Asset G had (een used 0,1'' hours during 0'10. c. ;n Decem(er 21, (efore computing depreciation e%pense on Asset R, the management of >yre decided the useful life remaining form Canuary 1, 0'10, was 1' years. d. ;n Decem(er 21, it was discovered that a plant asset purchased in 0'11 had (een e%pensed completely in the year. This asset costs ++,''' and has a useful life of 1' years and no salvage value. :anagement has decided to use the dou(le6declining (alance method for this asset, which can (e referred to as MAsset #N. 1. The 0'10 depreciation e%pense on Asset C is A. *,)*' #. *,2*+ B. 19,00) D. &,9'' 0. The gain to (e reported on the sale of Asset C is A. 9,0'' #. 9,@*+ B. ),2*' D. ' 2. The 0'0 depreciation e%pense on Asset G is A. 1@,*'' #. 12,++' B. 1),++' D. 1+,09' +. The 0'10 depreciation e%pense on Asset R is A. 1@,1+2 #. 12,''' B. 10,''' D. &,++& &. The Total depreciation e%pense in 0'10 on the a(ove6mentioned G items is A. *&,*+' #. **,9'' B. *2,99' D. **,*+' *. repare the necessary ad4usting 4ournal entries for the year 0'10, including the appropriate depreciation e%pense on the a(ove6mentioned items
PROBLEM 32: The following data pertained to HOH>G>G #;R;RAT!;"$s property, plant, and equipment for 0'10. u'ie' /alances a .ece$/er 31, 2011: .e/i @,&'',' '' 2',''',' ''
>and Buildings Accumulated6depreciation (uildings
re'i
*,&@@,& ''
:achinery and equipment
00,&'',' ''
Accumulated depreciation :achinery and Gquipment Delivery Gquipment
*,0&',' '' &,@&','' '
Accumulated depreciation Delivery Gquipment
+,02',' ''
.e#reciaion 'aa: .e#reciaion Me*o' Buildings :achinery and Gquipment
1&' dou(le6declining6 (alance Ftraight line
seful Life 0& years 1'
Delivery Gquipment >easehold !mprovements
Fum6of6years6digits Ftraight line
years + years 666
Transaction During 2012 and other information are as follows: a. ;n Canuary 0, 0'10, H?ulele purchased a new truc? for 1,''',''' cash and trade6in of a 06year6old truc? wit a cost of )'',''' and a (oo? value of 0@','''. The new truc? has a cash price of 1,0'','''L the mar?et value of the trade6in is not ?nown. (. ;n April 1, 0'10, a machine purchased for &@&,''' on April 1, 0''@, was stolen. H?ulele recovered 29@,'' form its insurance company. c. ;n :ay 1, 0'10, costs of 9,+'',''' were incurred to improve leased oEce premises. The leasehold improvements have a useful life of 9 years. The related leased terminates on Decem(er 21, 0'19. d. ;n Culy 1, 0'10, machinery and equipment were purchased at a total invoice cost of @,''','''L additional costs of 10&,''' for freight and *0&,''' for installation were incurred. e. H?ulele determined that the delivery equipment comprising the &,@&',''' (alance at Canuary 1, 0'10, would have (een depreciated at a total amount of )'',''' for the year ended Decem(er 21, 0'10. The salvage values of the deprecia(le assets are immaterial. The policy of H?ulele #orporation is to compute depreciation to the nearest month. 'ased on the preceding information! compute the following: 1. Depreciation e%pense for 0'10 on Buildings A. 1,+'&',2&' #. 1,0'',''' B. )0),@'' D. 1,9'',''' 0. Depreciation e%pense for 0'10 on :achinery and Gquipment A. 0,*2@,&'' #. 0,*&+,9@& B. 0,)91,9@& D. 0,&)+,2@& 2. Depreciation e%pense for 0'10 on Delivery Gquipment A. 1,11',''' #. 1,29',''' B. 1,0'',''' D. 1,'0',''' +. Depreciation e%pense for 0'10 on >easehold !mprovements A. @'',''' #. 9+',''' B. 1,'&',''' D. )22,222 &. Accumulated depreciation Buildings, Decem(er 21, 0'10 A. @,&'@,0'' #. @,@@@,&'' B. @,)90,9&' D. 2,2@@,&'' *. Accumulated depreciation :achinery and Gquipment, Decem(er 21, 0'10 A. 9,*++,2@& #. 9,*'',''' B. 9,&&*,9@& D. 9,9++,2@& @. Accumulated depreciation Delivery Gquipment, Decem(er 21, 0'10 A. &,+2',''' #. +,@1',''' B. +,*0',''' D. +,9'',''' 9. ain loss on trade in of truc? on Canuary 0, 0'10 A. 0'',''' #. @',''' B. 0'',''' D. @','''
