Professional Documents
Culture Documents
Aliaga Corporation was incorporated on January 2, 2007. 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
a. ₱ 12,000
b. ₱ 72,000
c. ₱ 122,000
d. ₱ 0
a. ₱ 80,000
b. ₱ 110,000
c. ₱ 62,000
d. ₱ 50,000
a. ₱ 11,182,000
b. ₱ 10,967,000
c. ₱ 10,947,500
d. ₱ 10,882,000
The following items relate to the acquisition of a new machine by Bongabon Corporation in
2007:
Testing cost before machine was put into regular operation 15,000
Salaries of the engineer for the duration of the trial run 40,000
QUESTION:
a. ₱ 1,985,000
b. ₱ 1,993,000
c. ₱ 1,930,000
d. ₱ 2,025,000
The property, plant and equipment section of Zaragoza Corporation’s balance sheet at
December 31, 2006 included the following items:
Land ₱2,100,000
Land improvements 560,000
Buildings 3,600,000
Machinery and equipment 6,600,000
During 2007 the following data wereavailable to you upon your analysis of accounts:
QUESTIONS:
Based on the above and the result of your audit, compute for the following as of December
31, 2007:
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
a. ₱ 14,840,000
b. ₱ 16,440,000
c. ₱ 15,400,000
d. ₱ 17,000,000
PROBLEM NO.4-Acquisition of property, land and equipment.
In connection with your audit of Cuyapo Company’s financial statements for the year 2007,
you noted the following transactions affecting the property and equipment items of the
following:
Jan 1 Purchased real property for ₱5,026,000, which included a charge of ₱146,000
representing property tax for 2007 that had been prepaid by the vendor; 20%
of the purchase price is deemed applicable to land and the balance to
buildings. A mortage of ₱ 3,000,000 was assumed by Cuyapo on the
purchase. Cash was paid for the balance.
Jan. 15 Previous owner 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 garages in the rear of the building, ₱36,000 being recovered on
the lumber salvage. The company proceed to construct a warehouse. The cost
of such warehouse was ₱ 540,800, which wa ₱ 90,000 less than the average
bids made on the construction by independent contractors. Upon completion
of construction, city inspectors orderes extensive modofication to the building
as a result of failure on the part of the company with building safety code.
Such modifications, which could have been avoided, cost ₱ 76,800.
Mar. 1 The company exchanged its own stock with a fair value of ₱ 320,000
(par ₱24,000) for a patent nd a new equipment. The 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 ₱ 200,000.
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 redecorating 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. ₱ 1,052,000
2. Buildings
a. ₱ 4,645,000
b. ₱ 5,005,600
c. ₱ 4,762,000
d. ₱ 4,681,600
a. ₱ 360,000
b. ₱ 560,000
c. ₱ 576,615
d. ₱ 659,692
4. Land improvements
a. ₱ 360,000
b. ₱ 76,800
c. ₱ 436,800
d. ₱ 0
a. ₱ 6,764,400
b. ₱ 6,731,200
c. ₱ 6,718,092
d. ₱ 6,618,400
San Leonardo Manufacturing Co. was incorporated on 1/2/07 but was unable to begin
manufacturing activities until 8/1/076 because new factory facilities were not completed
until that date. The Land and Building account at 12/31/07 per the books was as follows:
Based on the above and the result of your audit, compute for the adjusted balance of
following as of December 31, 2007:
1. Land
a. ₱1,055,000
b. ₱1,605,000
c. ₱1,105,000
d. ₱1,577,500
2. Building
a. ₱1,860,500
b. ₱1,888,000
c. ₱1,810,500
d. ₱1,857,500
You noted during your audit of the Carranglan Company that the company carried out a
number of transactions involving the acquisition of several assets. All expenditure were
recorded in the following single asset account, identified as Property and Equipment:
a. ₱644,000
b. ₱322,000
c. ₱326,000
d. ₱424,000
2. Building
a. ₱ 644,000
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
On January 1, 2006, Cabiao Corporation purchased a tract of land (site number 101) with a
building for ₱1,800,000. Additionally, Cabiao paid a real state broker’s commission of
₱ 108,000, legal fees of ₱ 18,000 and guarantee insurance of ₱ 54,000. the closing
statement indicated that the land value was ₱1,500,000 and the bilding 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 Builders, Inc. on
March 1, 2006 for the construction of an office building on land site 101. The building was
completed and occupied obn September 30, 2007. 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, 2006. The loan
is payable in ten annual installments of ₱900,000 plus interest at the rate of 14%. Cabiao
used part of the loan proceeds for working capital requirements. Cabiao’s average amounts
of accumulated building construction expenditures were as follows:
QUESTIONS:
Based on the above and theresult of your audit, determine the following:
Provide 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- ₱1 million; Year-2- ₱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, 2006, Nueva Ecija Company received a grant of ₱75 million from the
Japanese government for the construction of the laboratory and research facility with an
estimated cost of ₱90 million and useful life of 25 years.The facility completed early in 2007.
