Professional Documents
Culture Documents
PROBLEM NO. 1
Aliaga Corporation was incorporated on January 2, 2010. The following items relate to the
Aliaga’s property and equipment transactions:
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Cost of land
a. ₱2,980,000
b. ₱3,270,000
c. ₱3,185,000
d. ₱3,205,000
2. Cost of building
a. ₱10,810,000
b. ₱10,895,000
c. ₱10,875,000
d. ₱11,110,000
PROBLEM NO. 2
The following items relate to the acquisition of a new machine by Bongabon Corporation in
2010:
QUESTIONS:
PROBLEM NO. 3
The property, plant and equipment section of Zaragosa Corporation’s statement of financial
position at December 31, 2009 included the following items:
Land ₱2,100,000
Land improvements 560,000
Buildings 3,600,000
Machinery and equipment 6,600,000
During 2010 the following data were available to you upon your analysis of the accounts:
QUESTIONS:
Based on the above and the result of your audit, compute for the following as of December
31, 2010:
1. Land
a. ₱30,000,000
b. ₱14,000,000
c. ₱29,900,000
d. ₱29,600,000
2. Land Improvements
a. ₱1,300,000
b. ₱1,000,000
c. ₱1,250,000
d. ₱560,000
3. Building
a. ₱12,300,000
b. ₱11,750,000
c. ₱12,000,000
d. ₱11,700,000
In connection with your audit of Cuyapo Company’s financial statement for the year 2010,
you noted the following transactions affecting the property and equipment items of the
company:
Jan. 1 Purchase real property for ₱5,026,000, which included a charge of ₱146,000
presenting property tax for 2010 that had been prepaid by the vendor; 20%
of the purchase price is deemed applicable to land and the balance to
buildings. A mortgage of ₱3,000,000 was assumed by Cuyapo on the
purchase. Cash was paid for the balance.
Jan. 15 Previous owners had failed to take care of normal maintenance and repair
requirements on the buildings, necessitating current reconditioning at a cost
of ₱236,800.
Feb. 15 Demolished garage in the rear of the building, ₱36,000 being recovered on
the lumber salvage. The company proceeded to construct a warehouse. The
cost of such warehouse was ₱540,800, which was ₱90,000 less than the
average bids made on the construction by independent contractors. Upon
completion of construction, city inspectors ordered extensive modifications to
the building as a result of failure on the part of the company to comply with
building safety code. Such modifications, which could have been avoided, cost
₱76,800.
Mar. 1 The company exchanged its own shares with a fair value of ₱320,000 (par
₱24,000) for a patent and a new equipment. The new equipment has a fair
value of ₱200,000.
Apr. 1 The new machinery for the new building arrived. In addition, a new franchise
was acquired from the manufacturer of the machinery. Payment was made by
issuing bonds with a face value of ₱400,000 and by paying cash of ₱144,000.
The value of the franchise is set at ₱160,000, while the machine’s fair value is
₱360,000.
May 1 The company contracted for parking lots and waiting sheds at a cost
₱360,000 and ₱76,800, respectively. The work was completed and paid for on
June 1.
Dec. 31 The business was closed to permit taking the year-end inventory. During this
time, required relocating and repairs were completed at a cost of ₱60,000.
QUESTIONS:
Based on the above and the result of your audit, determine the cost of the following:
1. Land
a. ₱940,000
b. ₱1,005,200
c. ₱976,000
d. ₱1,052,800
2. Buildings
a. ₱4,645,600
b. ₱5,005,600
c. ₱4,762,400
d. ₱4,681,600
4. Land Improvements
a. ₱360,000
b. ₱76,800
c. ₱436,800
d. ₱0
PROBLEM NO. 5
San Leonardo Manufacturing Co. was incorporated on 1/2/10 but was unable to begin
manufacturing activities until 8/1/10 because new factory facilities were not completed until
that date. The Land and Building account at 12/31/10 per the books was as follows:
Additional information:
1. To acquire the land and building on 1/31/10, the company paid ₱500,000 cash and
5,000 ordinary shares (par value = ₱100/share) which is very actively traded and had a
market value per share of ₱210.
2. When the old building was removed, San Leonardo paid the Demolition Co. ₱25,000, but
also received ₱10,000 from the sale of salvaged material.
4. The fire insurance premium covered premiums for a three-year term beginning May 1,
2010.
5. General expenses covered the following for the period 1/2/10 to 8/1/10,
6. Because of the rising land costs, the president was sure that the land was worth at least
₱375,000 more than what it cost the company.
QUESTIONS:
Based on the above and the result of your audit, compute for the adjusted balance of the
following as of December 31, 2010:
1. Land
a. ₱1,055,000
b. ₱1,605,000
c. ₱1,810,500
d. ₱1,577,500
2. Building
a. ₱1,860,500
b. ₱1,888,000
c. ₱1,810,500
d. ₱1,857,500
PROBLEM NO. 6
You noted during your audit of the Carrangian Company that the company carried out a
number of transactions involving the acquisition of several assets. All expenditures were
recorded in the following single asset account, identified as Property and Equipment:
QUESTIONS:
Based on the above and the result of your audit, determine the adjusted balance of the
following:
1. Land
a. ₱644,000
b. ₱322,000
c. ₱326,000
d. ₱424,000
2. Building
a. ₱544,000
b. ₱1,040,000
c. ₱1,044,000
d. ₱722,000
3. Machinery
a. ₱317,032
b. ₱318,512
c. ₱323,400
d. ₱321,832
PROBLEM NO. 7
On January 1, 2009, Cabiao Corporation purchased a tract of land (site number 101) with a
building for ₱1,800,000. Additionally, Cabiao paid a real estate broker’s commission of
₱108,000, legal fees of ₱18,000 and title guarantee insurance of ₱54,000. The closing
statement indicated that the land value was ₱1,500,000 and the building value was
₱300,000. Shortly after acquisition, the building was razed at a cost of ₱225,000.
Cabiao entered into a ₱9,000,000 fixed-price contract with Cabanatuan Builder’s Inc. on
March 1, 2009 for construction of an office building on the land site 101. The building was
completed and occupied on September 30, 2010. Additional construction costs were
incurred as follows:
The building is estimated to have a forty-year life from date of completion and will be
depreciated using the 150%-declining-balance method.
To finance the construction cost, Cabiao borrowed ₱9,000,000 on March 1, 2009. The loan is
payable in ten annual instalments of ₱900,000 plus interest at the rate of 14%. Cabiao used
part of the loan proceeds for working capital requirements. Cabiao average amounts of
accumulated building construction expenditures were as follows:
For the period March 1 to December 31, 2009 ₱2,700,000
For the period January 1 to September 31, 2010 6,900,000
QUESTIONS:
Based on the above and the result of your audit, determine the following:
PROBLEM NO. 8
Provided below are independent situations involving government grants. you are required to
provide the answer to each requirement.
1. Nueva Ecija Inc. received a grant of ₱30 million to compensate it for costs it incurred in
planting trees over a period of five years. Nueva Ecija Inc. will incur costs in this
manner: Year 1-₱ million; Year 2-₱2 million; 2 million; Year 3-₱3 million; Year 4-₱4
million; Year 5-₱5 million. How much should be recognized as income from government
grant at the end of year 1?
a. ₱30 million
b. ₱6 million
c. ₱2 million
d. ₱1 million
2. On January 1, 2009, Nueva Ecija Company received a grant of ₱75 million from the
Japanese government for the construction of a laboratory and research facility with an
estimated cost of ₱90 million and useful life of 25 years. The facility was completed in
early 2010. The amount to be recognized in Nueva Ecija 2010 profit or loss as income
from government grant is
a. ₱75,000,000
b. ₱3,600,000
c. ₱3,000,000
d. ₱0
3. Nueva Ecija Inc. was granted 2,500 acres of land in a village, located near the slums
outside the city limits, by a local government authority. the condition attached to this
grant was that Nueva Ecija Inc. should clean up this land and lay roads by employing
laborers from the village in which the land is located. The government has fixed the
minimum wage payable to the workers. The entire operation will take three years and is
estimated to cost ₱50 million. This amount will be spent in this way: ₱10,000 million
each in the first and second years and ₱30 million in the third year. The fair value of this
land is currently ₱60 million. How much should be recognized as income from
government grant at the end of the year?
a. ₱10,000,000
b. ₱12,000,000
c. ₱20,000,000
d. ₱0
4. Nueva Ecija Inc. received a consolidated grant of ₱60 million. Three-fourths of the grant
is to be utilized to purchase a college building for students from undeveloped or
developing countries. The balance of the grant is for subsidizing the tuition costs of
those students for four years from the date of grant.
The college building, which costs ₱50 million, will be depreciated using the straight-line
method over 10 years. Assuming that the tuition subsidy will be offered evenly over
the period of 4 years, the amount that should be recognized as income at the end of
year 1 is
a. ₱6.0 million
b. ₱5.0 million
c. ₱8.25 million
d. ₱8.785 million
PROBLEM NO. 9
Your audit of Lianera Corporation for the year 2010 disclosed the following property
dispositions:
Land
On January 15, a condemnation award was received as consideration for the forced sale of
the company’s land and building, which stood in the path of a new highway.
Building
On March 12, land and building were purchased at a total cost of ₱6,000,000, of which 30%
was allocated to the building on the corporate books. The real estate was acquired with the
intention of demolishing the building, and this was accomplished during the month of
August. Cash proceeds received in September represent the net proceeds from demolition
of building.
Warehouse
On July 4, the warehouse was destroyed by fire. The warehouse was purchased on January
2, 2004. On December 12, the insurance proceeds and other funds were used to purchase a
replacement warehouse at a cost of ₱7,200,000.
Machine
On December 15, the machine was exchanged for a machine having a fair value of
₱756,000 and cash of ₱108,000 was received.
Delivery Truck
On November 13, the delivery truck was sold to a used car dealer.
QUESTIONS:
Based on the above and the result of your audit, compute the gain or loss to be recognized
for each of the following dispositions:
1. Land
a. ₱3,720,000 gain
b. ₱1,080,000 loss
c. ₱4,800,000 loss
d. ₱0
2. Building
a. ₱ 432,000 gain
b. ₱2,232,000 loss
c. ₱1,368,000 loss
d. ₱0
3. Warehouse
a. ₱1,800,000 gain
b. ₱ 480,000 gain
c. ₱5,400,000 loss
d. ₱0
4. Machine
a. ₱36,000 gain
b.