PROBLEM 33: F"ARG DRH: #;:A"< (uys a machine for 009,*'' on Canuary 1, 0''). The maintenance costs for the years 0'') 0'10 are as follows= ;ear os 0'') 12,&'' 0'1' 1',9'' 0'11 *&,@''P 0'10 19,)'' P includes &+,)'' for cost of a new motor installed in Decem(er 0'11 Fnare Drum recorded the cost of the machine frame in one account at a cost of 1@*,+'' and the motor was recorded in a second account at a cost of &0,0''. Ftraight line method of depreciation is used with a useful life of 1' years for the frame and + years for the motor. Residual values are immaterial and thus ignored in the computation of depreciation charges. 1. 7hat is the total e%pense related to the machine in 0'')8
A. ++,1)' #. @',*&' B. 2',*)' D. 2*,*2' 0. 7hat amount of loss should (e recogni3ed on the replacement of motor in 0'118 A. 1',9'' #. 0*,1'' B. 12,'&' D. ' 2. 7hat is the depreciation e%pense in 0'118 A. 21,2*& #. 1',*)' B. 1@,*+' D. ++,+1& +. 7hat is the total e%pense related to the machine in 0'118 A. &+,&+' #. 9),@@& B. +1,+)' D. +0,1*& &. 7hat is the total e%pense related to the machine in 0'108 A. +0,'2' #. &0,)*& B. 21,2*& D. &',0*&
PROBLEM 34: BH>G #;:A"<$s property, plant, and equipment and related accumulated depreciation accounts had the following (alances at Decem(er 21, 0'11= lass of PPE os ccu$ulae' .e#reciaion >and 2,)'',''' Buildings 2*,''',''' @,)*0,''' :achinery and 02,0&',''' &,99*,''' equipment Transportation 2,)*',''' 0,&9*,''' equipment >easehold *,*2',''' 2,21&,''' improvements lass of PPE .e#reciaion seful Life Me*o' >and improvements Ftraight6line 10 years Buildings 1&' declining 0& years (alance :achinery and Ftraight6line 1' years Gquipment Transportation 1&' declining & years Gquipment (alance >easehold Ftraight line 9 years improvements Bugle computes depreciation to the nearest month. The salvage values of the deprecia(le assets are considered immaterial. Transactions during 2012 and other information are described below: a. ;n Canuary &, 0'10, a plant facility consisting of land and a (uilding was purchased from Torotot #ompany for 19, ''', '''. ;f this amount, 0' was allocated to land. (. ;n April 2, 0'10, new par?ing lots, streets, and sidewal?s at the purchased plant facility were completed at a total cost of &,@*','''. These e%penditures had an estimated useful life of 10 years. c. The leasehold improvements were completed on Decem(er 21, 0''9, and had an estimated useful life of 9 years. The related lease, which would have terminated on Decem(er 21, 0'1+, was renewa(le for an additional +6year term. ;n April 2', 0'10, Bugle e%ercised the renewal option. d. ;n Culy 1, 0'10, machinery and equipment were purchased at a total invoice cost of @,&'','''. Additional costs of 2'',''' for delivery and )'',''' for installation were incurred. e. ;n August 21, 0'10, Bugle purchased a new automo(ile for +&',''' f. ;n Feptem(er 0), 0'10, a truc? with a cost of @0',''' and a carrying amount of 0+2,''' on the date of sale was sold for 2+&,'''. Depreciation for the ) months ended Feptem(er 21, 0'10, was @',&*'. g. ;n Decem(er 00, 0'10, a machine with a cost of &1',''' and a carrying amount of 9),0&' at date of disposition was scrapped without cash recovery. Based on the preceding information, calculate the 0'10 depreciation e%pense on each of the following classes of G.