The amount to be recognized in Nueva Ecija’s 2007 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 slums outside
the city limits, by a local government authority. The condition attached to this grant was
that Nuva Ecija Inc. should clean up this land and roads by employing laborers from which
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 million each in the first and second years and ₱30 million in
third. The fair value of this land is currently ₱60 million. How much should be recognized as
income government grant at the end of the first 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 forths of the grant is
to be utilized to purchase a college building for the students from underdeveloped or
developing countries. The balance of the grant is for subsidizing the tuition costs of those
students for four years from the date of the grant.
The college building, which cost ₱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. ₱8.75 million
Your audit of Llanera Corporation for the year 2007 disclosed the following property
disposition:
Land
On January 15, a condemnation award was received as a 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 represents the net proceeds from demolition
of building.
Warehouse
On July 4, the warehouse was destroy by fire. The warehouse was purchased on January 2,
2001. 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 Trucks
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. ₱ 27,000 gain
c. ₱288,000 gain
d. ₱ 0
5. Delivery Truck
a. ₱636,000 loss
b. ₱636,000 gain
c. ₱ 66,000 loss
d. ₱ 66,000 gain
The following data relate on the Plant Asset account of Licab, Inc. at December 31, 2006:
Plant Assets
L A R E
Original Cost ₱87,500 ₱127,500 ₱200,000 ₱200,000
Year Purchased 2001 2002 2003 2005
Useful life 10 years 37,500 hours 15 years 10 years
Salvage value ₱7,750 ₱7,750 ₱12,500 ₱12,500
Depreciation SYD Activity straight line Doble-
method declining balance
Note: In the year asset was purchased, Licab, Inc. takes a full year depreciation on the
asset.
In theyear an asset is retired on traded in, Licab, Inc. takes a full year depreciation
on the asset.
(b) On December 31, it was determined that asset A had been used ₱5,250 hours during
2007.
(c) On December 31, before computing depreciation expense on Asset R, the management
of Licab, Inc. decided the useful life remaining from 1/1/07 was 10 years.
(d) On December 31, it was discovered that a plant asset purchased in 2006 had been
expensed completely in that year. This asset cost ₱55,000 and has useful life of 10 years
and no salvage value. Management has decided to use the double-declining balance for this
asset, which can be referred to as “Asset S”.
Questions:
Based on the above and the result of your audit, answer the following (Disregard tax
implications)
3. The adjusting entry to correct the error of failure to capitalized Asset S would include the
debit/credit to Retained Earnings of
a. ₱55,000 debit
b. ₱55,000 credit
c. ₱44,000 credit
d. ₱ 0
4. How much is the adjusted balance of Plant Assets as of December 31, 2007?
a. ₱670,000
b. ₱527,500
c. ₱615,000
d. ₱582,500
On January 1, 2007, Peneranda Airlines acquired a new aeroplane for a total cost of ₱30
million. A breakdown of the costs to build the aeroplane was given by the manufacturers:
All costs include installation and labor costs associated with the relevant part.
