Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

MULTIPLE CHOICE - THEORIES

1. B 2. B 3. A 4. B 5. D
6. A 7. A 8. C 9. D 10. A

Problem 1
(Pine Company)

Correct cost Recorded Cost Difference

Land 25.8M x 8.4/28 P7,740,000 P7,000,000 P 740,000
Building 25.8M x 14/28 12,900,000 9,000,000 3,900,000
Equipment 25.8M x 5.6/28 5,160,000 4,000,000 1,160,000

Adjusting Entries:
1. Land 740,000
Building 3,900,000
Equipment 1,160,000
Other Operating Expenses 5,000,000
Salaries and Commission Expense 800,000

2. Depreciation Expense – Building 130,000

Depreciation Expense – Equipment 77,333
Accumulated Depreciation – Building 116,667
Accumulated Depreciation – Equipment 77,333
5% x 3,900,000 x 8/1 2 = P130,000
10% x 1,160,000 x 8/12 = 77,333

Problem 2
(Gay Company)

Discount on Notes Payable (5% x 850,000) 42,500

Equipment 42,500

Problem 3
Lakeside Company

a. Machinery Machinery Tools

Raw materials used in construction P176,000 – 4,000 P172,000
Labor 50,000
Cost of installation 10,000
Materials spoiled in trial runs 5,000
Incremental overhead due to machine construction 25,000
Decommissioning cost 40,000 x .56447 22,579
Purchase of machine tools P15,000
Correct Cost P284,579 P15,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

b. Adjusting entries:
Machinery 1,579
Loss on Disposal of Old Machine 3,000
Purchase Discounts 4,000
Profit on Construction 24,000
Machinery Tools 15,000
Accumulated Depreciation – Machinery (old) 120,000
Factory Overhead Control 25,000
Provision for Machine Dismantling 22,579
Machinery (old) 120,000

Depreciation Expense – Machinery 158

Accumulated Depreciation – Machinery 158
(284,579 x 10%) – 28,300 = 158

Problem 4
Ethan Corporation

Land Building Others

Organization Fees P50,000 Org’n Exp.
Land site and old building P8,150,000
Corporate organization costs 30,000 Org’n Exp
Title clearance fees 25,000
Cost of razing old building 220,000
Sale of scrap ( 25,000)
Salaries 300,000 Salaries Exp
Stock bonus to corporate promoters 100,000 Org’n Exp. (or –
APIC)
Real estate tax 25,000 Taxes Expense
Cost of construction P18,000,000
Total correct cost P8,175,000 P18,195,000

Adjusting Entries

Land 8,175,000
Building 18,195,000
Organization Expenses 180,000
Taxes Expense 25,000
Miscellaneous Revenues 25,000
Administrative Salaries 300,000
Land, Buildings and Equipment 26,900,000

(NOTE TO THE TEACHER: The Philippine Interpretations Committee Interpretation on the

demolition cost of the building is applied. The net demolition cost is capitalized and charged
to the building account, since demolition is preparatory to construction of the building.
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Problem 5
Electro Corporation

Correct cost:
Down payment P50,000
PV of future payments P100,000 x 3.6048 360,480
Total cost P410,480

Correct Depreciation 410,480 / 15 x ½ P13,683

Adjusting Entries:

Discount on Notes Payable (500,000 – 360,480) 139,520

Machine 139,520

Interest Expense 36,048

Discount on Notes Payable 36,048
360,480 x 12% x 10/12

Accumulated Depreciation 4,650

Depreciation Expense 4,650
13,683 – 18,333

Problem 6
Flames Company

Accumulated Depreciation – Machine (40,000/10 x 5) 20,000

Loss on Replacement of Machine Parts 20,000
Machinery 40,000

Machinery 50,000
Repairs Expense 50,000

Accumulated Depreciation 7,000

Depreciation Expense 7,000

Cost P200,000
Removed part ( 40,000)
Replacement 50,000
Revised gross cost P210,000
Accumulated depreciation, 12/31/11
200,000/10 x 5 100,000
Removed accumulated depreciation ( 20,000) (80,000)
Carrying value after overhaul P130,000

2015 depreciation
130000/(10-5+5) P 13,000
Recorded depreciaition 20,000
Adjustment P 7,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Problem 7
Silver Company

Equipment Accumulated
Depreciation

Balance, 1/01/15 P 750,000 P300,000

6/01/15 Purchase of Asset 16 P200,000 + 7,000 207,000
10/01/15 Sold Asset 10 ( 150,000)
150,000 x 10% x 5 ( 75,000)
Depreciation for 2015
807,000 x 10% ___ __ 80,700
Balances, December 31, 2015 P807,000 P 305,700

Adjusting Entries:

Accumulated Depreciation 75,000

Loss on Sale of Equipment 57,000
Equipment 8,000 – (1,000 - 400) 132,000

Net proceeds P20,000 – 2,000 P 18,000

Carrying value P150,000 – 75,000 75,000
Loss on sale P 57,000

Equipment 7,000
Repairs and Maintenance 4,000
Freight In 3,000

Accumulated Depreciation – Equipment 12,500

Depreciation Expense – Equipment 12,500
80,700 – 93,200

Problem 8
Conquer Company

Equipment Accumulated
Depreciation
January 1 Balances P 500,000 P 225,000
May 1 Acquisition (P160,000 x .98)+5,000 161,800
Oct. 1 Sale (100,000)
100,000 x 10% x 4 ( 40,000)
Dec. 31 Depreciation
(500,000 – 100,000) x 10% P40,000
100,000 x 10% x ½ 5,000
161,800 x 10% x ½ 8,090 ___ 53,090
December 31, 2015 Balances P561,800 P 238,090
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Adjusting Entries

Equipment 1,800
Discounts Lost 3,200
Repairs and Maintenance 5,000

Loss on Sale of Equipment 30,000

Accumulated Depreciation 40,000
Equipment 70,000

Accumulated Depreciation 9,910

Depreciation Expense 9,910
63,000 – 53,090

Problem 9
Berol Giant Corporation

Audit Adjusting Entries

Rent Expense (50,000 x 9/12) 375,000

Prepaid Rent 125,000
Finance Lease Liability 3,540,000
Machinery and Equipment 4,040,000

Profit on Construction 150,000

Building 150,000

Land Improvement 500,000

Land 500,000

Accumulated Depreciation – Machinery and Equipment 2,880,000

Gain on Sale of Machinery 680,000
Machinery and Equipment 4,800,000 – 2,600,000 2,200,000
Cost P4,800,000
Accumulated depreciation
480,000/10 x 6 2,880,000
Carrying value P1,920,000
Proceeds 2,600,000
Gain on Sale of M and E P 680,000

Land 6,000,000
Building 24,000,000
Unearned Income from Government Grant 30,000,000

Depreciation Expense – Building 511,667

Accumulated Depreciation – Building 511,667
Correct depreciation
Old P12,000,000/ 25 P480,000
Improvement 1,600,000/12 x ½ 66,667
Donated 24,000,000/25 x ½ 480,000
Correct depreciation P1,026,667
Per client 515,000
Adjustment P 511,667

Unearned Income from Government Grant 600,000

Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

(38,500,000 – 4,800,000)/10 = P3,370,000

4,800,000 / 10 x ½ 240,000
Total P3,610,000
Per client 3,922,000
Adjustment P 312,000

Depreciation Expense – Land Improvements 25,000

Accumulated Depreciation – Land Improvements 25,000
500,000 / 10 x ½ = 25,000

b. Adjusted balances:

1. Land P48,250,000
2. Land Improvements 500,000
3. Accumulated Depreciation – Land Improvements 25,000
4. Buildings 37,600,000
5. Accumulated Depreciation – Buildings 7,026,667
6. Machinery and Equipment 33,700,000
7. Accumulated Depreciation – Machinery and Equipment 18,055,000
8. Unearned Income from Government Grant 29,400,000
9. Depreciation Expense – Land Improvements 25,000
10. Depreciation Expense – Buildings 1,026,667
11. Depreciation Expense – Machinery and Equipment 3,610,000
12. Amortized Income from Government Grant 600,000

Problem 10
Malabon Company

Schedule of Depreciation Expense

A. Building
Method – 150% declining balance
Depreciation rate = 1.5/25 = 6%
Old (P12,000,000 – P2,654,000) x 6% P560,760
New P12,800,000 x 6% 768,000
2015 Depreciation – Building P1,328,760

B. Machinery and Equipment

Method – straight-line
Useful life – 10 years
Old including scrapped in December
P7,750,000/10 P775,000
New P290,000/10 x 6/12 14,500
2015 Depreciation – Machinery P789,500

C. Automobiles and Trucks

Method - 150% declining balance
Depreciation rate = 1.5/5 = 30%
Old (not sold)
(P13,200,000 – P8,620,000) = P4,580,000
P4,580,000 – (P810,000 + 235,200) x 30% P1,060,440
Sold 235,200
New P650,000 x 30% x 4/12 65,000
2015 Depreciation – Automobiles and Trucks P1,360,640

D. Leasehold Improvements
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

2015 Depreciation: (P2,210,000 – 1,105,000) / 5 = P 221,000

E. Land Improvements
Method – straight-line
Useful life – 12 years

2015 Depreciation: P1,920,000 / 12 x 9/12 P 120,000

b. Adjusted Balances:
1. Land P16,200,000
2. Land Improvements 1,920,000
3. Accumulated Depreciation – Land Improvements 120,000
4. Building 24,800,000
5. Accumulated Depreciation – Buildings 3,892,760
6. Machinery and Equipment 7,870,000
7. Accumulated Depreciation – Machinery and Equipment 2,611,250
8. Automobiles and Trucks 5,258,750
9. Accumulated Depreciation – Automobiles and Trucks 3,059,360
10. Leasehold Improvements 2,210,000
11. Accumulated Depreciation – Leasehold Improvements 1,326,000

Problem 11

Adjusting Entries

a. Depreciation Expense – Machine A 15,750

Accumulated Depreciation 15,750
Cost P105,000
Acc. Depreciation 1/1/12
105,000 / 12 x 3 ( 26,250)
Carrying amount 1/1/12 P 78,750
78,750 / 5 = P 15,750

b. Depreciation Expense – Machine B 40,000

Accumulated Depreciation – Machine B 40,000
P240,000 / 6 = P 40,000

Impairment Loss 15,000

Accumulated Depreciation – Machine B 15,000
Carrying value 12/31/12
P240,000 x 3.5/6 P140,000
Recoverable amount 125,000
Impairment loss P 15,000

c. Depreciation Expense – Building A 590,625

Accumulated Depreciation – Building A 590,625
Carrying value 1/1/12
P6,300,000 x 15/20 = P4,725,000
2015 Depreciation =
P4,725,000 x 15/120 = P 590,625

d. Retained Earnings 175,000

Accumulated Depreciation – Building B 175,000
Carrying value 12/31/14
P5,250,000 x 7/10 = P3,675,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Accumulated Depreciation – Building B 100,000

Gain - Recovery of Previous Impairment 100,000
Carrying value, 12/31/15
3,500,000 – 500,000 = P3,000,000
Recoverable amount 3,100,000
Increase in value P 100,000
Limit on recovery
175,000 x 6/7 P 150,000

e. Depreciation Expense – Building 300,000

Accumulated Depreciation – Building 300,000
12,000,000 / 20 x 6/12

Investment Property – Land 8,000,000

Investment Property – Building 12,000,000
Accumulated Depreciation – Building (PPE) (12M/20 x 4.5)2,700,000
Land 6,500,000
Building 12,000,000
Revaluation Surplus 4,200,000

Investment Property – Land 500,000

Investment Property – Building 400,000
Fair Value Gain on Investment Property 900,000

Problem 12
Gotham Company
As of December 31, 2013
Based on Cost Based on Balance of
Revalued Amt. Revaluation
Surplus
Land P15,000,000 P20,000,000 P5,000,000
Building, net of accumulated
depreciation 14,000,000 20,000,000 6,000,000

(a) Depreciation expense on the building for the year 2014:

P20,000,000 / 20 years = P1,000,000

(b) Revaluation surplus transferred to Retained Earnings = P6,000,000 / 20 = P300,000

(c) Balance of revaluation surplus at December 31, 2015 statement of financial position =

Based on Based on New Difference

Previous Revalued Amt.
Revaluation
Land P20,000,000 P22,000,000 P2,000,000
Building, net of accumulated
depreciation 19,000,000 21,850,000 2,850,000

Balance of Revaluation Surplus at December 31, 2014 statement of financial position:

12/31/14 Balance Realized in 2015 New Revaluation 12/31/15 Final

Pertaining to land P5,000,000 ---------- P2,000,000 P7,000,000

Pertaining to building 6,000,000 (300,000) 2,850,000 8,550,000
Total P11,000,000 P(300,000) P4,850,000 P15,550,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Problem 13
(Ecstacy Company)

Adjusting Entries

Franchise 420,000
Prepaid Rent 280,000
Retained Earnings (54,000 + 150,000) 204,000
Patents 750,000
Research and Development Expense (1,000,000 – 90,000) 910,000
Formula (or Patent) 90,000
Legal Fees 80,000
Intangible Assets 2,734,000

Retained Earnings (3/24 x 280,000) 35,000

Rent Expense (1/2 x 280,000) 140,000
Prepaid Rent 175,000

Retained Earnings (6/60 x 420,000) 42,000

Amortization Expense – Franchise 84,000
Accumulated Amortization – Franchise 126,000

Amortization Expense – Patents 62,500

Accumulated Amortization – Patents 62,500
750,000 /10 x 10/12

Problem 14
(Cheryl Corporation)

Adjusting Entries

Research and Development Expense 940,000

Patents 75,000
Rent Expense (91,000 x 5/7) 110,000
Prepaid Rent (91,000 – 65,000) 130,000
General and Administrative Expense 36,000
Discount on Bonds Payable 84,000
Advertising and Promotions Expenses 90,000
Other Operating Expenses 240,000
Share Premium – Ordinary Share 250,000
Intangible Assets 1,455,000

Amortization of Patents 7,500

Accumulated Amortization – Patents 7,500

Problem 15
(Kookabar Enterprises)

Retained Earnings 525,000

Patents 525,000
750,000 x 7/10 = 525,000

Patents 4,975,000
Accumulated Amortization – Patents 4,975,000
To reinstate the gross cost of the patents and related
Accumulated Amortization
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Cost of Goods Sold 910,714

Accumulated Amortization – Patents 910,714
(P2,100,000 – 1,050,000) / 3 years =P 350,000
(P9,95,000 – 2,100,000) / 14 years = 560,714
2012 Amortization P 910,714

Selling and Administrative Expenses 450,000

Franchise Agreement 450,000

Selling and Administrative Expenses 100,000

Accumulated Amortization – Franchise Agreement 100,000
50,000 /5 = 10,000

Retained Earnings 440,000

Organization Costs 440,000

Retained Earnings (45,000 + 100,000) 145,000

Goodwill 145,000

Problem 16
(Yuka Sato Corporation)

Equipment 34,700
Patents 34,700

Cost of Goods Sold 5,500

Accumulated Amortization – Patents 5,500
93,500 / 17 = 5,500

Impairment Loss – Licensing Agreement No. 1 42,000

Accumulated Impairment – Licensing Agreement 1 42,000
70% x 60,000 = 42,000

Licensing Agreement No. 2 4,000

Unearned Revenue 4,000

Selling and Administrative Expenses 6,000

Accumulated Amortization – Licensing Agreement No. 2 6,000
60,000 / 10 = 6,000

Retained Earnings 30,000

Goodwill 30,000

Equipment 15,000
Miscellaneous Receivables 6,100
Leasehold Improvements 21,100

Retained Earnings 1,500

Cost of Goods Sold 1,500
Accumulated Depreciation – Leasehold Improvements 3,000
15,000/ 10 = 1,500

Retained Earnings 32,000

Organization Costs 32,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Problem 17
Genuine Company

(1) Audit Adjusting Entries

Patents 200,000
Accumulated Amortization – Patents 200,000

Professional Fees and Other Legal Expenses 120,000

Patents 120,000

Amortization of Patents 100,000

Accumulated Amortization – Patents 100,000

Impairment Loss – Patents 169,288

Accumulated Amortization – Patents 169,288
Carrying value before impairment P700,000
Value in use = 140,000 x 3.7908 = 530,712
Impairment loss P169,288

Professional Fees and Other Legal Expenses 70,000

Trademarks 70,000

Amortization of Trademarks (150,000/2) 75,000

Accumulated Amortization – Trademarks 75,000

Discount on Notes Payable 166,020

Franchise 166,020
Face value of the note P800,000
Present value when issued
200,000 x 3.1699 633,980
Initial discount P166,020

Retained Earnings 63,398

Interest Expense 49,738 113,136
Discount on Notes Payable
Date Periodic Payment Interest Principal Bal. of Principal
1/1/14 P633,980
12/31/14 P200,000 P63,398 P136,602 497,378
12/31/15 200,000 49,738 150,262 347,116

Franchise 16,602
Retained Earnings 16,602

Franchise 83,398
Accumulated Amortization 83,398

Amortization of Franchise 83,398

Accumulated Amortization – Franchise 83,398
Correct cost of franchise = 200,000 + 633,980 = 833,980

Recorded amortization ( 10 year life) 100,000

Correct amortization 833,980/10 83,398
Adjustment 16,602

Retained Earnings 40,000

Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Advertising Expense 165,000

Goodwill 165,000

(2.) Adjusted Balances

(a) Gross cost of patents ……………………………………………………………………….P1,000,000

(b) Carrying value of patents, December 31, 2014…………………………………….. 800,000
(c) Amortization of patents for 2015………………………………………………………. 100,000
(d) Impairment loss on patents – 2015…………………………………………………… 169,288
(e) Amortization of patents for the year 2016 = 530,712/5 ……………………….. 106,142
(f) Total expenses relating to the Trademark =
70,000 + (1/2 x 150,000) ………………………………………….……………… 145,000
(g) Correct cost of the franchise……………………………………………………………… 833,980
(h) Interest expense for 2015 relating to the Notes Payable………………………. 49,738
(i) Discount on notes payable, 12/31/15 = 166,020 – 113,136…………………… 52,884
(j) Carrying value of the Franchise, 12/31/15 (833,980 – 166,796)……………… 667,184
(k) Initial cost of goodwill 285,000 ÷ 19/20 ………………………………………… 300,000
(l) Goodwill on December 31, 2015………………………………………………………… 300,000
(m)Net adjustment to Retained Earnings, 1/1/15……………………………………… 71,796 dr.

Problem 18

Amortization of Patents (1,200,000/12) 100,000

Accumulated Amortization – Patents 100,000

Amortization of Copyrights (1,400,000/10) 140,000

Accumulated Amortization – Copyrights 140,000

Amortization of Computer Software (400,000/10 x 6/12) 40,000

Accumulated Amortization – Software 40,000

Share Premium 2,000,000

Intellectual Capital 2,000,000

Retained Earnings 90,000

Amortization of Goodwill 90,000
Accumulated Amortization – Goodwill 180,000

Multiple Choice

1. B 23. B
2. A 24. C
3. C 25. D
4. A 26. D
5. C 27. A
6. B 28. B
7. B 29. A
8. P16,830,000 30. D
9. P14,499,000 31. B
10. P144,990 32. C
11. D 33. C
12. B 34. C
13. D 35. B
14. D 36. A
15. C 37. B
16. C 38. C
17. B 39. C
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

45. D
46. C

Supporting computations:

1. B P300,000/10 x 7/12 = P17,500

(300,000 x 6/10) + 36,000 x 5/12
8 11,250
Depreciation expense for 2014 P 28,750

2. A Carrying value as of August 1, 2015 P180,000

Overhaul costs 36,000
Depreciation – Aug. 1 – Dec. 31, 2015 ( 11,250)
- January 1 – June 30, 2016
216,000 / 8 x 6/12 ( 13,500)
Carrying value, June 30, 2016 P191,250
Proceeds from sale 185,000
Loss from sale P 6,250

3. C Correct depletion for 2015

P4,860,000 / 1,620,000 x (15,000 tons x 6 months) = P270,000
Recorded depletion 405,000
Overstatement in depletion P135,000

4. A Estimated useful life in years = 15 years

Estimated mining period = 1,620,000 / 15,000 = 108 months or 9 years
Use unit of output method, since mining period is shorter than life in years

Correct depreciation = (P600,000 x 90%) / 1,620,000 x 90,000 tons P 30,000

Recorded depreciation 40,000
Overstatement in depreciation P 10,000

5. C Remaining machines at December 31, 2015 = Machines 2 and 4 only

Cost allocated to Machine 2 P1,200,000 x 500,000/1,500,000 P 400,000

Accumulated Depreciation of Machines 2 and 4

Machine 2 400,000 x 5/10 = P200,000

Machine 4 500,000 / 10 x 6/12 = 25,000
Total P225,000

6. B Depreciation Expense for 2015:

Machine 2 P400,000/10 P40,000
Machine 3 P480,000/10 x 6/12 24,000
Machine 4 P500,000/10 x 6/12 25,000
2014 Depreciation P 89,000

7. B Fair value of Machine 3 P500,000 – 200,000 P300,000

Carrying value of machine 3
Cost P480,000
Accumulated depreciation 48,000 x 4.5 216,000 264,000
Gain on sale P 36,000

8. Land Building
Cash paid P12,000,000
FV of shares issued 40,000 x 107 4,280,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Construction costs (6,000,000 + 4,o00,000 + 4,000,000) ________ 14.000,000

Correct cost P16,830,000 P 14,499,000

9. Correct cost of building P14,499,000

10. Depreciation for 2015 = P14,499,000 / 50 x 6/12 P 144,990

11 through 14
Audit Adjusting Entries:

Buildings and Equipment 10,000

Accumulated Depreciation – Buildings and Equipment 30,000
Gain on Exchange of Buildings and Equipment 10,000
Buildings and Equipment 50,000

Buildings and Equipment 10,000

Accumulated Depreciation – Buildings and Equipment 60,000
Buildings and Equipment 70,000

Buildings and Equipment 240,000

Loss on Exchange of Buildings and Equipment 80,000
Buildings and Equipment 320,000

11. D Net decrease in cost of buildings and equipment P180,000

12. B Net decrease in accumulated depreciation P 90,000

13. D Cost assigned to equipment received

P20,000 carrying value + cash paid of P10,000 = P 30,000

14. D Net gain on exchange (see audit adjustments) P830,000

15. C Land as Property, Plant and Equipment

P8,000,000 + 4,000,000 + 7,000,000 = P19,000,000

16. C Building as Property, Plant and Equipment

P12,000,000 + P16,000,000 = P28,000,000

17. B Depreciation Expense – Investment Property

(P8,000,000 / 20) x ½ = P 200,000

18. C Equipment
P24,000,000 – 800,000 = P23,200,000

19. B Accumulated Depreciation – Equipment

P8,000,000 – 320,000 = P 7,680,000

20. C Investment Property

Land of P6,000,000 + Building, P7,800,000 = P13,800,000

21. C 7,500,000 + 8,500,000 = P16,000,000

22. B Carrying value

Cost P800,000
Accumulated depreciation
(P320,000 – P20,000) 300,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

23. B Impairment loss 500,000 – 470,000 = P 30,000

24. C 1,500,000 + 1,800,000 P3,300,000
25. D 860,000 + 5,000,000 = P5,860,000

26. D 3,000,000 + 2,000,000 + 2,500,000 + 540,000 = P8,040,000

27. A Eggs P100,000 P 100,000

28. B Machinery, December 31, 2013

12/31/12 P9,100,000
01/03/2013 5,920,000
08/28/2013 ( 4,300,000)
Balance 12/31/13 P10,720,000

29. A Accumulated Depreciation – Machinery 12/31/2013

12/31/12 P4,820,000
08/28/13 (3,172,500)
12/31/13 Depreciation for 2013 2,394,000
12/31/13 Balance P 4,041,500

30. D Vehicles 12/31/2013

12/31/2012 P 4,680,000
06/22/13 1,620,000
12/31/2013 P 6,300,000

31. C Accumulated Depreciation – Vehicles

12/31/2012 P 1,965,600
12/31/2012 Depreciation for 2013
On beg. Bal. not sold
(4,680,000 – 1965,600) x 40% = P 1,085,760
New = 1,620,000 x 40% x 6/12 324,000 1,409,760
P3,375,360

32. C Depreciation Expense – Machinery (2012)

Machine 1 ( P4,300,000 – 250,000) / 5 x 8/12 = P 540,000
Machine 2 (4,800,000 – 300,000) / 6 = 750,000
Machine 3 (5,920,000 – 400,000 ) / 5 = 1,104,000
Total depreciation expense, machinery for 2013 P2,394,000

33. C Gain or loss on vehicle sold on May 25, 2014

Cost of vehicle sold P2,340,000
Accumulated depreciation
12/31/2012 P982,800
2013 depreciation 1,085,800 / 2 = 542,900
2014 depreciation 814,300 x 40% x 5/12 135,700 1,661,400
Carrying value P 678,600
Selling price 660,000
Loss on sale P 18,600

34. C Accum. Depreciation – Building, Dec. 31, 2013

12/31/2012 P2,861,400
2013 and 2014 depreciation 903,600 x 2 years 1,807,200
Accumulated depreciation, building 12/31/2014 P4,668,600

35. B Depreciation Expense – Machine 2 (2015)

Cost of Machine 2 P4,800,000
Accumulated depreciation – 12/31/2014
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Depreciation expense – 2015

(P2,312,500 – 500,000) / 4 = P453,125

36. A Carrying value of land, December 31, 2015 P8,100,000

37. B Accumulated Depreciation – Land Improvements, Dec. 31, 2015

(550,000/10) x 1.5 = P 82,500

38. C (100,000 X 98%) + 5,000 = P103,000

39. C Carrying value = 180,000 – 180,000 x 10% x 7.5 P 45,000

Selling price 54,000
Gain on sale P 9,000

40. B 2015 Depreciation

(500,000 – 180,000) x 10% = P 32,000
180,000 x 10% x 9/12 = 13,500
103,000 x 10% x 9/12 = 7,725
Total P 53,225

41. B 500,000 – 180,000 + 103,000 P423,000

42. D 2,000,000 x 9/10 x 1/5 = P 360,000

43. A 42,000 + 100,000 + 102,000 = P 244,000

44. C Cost = 180,000 + (336,000/112%) = P480,000

(P480,000 /10 ) ( 48,000)
Carrying value of franchise, 12/31/2015 P432,000

45. D 125,000 + 48,000 + 27,000 = P200,000

46. C 300,000 + (36,000 x 9/12 ) = P 327,000

Summative Exercise

Elegant Builders

Audit Adjustments:

Other Receivables 5,600

Representation and Advertising 5,200
Supplies Expense 3,054
Repairs and Maintenance 6,500
Petty Cash Fund 20,354

Accounts Receivable – Current 84,200

Bank Charges 2,100
Cash 600
Trade Payables 86,900

Accounts Receivable 36,000

Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Sales 20,000
Accounts Receivable – current 20,000

Accounts Receivable 14,000

Advances from Customers 14,000

Other Non-current Financial Assets 120,000

Accounts Receivable 120,000

Sales 145,000
Accounts Receivable – current 145,000

Purchases 60,000
Trade Payables 60,000

Doubtful Accounts Expense 162,364

Allowance for Doubtful Accounts 162,364

Inventory, end 2,693,200\

Cost of goods sold 5,887,200
Net Purchases 6,555,000
Inventory, beginning 2,025,400

Other Operating Income 86,400

Trading Securities – PS Bank 86,400

Trading Securities – SM 8,000

Gain on Sale of Trading Securities 8,000

Trading Securities – PS Bank 93,600

Trading Securities – SM 50,000
Unrealized Gains on Trading Securities 143,600

Equipment 14,600
Transportation Expense 3,600
Repairs and Maintenance 11,000

Depreciation and Amortization 1,825

Accumulated Depreciation – Equipment 1,825
14,600 / 8 = 1,825

Accumulated Depreciation – Leasehold Improvements 19,333

Depreciation and Amortization 19,333

Utilities Expense 44,400

Salaries Expense 26,350
Repairs and Maintenance 3,820
Trade Payables and Accrued Expenses 74,570

Interest Expense 12,205

Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Retained Earnings 1,650,000

Dividends Payable 1,650,000

Income Tax Expense 142,354

Income Tax Payable 142,354
1. D 375,250 – 84,200 = 291,050
2. A 546,750 – 226,000 – 900 = 319,850
3. A
4. D 6 years which is 12 – 6; shorter than 10 – 6 + 6
5. B see audit adjustments

Answer
6. Petty cash fund 4,646
7. Cash in bank 3,471,200
8. Trading securities, at cost 650,000
9. Trading securities, at market 793,600
10. Unrealized gain or loss on trading securities 143,600 gain
11. Accounts receivable 4,614,200
12. Allowance for doubtful accounts 352,284
13. Other Receivables – current 30,600
14. Merchandise inventory 2,693,200
15. Prepaid expenses 60,920
16. Land 5,960,000
17. Equipment 934,600
18. Accumulated Depreciation – Equipment 691,825
19. Net book value of leasehold improvements 193,333
20. Other Non-current Financial Assets 120,000
21. Trade Payables and Accrued Expenses 1,681.475
22. Notes Payable and Accrued Interest 912,205
23. Dividends Payable 1,650,000
24. Income Tax Payable 142,354
25. Additional Paid in Capital 1,950,000
26. Retained Earnings 482,161
27 Net Sales 9,000,000
28 Net Purchases 5,887,200
29. Salaries and Commissions 1,226,350
30. Repairs and Maintenance 59,320
31. Supplies Expense 73,054
32. Bank Charges 14,100
33. Interest Expense 76,205
34 Other Operating Income 151,600
35 Transportation Expense 1,400
36 Depreciation and Amortization 135,492
37 Doubtful Accounts Expense 162,364
38. Representation & Advertising 325,200
39. Ordinary Share Capital 11,000,000
40. Profit 332,161