1. >and improvements A. +9',''' B. 2*',''' 0. Buildings A. 0,&+*,09' B. 2,'0+,''' 2. :achinery and Gquipment A. 0,20&,''' B. 2,1)&,''' +. Transportation Gquipment A. 2*2,120 B. +&+,9*' &. >easehold !mprovements A. 909,@&' B. &&0,&''
#. 20',''' D. 10',''' #. 0,@*0,09' D. 1,*90,09' #. 1,&)@,&'' D. 0,@*',''' #. +22,*)0 D. &0@,@*' #. **2,''' D. 1,20*,'''
PROBLEM 35: The Delivery Truc?s account of your client, A>;R" #;:A"<, had a (alance of 0,90',''' on Canuary 1, 0''), which included the following= 8ruck
9ul 1, 200 Truc? "o. 2 was traded for a larger one Truc?"o. &, the agreed price of which was 1,'0','''. Alphorn paid the dealer &'',''' cash on the transaction. The entry was= Delivery Truc?s #ash
&'',''' &'','''
9anuar 1, 2010 Truc? "o. 1 was sold for 11','''. The entry was= #ash Delivery Truc?s
11',''' 11','''
9ul 1, 2011 A new Truc? "o. * was purchased for 1,'9',''' cash and was de(ited at that amount to the Delivery Truc?s account. Assume Truc? "o. 0 was not retired. 9ul 1, 2011 Truc? "o. + was severely damaged in an accident and was sold as 4un? for 01,''' cash. Alphorn received @&,''' from the insurance company. The entry made (y the accountant was= #ash Fales Delivery Truc?s
)*,''' 01,''' @&,'''
Gntries for depreciation had (een made at the end of each 5nancial yea as follows=
;ear
.e#reciaion
0'') 0'1' 0'11 0'10
E>#ense *'),''' *22,''' @22,&'' 92+,'''
1. 7hat amount of gain loss should have (een recogni3ed on the trade in of Truc? "o. 2 on Culy 1, 0'')8 A. 12',''' #. 11',''' B. 02',''' D. ' 0. Alphorn$s net income for 0'') was overstated understated (y A. @@,''' #. 22,''' B. 11',''' D. 22,''' 2. The gain loss on the sale of truc? "o. 1 on Canuary 1, 0'1', was A. 11',''' #. 1'9,''' B. 0,''' D. 0,''' +. Alphorn$s net income for 0'1' was understated (y A. 1&&,''' #. 0,''' B. 1&2,''' D. 1&1,''' &. 7hat amount of loss should have (een recogni3ed on the sale of Truc? "o. + on Culy 1, 0'118 A. 0*@,''' #. 099,''' B. 1)0,''' D. 012,''' *. Alphorn$s net income for 0'11 was overstated understated (y A. 012,''' #. 092,&'' B. @',&'' D. 012,''' @. 7hat amount of depreciation should have (een recorded in 0'108 A. +1+,''' #. +0',''' B. &&0,''' D. 92+,'''
PROBLEM 36: BA!G :A"H-A#THR!" #;:A"< (egan operations on ;cto(er 1, 0'1'. The company$s accountant has started to gather pertinent information a(out each of the company$s property, plant, and equipment as shown (elow. 7hen he was a(out to prepare a schedule of G and depreciation, he was assigned to maintain the (oo?s of the company$s foreign operations. and A and (uilding A were purchased from o(re #ompany. Bagpipe paid 10,2'',''' for the land and (uilding together. At the tome of acquisition, the land had a fair value of 1,2&',''' and the (uilding had a fair value of 10,1&',''' c. >and B acquired on ;cto(er 2, 0'1', in e%change for 2@,&'' ordinary shares of Bagpipe. ;n the acquisition date, >and B had a fair value of 1,10&,''' and the company$s & par value ordinary shares had a fair value of 2& per share. Bagpipe paid 0+',''' to demolish an old (uilding on this land for the construction of a new (uilding. d. #onstruction of Building B on the newly acquired land (egan on ;cto(er 1, 0'11. By Feptem(er 21, 0'10, Bagpipe had paid +,9'',''' of the estimated total construction costs of *,@&','''. !t is estimated that the (uilding will (e completed and occupied (y Culy 0'12. e. #ertain equipment was donated to the corporation (y the national government. An independent appraisal of the equipment when donated placed the fair mar?et va?ue at +&',''' and the salvage value at +&,''' f. :achine A$s total cost of 0,+@2,&'' includes installation cost of ),''' and normal repairs and maintenance of 002,&''. Falvage value is estimated at )','''. !t was sold on -e(ruary 1, 0'10, for 1,*'','''. g. ;n ;cto(er 1, 0'11, :achinery B was acquired with a down payment of 9*,1'' and the remaining payments to (e made in 11 annual installments of )',''' each, (eginning ;cto(er 1, 0'11. The prevailing interest rate was 9. The following data were a(stracted from present value ta(les rounded= 10 ears 11 15 ears ears resent value of 1 at 9 '.+*2 '.+0) '.21& resent value of an *.@1' @.12) 9.&&) ordinary annuity of 1 at 9
Lan' Acquisition date Buil'in! Acquisition date= Falvage value= Depreciation method= Depreciation e%pense=
;cto(er 1, 0'1'
;cto(er 1, 0'1' *'',''' Ftraight line 0*1,@&'
;cto(er 2, 0'1'
Hnder construction +,9'',''' to date Ftraight line ' 2' years
;cto(er 0, 0'1' +&,''' 1&' declining (alance 1' years
;cto(er 0, 0'1' )',''' 9 years Fum6of6the6years6digits F
;cto(er 1, 0'11 ' Ftraight6line 0' years
1. 7hat is the cost of >and A8 A. 1,2&',''' #. 11,'@',''' B. 10,1&',''' D. 1,02',''' 0. 7hat is the cost of Building A8 A. 1,2&',''' #. 11,'@',''' B. 10,1&',''' D. 1,02',''' 2. 7hat is the estimated useful life of Building A8 A. +0 years #. ++ years B. +' years D. +* years +. 7hat is the depreciation e%pense on Building A for the year ended Feptem(er 21, 0'108 A. 0*1,@&' #. &02,&'' B. 099,@&' D. &@@,&'' &. 7hat is the cost of land B8 A. 1,&&0,&'' #. 1,2*&,''' B. +0@,&'' D. 1,10&,''' *. 7hat is the depreciation e%pense on Building B for the year ended Feptem(er 2', 0'108 A. 10',''' #. 099,@&' B. 1*9,@&' D. ' @. At what amount should the donated equipment (e measured and recogni3ed8 A. +&',''' #. +)&,''' B. +'&,''' D. ' 9. 7hat is the depreciation e%pense on the donated equipment for the year ended Feptem(er 2', 0'118 A. ' #. *',@&'
B. @+,0&' D. *@,&'' ). 7hat is the depreciation e%pense on the donated equipment for the year ended Feptem(er 2', 0'108 A. *',@&' #. &@,2@& B. &1,*29 D. *@,&'' 1'.7hat is the cost of :achinery A8 A. 0,+@2,&'' #. 0,1*',''' B. 0,0&',''' D. 0,1&1,''' 11.7hat is the depreciation e%pense on :achinery A for the year ended Feptem(er 2', 0'118 A. &'',''' #. +9',''' B. &0),**@ D. +@9,''' 10.7hat is the depreciation e%pense on :achinery A for the year ended Feptem(er 2', 0'108 A. 1+',''' #. 12',)0* B. 112,+0* D. 1@&,''' 12.7hat amount of gain loss should (e recogni3ed on the sale of :achinery A on -e(ruary 1, 0'108 A. ' #. &,''' B. *',''' D. 2',''' 1+.7hat is the cost of :achinery B8 A. @09,*1' #. @9',''' B. @21,@*' D. *9&,+2+ 1&.7hat is the depreciation e%pense on :achinery B for the year ended Feptem(er 2', 0'108 A. 2*,+2' #. 2*,&9+ B. 2),''' D. 2+,0@0
PROBLEM 3+:
Balance
*/1/10
"o. 10
)/1/10
Dismantling of "o. *
10/21/10
E?PME<8 ++*,'' )/1/10 ' 2*,''' 10/21/1 0 1,'' ' 43,00 0
". * sold (alanc e
ML8E. .EPRE8O< & E?PME<8 (alance 0@1,+'' 1/1/10 Balance 10/21/1 0'10 0 depreciation P2+1,40 0
),''' +@+,'''
P43,00 0
00+,''' +@,+''
P2+1,40 0
The following are the details of the entries abo(e: a. The company depreciates equipment at 1' percent per annum. The oldest equipment owned is seven years old as of Decem(er 21, 0'10. (. The following ad4usted (alances appeared on you last year$s wor?ing papers= Gquipment ++*,''' Accumulated depreciation 00+,''' c. :achine ";. * was purchased on :arch 1, 0''& at a cost of 2',''' and was sold on Feptem(er 1, 0'10, for ),''' d. !ncluded in charges to the repairs e%pense account was an invoice covering installation of :achine "o. 10 in the amount of 0,&''. e. !t is the company$s practice to ta?e full year$s depreciation in the year of acquisition and none in the year of disposition. 1. 7hat is the gain loss on the sale of :achine "o. *8 A. +,''' #. 1,''' B. 9,''' D. ' 0. 7hat is the equipment account (alance on Decem(er 21, 0'108 A. +&+,&'' #. +@&,&''
B. +&0,''' D. +9+,&'' 2. 7hat is the total depreciation e%pense on equipment for the year ended Decem(er 21, 0'108 A. ++,*'' #. &1,+&' B. +&,9+* D. +&,+&' +. 7hat ad4usting entry should (e prepared in connection with the sale of :achine "o. * on Feptem(er 1, 0'108 A. >oss on sale of equipment 1,''' Accumulated depreciation 01,''' Gquipment 00,''' B. >oss on sale of equipment Accumulated depreciation Gquipment
+,''' 19,''' 00,'''
#. Accumulated depreciation Gquipment
01,''' 01,'''
D. Accumulated depreciation Gquipment ain on sale of equipment
2',''' 00,''' 9,'''
&. 7hat ad4usting entry should (e prepared on Decem(er 21, 0'10, to correct the amount of depreciation recorded on the company (oo?s. A. Accumulated depreciation 1,)&' Depreciation e%pense 1,)&' B. Accumulated depreciation Depreciation e%pense
0,9''
#. Accumulated depreciation Depreciation e%pense
1,&&+
D. Accumulated depreciation Depreciation e%pense
+,'&'
0,9''
1,&&+
+,'&'
PROBLEM 3: ;R"< #;:A"< has a long6standing policy acquiring company equipment (y leasing. ;n Canuary 1, 0'11, the company entered into a lease for a new machine. The lease contract provides that annual payments will (e made for & years. The payments are to (e made in advance on Decem(er 21 of each year. At the end of the &6year period, ornpipe may purchase the machine. The estimated economic life of the machine is 10 years. ornpipe uses the calendar year for reporting purposes and depreciates its other equipment using the straight6line method. !n addition, the following information a(out the lease is also availa(le= Annual lease payments urchase option price Gstimated fair mar?et value of the machine after + years !nterest rate implicit in the lease Date of the 5rst lease payment
1*&,''' @&,''' 1,10&,''' 1' Canuary 1, 0'11
The following data are abstracted from the present (alue tables: resent value of 1 for & periods at 1' '.*0')0 resent value of an annuity due for & periods at +.1*)9* 1' resent value of an ordinary annuity for & periods 2.@)'@) at 1' 1. 7hat is the amount to (e capitali3ed as an asset for the lease of the machine8 A. *@0,'+) #. @2+,&)* B. 92@,020 D. @*2,'0@
0. 7hat is the amount of interest e%pense to (e recogni3ed for the year ended Decem(er 21, 0'108 A. +*,1&* #. 2+,0@1 B. &*,)*' D. 1'2,11* 2. ow much depreciation should (e provided on the leased equipment for the year ended Decem(er 21, 0'108 A. *2,&9* #. 1+*,)0' B. &*,''+ D. *1,01* +. 7hat is the entry to record the lease payment on Decem(er 21, 0'118 A. >ease lia(ility 1'9,'+' !nterest e%pense &*,)*' #ash 1*&,''' B. >ease lia(ility !nterest e%pense #ash
119,9++ +*,1&* 1*&,'''
#. >ease lia(ility #ash D. >ease lia(ility !nterest e%pense #ash
1*&,''' 1*&,''' 12',@09 2+,0@0
Assume the purchase option is e%ercised at the end of the lease. The actual fair mar?et value of the machine at the end of the lease is 09&,'''. ;n the date the purchase option is e%ercised, the undiscounted sum of future cash ows e%pected from the machine is 2@&,'''. &. 7hat is the entry to record the e%ercise of the option8 A. >ease lia(ility *9,191 !nterest e%pense *,91) #ash @&,''' B. Gquipment !nterest e%pense #ash
*9,191 *,91)
#. Gquipment #ash
@&,'''
@&,'''
D. >ease lia(ility #ash
@&,''' @&,''' @&,'''
*. 7hat is the amount of impairment loss that should (e recogni3ed (y ornpipe8 A. )',''' #. &2,&1+ B. 1+2,&1+ D. '
PROBLEM 3-: !t has (een the policy of AR #;:A"< to acquired equipment (y leasing. ;n Canuary 1, 0'11, arp entered into a lease with >essor #ompany for a new delivery truc? that had a selling price of 1,'*','''. The lease contract provides that annual payments of 01',''' will (e made for * years. arp made the 5rst lease payment on Canuary 1, 0'11, and su(sequent payments are made on Decem(er 21 of each year. arp guarantees a residual value of 192,&*' at the end of the lease term. After considering the guaranteed residual value, the rate implicit in the lease is determined to (e 02. arp has an incremental (orrowing rate of 12. The economic life of the truc? is ) years. arp depreciates its other equipment using the straight6line method and uses the calendar year for 5nancial reporting purposes. The following tables show the following data: resent value of 1 for * periods resent value of an ordinary annuity for * periods resent value of an annuity due for * periods 1. 7hat is the cost of the leased delivery truc?8
12 '.&'**2 +.111+1
15 '.+2022 2.@9++9
+.*'+@9
+.2&01*
A. ))2,210 #. )&*,2)2 B. 1,'*',''' D. 9@+,1'' 0. 7hat is the depreciation e%pense to (e recogni3ed (y arp for the year ended Decem(er 21, 0'118 A. 1+*,'@2 #. )@,290 B. 1@*,**@ D. 12+,)&) 2. 7hat is the (alance of the lease lia(ility on Decem(er 21, 0'1+8 A. 1*2,9)2 #. 1*),)+' B. +9&,&*& D. 222,922 +. 7hat is the carrying amount of the leased delivery truc? on Decem(er 21, 0'1&8 A. @2',2*& #. 192,&*' B. 1,'*',''' D. 20),*2& &. 7hat is the total amount of e%penses that should (e shown on arpQs income statement for the year ended Decem(er 21, 0'1*, in connection with this lease8 Assume that >essor #ompany sells the truc? for 11*,''' at the end of the *6year period to a third party. A. 022,2'0 #. 1),**@ B. 1+*,'+& D. 1*&,@+0
PROBLEM 40: !n 0'1' T!:A"! TRH#O!" #;:A"< entered into a long6term lease contract for newly constructed truc? terminal and storage facilities. The (uildings were constructed to the company$s speci5cation on land owned (y the company. Timpani tool possession of the leased properties on Canuary 1, 0'11. ;n Canuary 1, 0'11 and 0'10, the company made cash payments of 2,1++,'''. Although the leased properties have a composite life of +' years, the noncancela(le lease runs for 0' years from Canuary 1, 0'1, with a (argain purchase option availa(le upon e%piration of the lease. The 0' year lease is eKective for the period Canuary 1, 0'11, through Decem(er 21, 0'2'. Advance rental payments of 0,@'',''' are paya(le to the lessor on Canuary 1 of each year of the 5rst 1' years of the lease term. Advance rental payments of )*',''' are due on Canuary 1 for each of he last 1' years of the lease. The company has an option to purchase all of these facilities for 1 on Decem(er 21, 0'2'. Also, the lease contract stipulates that Timpani should ma?e annual payments to the lessor of 2@&,''' for property ta%es and *),''' for insurance. The rate implicit in the lease is *. The company depreciates its other deprecia(le assets using the straight6line method and uses the calendar year for 5nancial reporting purposes. )elected present (alue factors are as follows: Perio' For an' Or'inar For 1 a 6 nnui of 1 a 6 1 '.)+22)* '.)+22)* 0 1.9222)2 '.99)))* 9 *.0')@)+ '.*0@+10 ) *.9'1*)0 '.&)19)9 1' @.2*''9@ '.&&92)& 1) 11.1&911@ '.22'&12 0' 11.+*))01 '.2119'& 1. 7hat is the total cost of the leased facilities8 A. 09,&&+,1)0 #. 02,91@,**@ B. 0&,0+*,@2@ D. 0*,)2@,)1@ "ssume that the present (alue of the minimum lease payments is P2*!200!000 on &anuary 1! 2011. 0. 7hat is the amount of interest e%pense to (e shown on Timpani$s income statement for the year ended Decem(er 21, 0'112 A. 1,2&',''' #. 1,192,1+' B. 0,+&0,1+' D. 1,0*),''' 2. The total lease6related e%penses for the year ended Decem(er 21, 0'1+, should (e A. 1,@00,109 #. 0,0&@,1+' B. 0,@)*,109 D. 0,1**,109
PROBLEM 41:
CGFF #;:A"< purchased a manufacturing plant (uilding on Canuary 1, 0''2, for 0,*'','''. The (uilding has (een depreciated using the straight6line method with a 2'6year useful life and 1' residual value. Cess$s manufacturing operations have e%perienced signi5cant losses for the past two years, so Cess has decided that the manufacturing (uilding should (e evaluated for possi(le impairment. ;n Decem(er 21, 0'10, Cess estimates that the (uilding has a remaining useful life of 1& years, that net cash inow from the (uilding will (e 1'',''' per year, and that the fair value less costs to sell of the (uilding is @*','''. 7hat amount of impairment loss should (e recogni3ed in 0'108 A. 20',''' #. )@2,222 B. ' D. 1,'*','''
PROBLEM 42: FA"G #;:A"< has a department that performs machining operations on parts that are sold to contractors. A group of machines had an aggregate carrying amount of 2,*)',''' on Decem(er 21, 0'10. This group of machinery has (een determined to constitute a cash generating unit for purposes of applying AF 2*, !mpairment of Assets. A cash generating unit as de5ned in this standard is the smallest identi5a(le group of assets that generates cash inows that are largely independent of the cash inows form other assets or groups of assets. resented (elow are date a(out future e%pected cash inows and outows (ased on the diminishing productivity e%pected of the machinery as it ages and the increasing costs that will (e incurred to generate output form the machines.
;ear 0'12 0'1+ 0'1& 0'1* Totals
Revenues 0,0&',''' 0,+'',''' 1,)&',''' *'',''' P+,200,000
os, E>clu'in! .e#reciaion 9+',''' 1,0*',''' 1,*&',''' +&',''' P4,200,000
The fair value of the machinery in this cash generating unit, net of estimated disposition costs, !s determined to amount to 0,&2&,'''. The company discounts the future cash ows of this cash generating unit (y using a & discount rate. The following are lifted from the present (alue tables: resent value of 1 at & for= 1 period '.)&029 0 periods '.)'@'2 2 periods '.9*29+ + periods '.900@' & periods '.@92&2 ow much impairment loss should (e recogni3ed at Decem(er 21, 0'108 A. 1,1&&,''' #. 00+,+0@ B. )2',&@2 D. '
PROBLEM 43: BG>>F #;:A"< acquired a machine on Canuary 1, 0'1', at a cost of 10','''. !t was e%pected to have useful economic life of 1' years. Bells uses the straight6line method in depreciation its machinery and equipment and reports on a calendar year (asis. ;n Decem(er 21, 0'10, the machine was appraised as having a gross replacement cost of 1&','''. Bells applies the revaluation model in valuing this class of property, plant, and equipment after its initial recognition. ow much should (e credited to revaluation surplus on Decem(er 21, 0'108 A. 2',''' #. 01,''' B. 1'&,''' D. ),'''
PROBLEM 44: ;n Canuary 1, 0'11, OARG" #;. acquired two assets within the same class of plant and equipment. !nformation on these assets is as follows= os E>#ece' seful Life
:achine A :achine B
2'',''' 19','''
& years 2 years
The machines are e%pected to generate (ene5ts evenly over their useful lives. The class of plant and equipment is measured using the revaluation model. At Decem(er 21, 0'11, information a(out the assets is as follow= Fair value E>#ece' seful Life :achine A 0&0,''' + years :achine B 11+,''' 0 years ;n Culy 1, '10, machine B was sold for 9@,''' cash. ;n the same day, Oaren acquired machine c for 0+',''' cash. :achine # has an e%pected useful life of four years. At Decem(er 21, 0'10, information on the machines is as follows= Fair value E>#ece' seful Life :achine A 1*9,''' 2 years :achine c 0'&,&'' 1.& years 1. The depreciation e%pense for 0'11 is A. 10',''' #. 1*&,''' B. 99,+'' D. 102,''' 0. !gnoring income ta%, the Decem(er 21, 0'11, statement of 5nancial position of Oaren should show revaluation surplus at A. 19,''' #. *,''' B. ' D. 10,''' 2. The gain loss that should (e recogni3ed on the sale of :achine B on Culy 1, 0'10, is A. 1,&'' #. 2',''' B. 0@,''' D. ' +. The amount of revaluation loss to (e reported on Oaren$s income statement for the year ended Decem(er 21, 0'10, is A. 1*,&'' #. ),''' B. 0&,&'' D. +,&'' &. The depreciation e%pense for 0'1' is A. 102,''' #. 1*',''' B. 101,&'' D. 11+,&''
PROBLEM 45: !n the Decem(er 21, 0'11, statement of 5nancial position of #>A !"#, the equipment was reported as follows= Gquipment at cost Accumulated Depreciation
1,&'',''' +&',''' P1,050,000
The equipment consisted of two machines= :achine A and :achine B. :achine A had a (oo? value of &+',''' at Decem(er 21, 0'11 cost )'',''', while :achine B was carried at &1',''' cost, *'','''. #lap depreciates its equipment over ten6year period using the straight6line method. ;n Cune 2', 0'10, #lap decided to change the (asis of measuring the equipment form the cost model to the revaluation model. :achine was revalued to &+',''' with an e%pected useful life of si% years, and :achine B was revalued to +*&,''' with an e%pected useful life of 5ve years. At Decem(er 21, :achine A was assessed to have a fair value of +9),''' with an e%pected useful life of 5ve years, while :achine B$s fair value was +'),&'' with an e%pected useful life of four years. 1. 7hat amount of revaluation increase decrease should (e recogni3ed for :achine A on Cune 2', 0'108 A. +&,''' #. )',''' B. +&,''' D. ' 0. 7hat amount of revaluation increase decrease should (e recogni3ed for :achine B on Cune 2', 0'108
A. +&,''' #. 1&,''' B. 1&,''' D. ' 2. 7hat amount of depreciation e%pense should (e reported on #lap income statement for the year ended Decem(er 21, 0'128 Mac*ine Mac*ine B A. *',''' *',''' B. )',''' @*,&'' #. @0,''' &2,0&' D. @',&'' @9,''' +. 7hat amount of revaluation increase decrease should (e recogni3ed for :achine A on Decem(er 21, 0'128 A. ' #. *,''' B. 0+,''' #. *,''' &. The entry to revalue :achine B on Decem(er 21, 0'12, should include a de(it to A. Revaluation surplus of ),''' #. Revaluation loss of ),''' B. Revaluation surplus of p20,0&' D. !mpairment loss of 20,0&'