It is expected that the aircraft will be kept for ten years and then sold. The main value of
the aircraft at that stage is the body and engines. The expected selling price is ₱6.3 million,
with the body and the engines proportionate value.
Costs in relation to the aircraft over the next ten years are expected to be as follows:
Aircraft body- The body requires inspections every two years for cracks, wear and tear, a
cost of ₱30,000.
Engines-Each engine has an expected life of four years before being sold scrap.
It is expected that the engines will be replaced in 2011 for ₱13.5 million and again in
2015 for ₱18 million. These are expected to incur annual maintenance cost of
₱900,000. The manufacturer has informed Penaranda Airlines that a new prototype
engine with an extra 10% capacity should be in a market in 2013, and that existing
engines could be upgraded at a cost of ₱3 million.
Fittings- Seats are replaced every three years. Expected replacement coat are ₱3.6 million
in 2010 and ₱4.5 million in 2016. The repair of torn seats and faulty mechanism is
expected to cost ₱300,000 per annum. Carpets are replaced every five years. They
will be replaced in 2012 at an expected cost of ₱195,000, but will not be replaced
before the aircraft is sold in 2017. Cleaning cost for annum amount to ₱30,000. The
electrical equipment (such as the TV) for each seat has annual repair cost of
₱45,000. It is expected that, with the improvement in technology, the equipment will
be totally replaced in 2013 by substantially better equipment at a cost of
₱1,050,000. The electrical equipment in the cockpit is tested frequently at an
expected annual cost of ₱750,000. Major upgrades to the equipment are expected
every two years at expected costs of ₱750,000 (in 2009), ₱900,000 (in 2011),
₱1,035,000 (in 2013) and ₱1,230,000 (in2015). The upgrade will take into effect the
expected changes in technology.
Food Preparation equipment- This incurs annuals costs for repair and maintenance of
₱60,000. The equipment is expected to be totally replaced in 2013.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
Gabaldon Company’s property, plant and equipment and accumulated depreciation balances
at December 31, 2006 are:
Depreciation policy:
c. Salvage values are immaterial except for automobiles and trucks which have estimated
salvage values equal to 15% of cost.
Additional information:
a. Gabaldon entered into a 12 year operating lease starting January 1, 2004. The leasehold
improvements were completed onDecember 1, 2003 and the facility was occupied on
January 1, 2004.
b. On July 1, 2007, machinery and equipment were purchased at a total invoice cost of ₱
325,000. Installation cost of ₱44,000 was incurred.
d. On September 30, 2007, a truck with a cost of ₱48,000 and a carrying amount of
₱30,000 on December 31,2006 was sold for ₱23,500.
e. On December 20, 2007, a machine with a cost of ₱17,000, a carrying amount of ₱2,975
on date of disposition, was sold for ₱4,000.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
3. The adjusted balance of the property, palnt and equipment as of December 31, 2007 is
a. ₱1,919,000
b. ₱2,388,500
c. ₱2,307,000
d. ₱2,351,000
4. The total depreciation expense for the year ended December 31, 2007 is
a. ₱185,402
b. ₱245,065
c. ₱138,000
d. ₱221,402
5. The carrying amount of the property, plant and eqipment as of December 31, 2007 is
a. ₱ 1,567,497
b. ₱ 1,290,547
c. ₱ 1,578,547
d. ₱ 1,617,322
PROBLEM NO.13- Comprehensive
Your new audit client, Guimba Company, prepared the trial balance below as of December
31, 2007. The company started its operations on January 1, 2006. Your examination
resulted in the necessity of applying the adjusting entries indicated in the additional data
below.
