CHAPTER 10

SOLUTION 2010 Fire Loss
Book value of building 1,083,000 Salvaged materials 12,000
Cancelled premium 40,000 Insurance claim 500,000
Expenses 15,000

Fire Loss debit balance of P626,400

Accumulated depreciation (1,200,000 x 3%)= 36,000 x 3.25 years P 117,000
Book value (1,200,000-117,000) 1,083,000
Cancelled premiums ( 5,000 per month x 8 months from 10/31 to 6/30) 40,000
Insurance claim P500,000 or P750,000 whichever is lower 750,000

Entries:
6/30/09 Prepaid Insurance 60,000
Cash 60,000
Insurance paid.

12/31 Insurance Expense 60,000
Prepaid Insurance 60,000
Expired from 1/1 to 12/31

Depreciation Expense 36,000
Accumulated Depreciation 36,000
Update depreciation 1,200,000 x 3%

6/30/10 Prepaid Insurance 60,000
Cash 60,000

10/31/10 Insurance Expense (5,000 x 10) 50,000
Prepaid Insurance 50,000
Update depreciation 1/1 to 10/31

Fire Loss 40,000
Prepaid Insurance 40,000
To cancel prepaid insurance from
10/31 to 6/30(5,000 x 8))

Depreciation 30,000
Accumulated Depreciation 30,000
To update depreciation 1/1 to 10/31.

Fire Loss 1,083,000
Accumulated Depreciation 117,000
Building 1,200,000
To cancel building at book value
destroyed.

000 Prepaid Insurance 60.000 or 500.000 x 3% x 10/12) 30.000 Receipt from salvaged materials Fire Loss 15.083.000 Receipt of insurance claim.000 Insurance paid. .000 Prepaid Insurance 18.000* Accumulated Depreciation 30.200.000 Insurance claim (750.000 10/31/10 Insurance Expense (5.000 x 30%) = 225.200.000 Prepaid Insurance 50.000 Accumulated Depreciation 36.000 Cash 500.000 Insurance claim 240.000/500.000 Expired from 1/1 to 12/31 Depreciation Expense 36.000 Cash 60. Cash 12.000 x 225.900 Salvaged materials 12.000 Fire Loss 12.000 Fire Loss 500.000 Fire Loss debit balance of P Destroyed by fire (1.000 Cash 60.000 x 3% 6/30/10 Prepaid Insurance 60.000 x 10) 50.000 Entries: 6/30/09 Prepaid Insurance 60. 2.000 Update depreciation 1.000 x 30%) 324.000 Update insurance 1/1 to 10/31 Fire Loss 18.000 To update depreciation 1/1 to 10/31.000 Expenses 15.000) 18. 12/31/09 Insurance Expense 60.000 Cancelled premium 18.900 Cancelled premiums(40.000 x 8 x 225/500) Depreciation (1. If building is only 30% destroyed: Fire Loss Book value of building 324.000 To cancel prepaid insurance from 10/31 to 6/30(5.000 Cash 15.000 whichever is lower 225.

000 Accumulated Depreciation 120.000-360.000 Fire Loss 12.3) 35.200.000 x .200 1.200* Accumulated Depreciation 4.000 x 2/8) 5.500 Cancel balance of unexpired: .900 Accumulated Depreciation (117.800.000 Accumulated Depreciation 360.250 x 4 months from 1/1 to 4/30 Fire Loss 62. 3/1/09 Prepaid Insurance 75.000 6.500 Prepaid Insurance 62.000-20.3) 360.000 x 3% x 2/12) Or 1.000-360.000 Cash 75.000 Cash 75.500 Depreciation Expense 4.000 x 3%= 25. Fire Loss 324.000 Fire Loss 15.000 Fire Loss 225.200* 3.000 (3. 12/31/10 Insurance Expense (40.000-18.500 Prepaid Insurance 5.000 Expenses for putting out fire.000 Receipt of insurance claim.000 x 4/12 from 12/31 to 4/30 Insurance Expense 25.000 x .000 Prepaid Insurance 25.200.200.000 4/30/10 Depreciation Expense 120.000 Prepaid Insurance 75. Cash 12.000 3/1/10 Prepaid Insurance 75.000 12/31 Depreciation 360.000 To cancel building at 30% of book value.000 360.000 x 3% x 10/12= 9.000)/10 Insurance Expense 75.000 Receipt from salvaged materials Cash 15.000 Total depreciation 34.100 Building (1.200 360. Cash 225.

000 Fire Loss 60.4x2.000 Prepaid Insurance 25.000 360.000 Salvaged materials Cash 320.000 Fire Loss 320.000 Salvaged materials Insurance Claim 640.000 Building 3.000 Ins claim (800/2.000 Building 1.000) .000) There is a remaining book value which may be further depreciated depending on whether the building at the 20% remaining book value will still be used by company.200. If 40% destroyed lding 4/30/10 Depreciation Expense 120.000 Ins claim (800/2.250 x 10 from 4/30 to 3/1 x 40% Fire Loss 1. 6.800.200)x(.328. Otherwise replacement Will entail GAAP under financial accounting.000 Accumulated Depn 480.000* Fire Loss 640.320.000 x 4/12 from 12/31 to 4/30 Insurance Expense 25.250 x 4 months from 1/1 to 4/30 Fire Loss 25.200 x 1.000 Cancel book value. 4.000 Accumulated Depreciation 120.250 x 10 from 4/30 to 8/1 Fire Loss 3.000 Cancel balance of unexpired: 6.000 Accumulated Depn 192.760. Cash 60.000 6.000 Prepaid Insurance 25.000 Cancel book value Cash 60.000 Fire Loss 60.520.

000/60.000 vs 150.000 =P15.000 c) (40. 5.000/1.000 Mahiyain (50/150 x 90. Jan 1 80.500 45/50 x 45.000) 30.250 Mabini (50/200 x 140.000/150.000*) P28.000.500) P40.750 d) P18.000 x 70%=140.000) 50.000.000 vs 150.000*) P 18. Case A Case B Makati P40.000 Makati (40.000/60.000/75.000 x 60% Case C Case D Makati (40/200 x 140.000) 35.000 = P12.000 Mabini (50.000 x 37.000 P30.000) 30.000 P150.000 P42. claim is P64.000) 42.000 x 18.000 6.000/150.000 **200.000 Total 380.000*) P32.000 Cost of sales 360. Case A Case B Case C Case D a) P18.000 (60.6.000 P42.000) 40.000) 12.000**x150.000 146.000 Manila (60.000 7.000 x P37. Merchandise.000/48.000 Inventory before fire 80.000)56.000 P42.000 P105.000/160.000 P30.000/150.000 * 200.000 *150.000 x 80%=160.000 P 60.000*x150.250 Agreed loss is 200.000 (40.000 b) (40.000 P42.000 (50.000 Purchases 300.000 x 75%=P150.000 Against policy amount of P100.000 x 60% b) Unexpired Cancelled (360/12= 30 x 6) 8/1 to 1/31 P 180 x18/30=108 (600/12= 50 x 8) 8/1 to 4/1 400 x30/50=240 (300/12= 25 x 7) 8/1 to 3/1 175 x12/20=105 P755 P453* *If policy is not yet totally cancelled 8.000 P120.000 P45.000 Manila (60/200 x 140.000 x 120.000 Manila 60.000 =P18.000 80% destroyed 64.000 P45.000 =P15.000) (30. .000 P45.2 300.000/150.000) 40.000 Mabini 50.000*x150.000) 48.000 x 18.000 *200.000 x 120.000 x 120.000 Maawain (20/150 x 90.000/150. a) Matampuhin (30/150 x 90.

00 10.000 Goods destroyed 100. Jan 1 P105.500.000 x 550.000 (600. a) Merchandise.000 Purchases 787.00 c) 675.000 Total 400.000 Cost ratio .000 75% charged to fire loss for the destroyed portion 310.000=595.00 d) 543.050.050.000-271.452 b) 310.9.500 Cost of Sales: Sales P1. Jan 1 75.250 Book value of building (1.333 XYZ 150.000*) 306.000/600.000+ P183.000* x 550.000 + 100.500 Goods in transit 17.000/30= P240.000 c) Monthly Premium Cancelled Premium 600/12= 50 (10/1 to 3/1= 5 mos) P250.5 300.000 Inventory on hand at date of fire P157.452 +75% of 700.000 against total policies of 600.000 + 18.000 against total policies of 600.000/1.000 b) Accumulated depn (288. a) Building P1.000 x 550.000 229.952 LMN 250.050.00 d) Insurance claim: ABC 200.000 Freight 12.000= 630.000.000 Purchases 313.000/630.250)= P778.000) 414.000 x 9/12= P18.00 P675.000 Fire Loss a) 100.000 .500 Recovery on fire loss P140.250 Sales Returns 26.750 x 80%)= P623.500 Total Available P892.250 Net sales P1.000 130.076.000 Cost of sales 450.70 735.000/600.000 Book value (720.000) * whichever is higher: total policies or co-insurance requirement 90% of sound value of 700.00 480/12= 40 (10/1 to 7/1= 9 mos) 360.500 *Update Depreciation (1/1/08 to 10/1/08) 720.750 Fire loss (778.00 780/12= 65 (10/1 to 11/1= 1 mo) 65.500 annual depn x 5 years & 2 mos = accum depn P271.000 b) Inventory.167 P543.000-306.000 85% of sound value of 700.000/20= P52.

000 Answer C Merchandise.000 Destroyed by fire (6.000 Actual loss (4.000 Cost of sales (2750.000 Claim (3.000.000x4.000 Book value (7500.000) 4.000 or P425.55 (3300.2.438.000) Fire loss P23.000 Estimated loss based on FMV 3.500) On hand at fire date 31.7 (136. Jan 1 60.000 vs P1.000 or 50% of P500. Multiple Choice: 1.933.000-1125.000 x P3.500.067.000 nearest Answer A 2.800 vs P1.000 Purchases 108. Merchandise.000.000) Fire loss P580.000 against P1.500 Less salvaged materials (8.440.000 Book value of warehouse (6.200= 1.000 – 1.000.440. P250. Jan 1 600.Merchandise.000 whichever is lower. Accum depreciation(7500.250.000 Less salvaged materials (120.000 Answer A 22.000 x . Jan 1 1.000/.000-2.000) 6375.000.000.840.000 Answer B .000) 2.200.000 Answer B Insurance Claim 1.000x .000) Fire loss P1.000 Purchases 1.000.000 Since face of policy is P450.933.000.1.000 x 5.000 Cost of sales 600.000 Insurance claim P1.500 Answer C Answer C 3.000.000 x 80%) 4.000) On hand at fire date 700.440.625.066.000 Co insurance requirement (5.000 Answer D Insurance recoverable from Equipment P800.5) P1.950.000 Answer C 4.000/30=250.500/4.000/30=200.000 Answer D 5. Insurance requirement is 85% of 500.200.000) 2.933. Accum Depn (6.6) (1.375.125.33 yrs) P1.000 Purchases 3400.000 Cost of sales 195.000 x 60%) 3.825.650.000. then co-insurance requirement is complied with Claim is P450.

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