PROBLEM 46: The statement of 5nancial position of A"O!" #;:A"< on Decem(er 21, 0'10, showed the following property, plat, and equipment items after recording depreciation= Building Accumulated Depreciation
*,''',''' 0,''','''
+,''','''
:otor vehicle Accumulated depreciation
0,+'',''' 9'','''
1,*'','''
Ang?ing has adopted the revaluation model for the valuation of its G. This has resulted in the recognition in prior periods of an asset revaluation surplus for the (uilding of 09','''. ;n Decem(er 21, 0'10, An independent appraiser assessed the fair value of the (uilding to (e 2,0'',''' and the vehicle to (e 1,9'','''. Assume that the (uilding and the motor vehicle have remaining useful lives of 0& years and + years, respectively, with 3ero residual value. The company uses the straight6line depreciation method. !gnore income ta% implications. 1. The entry to record the revaluation of the (uilding should include a de(it to Revaluaion )ur#lus Revaluaion Loss A. 9'',''' ' B. 09',''' &0',''' #. ' 9'',''' D. &0',''' 09',''' 0. 7hat is the depreciation for 0'108 A. 90,''' B. +*1,0''
#. &@9,''' D. &*','''
PROBLEM 4+: ;n Canuary 1, 0'11, OATF; #;:A"< acquired a factory equipment at a cost of 1&','''. The equipment is (eing depreciated using the straight6line method over its pro4ected useful life of 1' years. ;n Decem(er 21, 0'10, a determination was made that the asset$s recovera(le amount was only )*,'''. Assume that this was properly computed and that recognition of the impairment was warranted. ;n Decem(er 21, 0'12, the asset$s recovera(le amount was determined to (e 111,''' and management (elieves that the impairment loss previously recogni3ed should (e reversed.
2. 7hat would have (een the asset$s carrying amount at Decem(er 21, 0'12, had the impairment not (een recogni3ed in 0'108 A. 1'&,''' #. )*,''' B. 9+,''' D. 9*,+'' +. ow much impairment recovery should (e reported in the 0'12 income statement of Oatso #ompany8 A. 0@,''' #. *,''' B. ' D. 01,'''
PROBLEM 4: O;T; !"#. purchased machinery on Canuary 1, 0'11, at a cost of 1'','''. !t is (eing depreciated using the straight6line method over its pro4ected useful life of 1' years. At Decem(er 21, 0'11, the asset$s fair value was 110,&''. Accordingly, an entry was made on that date to recogni3e the revaluation write6up. An impairment was detected on Decem(er 21, 0'12, and the recovera(le amount of the asset was determined to (e *9,'''. At Decem(er 21, 0'1+, the fair value of the asset was determined to (e @2,'''. 1. 7hat amount of revaluation surplus should (e credited directly to equity on Decem(er 21, 0'118 A. ' #. 1',''' B. 10,&'' D. 00,&'' 0. 7hat is the revaluation surplus (alance at Decem(er 21, 0'12, (efore recognition of the impairment loss8 A. 1@,&'' #. &,''' B. 00,&'' D. ' 2. The amount of impairment loss to (e reported on Ooto$s income statement for the year 0'12 is8 A. 1),&'' #. 1@,''' B. 0,''' D. '
PROBLEM 4-: !n 0''9, DA"!G> :!"!" #;:A"< purchased property with natural resources for 10,+'','''. The property was relatively close to a large city and had an e%pected residual value of 2,''','''. owever, 1,0'',''' will have to (e spent to restore the land for use. The following information relates to the use of the property: a. !n 0''9, Daniel spent 9'',''' ion development costs and *'',''' in (uildings on the property. Daniel does not anticipate that the (uildings will have any utility after the natural resources are depleted. (. !n 0'') and 0'11, *'',''' and 1,*'',''', respectively, were spent for additional developments on the mine. c. The tonnage mined and estimated remaining tons for years 0''9 0'10 are as follows= ear 8ons Esi$ae' ons e>race' Re$ainin! 0''9 ' &,''',''' 0'') 1,&'',''' 2,&'',''' 0'1' 1,9'',''' 0,''',''' 0'11 1,@'',''' )'',''' 0'10 )'',''' ' Based on the preceding information, calculate the depletion and depreciation for= 1. 0'') A. B. #. D.
.e#leion 2,*'',''' 2,0+',''' 2,*'',''' 2,0+','''
.e#reciaion 19',''' +0',''' +0',''' 19','''
.e#leion +,1+),+@+ +,1+),+@+ 2,)@9,''' 2,)@9,'''
.e#reciaion 2@9,''' 1)9,''' 1)9,''' 2@9,'''
0. 0'1' A. B. #. D.