Guimba Company
Trial Balance
December 31, 2007
Debits Credits
Cash ₱ 510,000
Account Receivable-net 600,000
Inventories, December 31, 2006 669,000
Land 660,000
Buildings 990,000
Accumulated Depreciation, building ₱ 19,800
Machinery 444,000
Accumulated Depreciation, machinery 45,000
Sinking fund assets 75,000
Bond Discount 75,000
Treasury shares 105,000
Accounts Payable 567,000
Accrued Bond Interest 11,250
First mortgage, 6% sinking fund bonds 679,500
Share capital 1,500,000
Share premium 150,000
Donated shares 180,000
Retained earnings, December 31, 2006 222,450
Net sales 2,625,000
Purchases 850,500
Salaries and wages 507,000
Factory operating expenses 364,500
Administrative expense 105,000
Bond interest 45,000
₱ 6,000,000 ₱ 6,000,000
(1) The 1,500,000 share capital was issued at a 10 percent premium to the owners of the
land and buildings on December 31, 2005, the date of organization. Shares with a par value
of 180,000 were donated back by the vendors. The following entry was made:
The shares were donated because the proceeds from its subsequent sale were to be
considered as an allowance on the allowance on the purchase price of land and buildings
proportion to their values as a first recorded. The treasury shares were sold in 2007 for
₱75,000, which was credited to treasury shares.
(2) On December 31, 2007, a machine costing ₱15,000 when the business started was
removed. The machine had been depreciated at 10% during the first year. The only entry
made was one crediting the Machinery account with its sales price of ₱6,000.
QUESTIONS:
Based on the above and the result of your audit, you are to provide the answers to the
following:
You have been asked to assist in completing this schedule. In addition in ascertaining that
the data already on the schedule are correct, you have obtained the following information
from the company’s records and personnel:
a. Land A and Building a were acquired from a predecessor corporation Jaen paid
₱6,560,000 for the land and building together. At the time of acquisition, the land had an
appraised value of ₱720,000 and the building had an appraised value of ₱6,480,000.
b. Land B was acquired on October 2, 2005, in exchange for 20,000 ordinary shares of Jaen.
At the date of acquisition, the share had a par value of ₱5 per share and a fair value of ₱30
per share. During October 2005, Jaen paid ₱ 128,000 to demolish an existing building on
this land so it could construct new building.
e. Machinery A’s total cost of ₱1,319,200 includes installation expense of ₱4,800 and normal
repairs and maintenance of ₱119,200. Salvage value is estimated at ₱48,000. Machinery A
was sold on February 1, 2007.
f. On October 1, 2006, Machinery B was acquired with a down payment of ₱45,920 and the
remaining payments to be made in 11 annual installments of ₱ 48,000 each beginning
October 1, 2006. The prevailing interest rate was 8%.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
In connection with your audit of the Talavera Mining Corporation for the year ended
December 31, 2007, you noted that the company purchased for ₱10,400,000 mining
property estimated to contain 8,000,000 tons of ore. The residual value of the property is
₱800,000.
Building used in mine operations costs ₱800,000 and have estimated life to fifteen years
with no residual value. Mine machinery costs ₱1,600,000 with an estimated residual value
₱320,000 after its physical life of 4 years.
Following is the summary of the company’s operations for first year of operations.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
(Disregard tax implications)
In connection with your audit of the Talavera Mining Corporation for the year ended
December 31, 2007, you noted that the company purchased for ₱10,400,000 mining
property estimated to contain 8,000,000 tons of ore. The residual value of the property is
₱800,000.
Building used in mine operations costs ₱800,000 and have estimated life of fifteen years
with no residual value. Mine machinery costs 1,600,000 with an estimated residual value
₱320,000 after its physical life of 4 years.
Following is the summary of the company’s operations for first year of operations.
Inventories are valued on a first in, first out basis. Depreciation on a building is to be
allocated as follows: 20% to operating expenses, 80% to production. Depreciation in
machinery is chargeable to production.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
(Disregard tax implications)
On December 31, 2006, the balance sheet of Tinio Company showed the following property
and equipment after charging depreciation: