PROBLEM NO.

1 - White Corporation

Nondepreciable:
Land, 1/1/05 2,500,000
Cash paid on purchase of land 10,000,000
Mortgage assumed on the land bought, including interest at 16% 16,000,000
Realtors commission 1,200,000
Legal fees, realty taxes and documentation expenses 200,000
Amount paid to relocate persons squatting on the property 400,000
Cost of tearing down an old building on the land 300,000
Amount recovered from the salvage of the building demolished (600,000)
Land, 12/31/05 30,000,000 1

Depreciable:
Land improvements
Balance, 1/1/05 560,000
Cost of fencing the property 440,000 1,000,000 2

Building
Balance, 1/1/05 3,600,000
Amount paid to a contractor for the building erected 8,000,000
Building permit fees 50,000
Excavation expenses 250,000
Architects fee 100,000 12,000,000 3

Machinery and equipment

Balance, 1/1/05 6,600,000
Invoice cost of machinery acquired 8,000,000
Freight, unloading, and delivery charges 240,000
Customs duties and other charges 560,000
Allowances, hotel accommodations, etc., paid to
foreign technicians during instillation and test run of
machines 1,600,000 17,000,000 4
Total depreciable PPE, 12/31/05 30,000,000 5
PROBLEM NO. 2 - Black Company

Entry made Should be entry Adjusting journal entry

a. Office equipment 400,000 Office equipment 392,000 Purchase disc. lost 8,000
Cash 400,000 Purchase disc. lost 8,000 * Office equipment 8,000
Cash 400,000
*(P400,000 x 2%)

b. Machinery 140,000 Machinery 128,000 FC/Interest exp 12,000

Cash 140,000 FC/Interest exp 12,000 Machinery 12,000
(entry made reconstructed from the Cash 140,000
depreciation information; P28,000 x 5)
Freight in 4,000 Machinery 4,000 Machinery 4,000
Cash 4,000 Cash 4,000 Freight in 4,000

Depreciation exp 28,000 Depreciation exp 26,400 Acc. Dep. 1,600

Acc. Dep. 28,000 Acc. Dep. 26,400 Depreciation exp 1,600
(140,000/5 ) [(128,000+4,000)/5]

c. Machinery 400,000 Machinery 360,000 Discount on BP 40,000

Bonds payable 400,000 Discount on BP 40,000 Machinery 40,000
Bonds payable 400,000

Depreciation exp 54,000 Depreciation exp 48,000 Acc. Dep. 6,000

Acc. Dep. 54,000 Acc. Dep. 48,000 Depreciation exp 6,000
[(400,000-40,000)/5 *9/12] [(36,000-4,000)/5 *9/12]

Interest exp 3,000 Interest exp 3,000

Discount on BP 3,000 Discount on BP 3,000
[(40,000/10)*9/12]

d. Machinery 140,000 Machinery 110,000 Allowance for DA 28,000

Accts receivable 140,000 Allowance for DA 28,000 Loss on exchange 2,000
Loss on exchange 2,000 Machinery 30,000
Accts receivable 140,000

Treasury stock 140,000 Treasury stock 110,000 Machinery 30,000

Machinery 140,000 Machinery 110,000 Treasury stock 30,000

e. Equipment 450,000 Equipment 500,000 Equipment 50,000

Investment in Tyler 450,000 Investment in Tyler 450,000 Gain on exchange 50,000
Gain on exchange 50,000

f. Machinery 20,000 Machinery-new 140,000 Machinery-new 120,000

Cash 20,000 Accumulated dep. 280,000 Accumulated dep. 280,000
Machinery-old 400,000 Machinery-old 400,000
Cash 20,000

g. Machinery-new 102,000 Machinery-new 90,000 Loss on trade-in 12,000

Cash 80,000 Loss on trade-in 12,000 Machinery-new 12,000
Machinery-old 22,000 Cash 80,000
Machinery-old 22,000

h. None Land 200,000 Land 200,000

Building 400,000 Building 400,000
APIC-donated capital 600,000 APIC-donated capital 600,000

Depreciation exp 4,000 Depreciation exp 4,000

Acc. Dep. 4,000 Acc. Dep. 4,000
[(P400,000/25)*3/12]

i. Building 4,000,000 Land 2,000,000 Land 2,000,000

Cash 4,000,000 Deferred income-govt grant 2,000,000 Deferred income-govt grant 2,000,000

Government grants are "assistance by government Building 4,000,000

in the form of transfers of resources to an enterprise Cash 4,000,000
in return for past or future compliance with certain
conditions relating to the operating activities of the
enterprise". Grants related to nondepreciable assets Depreciation exp 160,000 Depreciation exp 160,000
requiring fulfillment of certain conditions should be Acc. Dep. 160,000 Acc. Dep. 160,000
recognized as income over the periods which bear (P4,000,000/25) (P4,000,000/25)
the cost of meeting the conditions.
Deferred income-govt g 80,000 Deferred income-govt g 80,000
Income from govt. grant 80,000 Income from govt. grant 80,000
(P2,000,000/25) (P2,000,000/25)
 Page 1 of 4

PROBLEM NO. 3 - Blue Corporation

1) Land [(10,000 shares x P120) +P98,000] 1,298,000

Land and building 1,098,000
Additional paid in capital 200,000

2) Land 60,000
Land and building 60,000

3) Organization expenses 9,500

Land 4,000
Building 1,500
Land and building 15,000

4) Building 700,000
Land and building 700,000

5) Building 600,000
Land and building 600,000

6) Insurance expense (26,000 x 1/2) 13,000

Prepaid insurance 13,000
Land and building 26,000

7) Building 200,000
Land and building 200,000

8) Retained earnings 500,000

Land and building 500,000

Adjusted balances
Land Building
AJE no. 1 1,298,000 AJE no. 3 1,500
AJE no. 2 60,000 AJE no. 4 700,000
AJE no. 3 4,000 AJE no. 5 600,000
AJE no. 7 200,000
1,362,000 1,501,500

9) Land and building 31,990

Depreciation expense 1,960
Accumulated depreciation 30,030

Should be depreciation (1,501,500 / 25 x 6/12) 30,030

Recorded depreciation 31,990
Overstatement in depreciation expense 1,960

Land and building account

Unadjusted balance 3,167,010
AJE no. 1 (1,098,000)
AJE no. 2 (60,000)
AJE no. 3 (15,000)
AJE no. 4 (700,000)
AJE no. 5 (600,000)
AJE no. 6 (26,000)
AJE no. 7 (200,000)
AJE no. 8 (500,000)
AJE no. 9 31,990
-
PROBLEM NO. 4 - Green Company

Adjusted bal. Orig. cost Months Depreciation

Machine 1 - sold 8/31 - 90,000 remaining 5,625
Machine 2 - destroyed 12/1 - 90,000 11 20,625
Machine 3 - traded in 9/30 - 90,000 9 16,875
Machine 4 90,000 90,000 12 22,500
Machine 5 198,000 198,000 4 16,500
Machine 6 108,000 108,000 3 6,750
Machine 7 216,000 216,000 1 4,500
Machine 8 216,000 216,000 1 4,500
Total 828,000 97,875
PROBLEM NO. 5 - Red Company
Question No. 1 - B
Buildings (150% declining balance) 6,577,500
Balance, 1/1/05 6,577,500
Depreciation for 2005:
Book value, 1/1/05 (P30,000,000 - P6,577,500) 23,422,500
150% declining balance rate (1/25 x 150%) 6% 1,405,350
Accumulated dep - Buildings, 12/31/05 7,982,850

Question No. 2 - D
Machinery and Equipment (Straight line)
Balance, 1/1/05 6,250,000
Depreciation for 2005:
M & E balance, 1/1/05 22,500,000
Less machine destroyed by fire 575,000
Remainder of beginning balance 21,925,000
Depreciation rate (1/10 years) 10%
Depreciation on remainder of beginning bal. 2,192,500
Depreciation on machine destroyed by fire
(P575,000 x 10% x 3/12) 14,375
Depreciation on machine purchased on 7/1/05
[(P7,000,000+P125,000+P625,000) x 10% x 6/12] 387,500 2,594,375
Machine destroyed by fire (P575,000 x 5/10) (287,500)
Accumulated dep - Machinery & Equip., 12/31/05 8,556,875

Question No. 3 - B
Delivery equipment (SYD)
Balance, 1/1/05 2,115,000
Depreciation for 2005:
Depreciation on 1/1/05 balance (see info (e)) 450,000
Less depreciation on truck traded-in
(P450,000 x 2/10*) 90,000
Depreciation on remainder of beginning bal. 360,000
Depreciation on truck purchased on 1/2/05
(P600,000 x 4/10*) 240,000 600,000
Truck traded-in (P450,000 - P135,000) (315,000)
Accumulated dep - Delivery Equip., 12/31/05 2,400,000
* SYD = (4+3+2+1) = 10

Question No. 4 - A
Leasehold improvements (Straight line)

Depreciation for 2004 (P4,200,000 x 8/80*) 420,000

Remaining lease term (5/1/04 to 12/31/10) 80 months

Useful life (8 years x 12) 96 months
Shorter - remaining lease term 80 months *

Question No. 5 - C
Machine destroyed by fire:
Amount recovered from insurance company 387,500
Less book value of machine:
Cost 575,000
Accumulated depreciation (see above) (287,500) 287,500
Gain on machine destroyed by fire 100,000
Truck traded-in:
Trade-in value (P600,000 - P500,000) 100,000
Less book value of truck traded-in 135,000
Loss on truck traded-in (35,000)
Net gain on asset disposals 65,000
PROBLEM NO. 6 - Josef, Inc.

Question No. 1 - B
Acquisition cost 10,400,000
Less residual value 800,000
Depletable cost 9,600,000
Total estimated reserves 8,000,000
Depletion rate 1.20
Tons mined 800,000
Depletion for 2005 960,000

Question No. 2 - D
Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 80%] 64,000
Depreciation - Machinery [(P1,600,000-P320,000/4] 320,000
Total 384,000

Question No. 3 - B
Depletion (see no. 1) 960,000
Direct labor 640,000
Depreciation (see no. 2) 384,000
Miscellaneous mining overhead 128,000
Total available for sale 2,112,000
Divide by tons mined 800,000
Cost per ton 2.64
Unsold tons (800,000 - 640,000) 160,000
Inventory, 12/31/05 422,400

Question No. 4 - A
Cost of sales (640,000 tons x P2.64) 1,689,600

Question No. 5 - C
Sales (640,000 x P4.4) 2,816,000
Less cost of sales (see no. 4) 1,689,600
Gross profit 1,126,400
Operating expenses (576,000)
Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 20%] (16,000)
Net income 534,400
Realized depletion (640,000 tons x P1.2) 768,000
Maximum amount that may be declared as dividends 1,302,400
PROBLEM NO. 7 - Pink Corporation

Journal entries for 2005:

1/2 Organization expenses 233,000
Cash 233,000
1/15 Advertising expense 15,000
Cash 15,000
4/1 Patents 492,500
Cash 492,500

5/1 Licences (P300,000 x 2/3) 200,000

Trademark 100,000
Common stock (6,000 x P50) 300,000
7/1 Building 1,310,000
Cash 1,310,000

12/31 Research and Development expense 1,750,000

Cash 1,750,000

Question no. 1 - A
See journal entry for April 1.
Note: Cost of internally developed patent includes only the licensing and
other related legal fees in securing the patent rights.

Question no. 2 - B
See journal entry for May 1.

Question no. 3 - C
See journal entry for May 1.

Question no. 4 - C
Cost
Patent 492,500
Licences 200,000
Trademark 100,000 792,500
Less amortization
Patent (P492,500/6 x 9/12) 61,563
Licences (P200,000/6 x 8/12) 22,222
Trademark (P100,000/6 x 8/12) 11,111 94,896
Carrying value, 12/31/04 697,604

Question no. 5 - C
Organization expenses (Jan. 2 transaction) 233,000
Advertising expense (Jan. 15 transaction) 15,000
R and D expense (Dec. 31 transaction) 1,750,000
Total 1,998,000
PROBLEM NO. 8 - Silver Corporation

Question No. 1 - A
Trademark* -
Goodwill* -
Customer list (P220,000/3) 73,333
Total amortization 73,333
*The useful life is indefinite, so no amortization expense is recognized.

Question No. 2 - B
Trademark:
Carrying value 300,000
Recoverable amount (P10,000/0.06) 166,667 133,333
Goodwill*:
Carrying value of Hayo Manufacturing unit
(P2,700,000 + P1,500,000 - P1,800,000) 2,400,000
Recoverable amount (P250,000 x 12.0416) 3,010,400 -
Customer list
Carrying value (P220,000 - P73,333) 146,667
Recoverable amount:
2006: (P120,000 x 0.9434) 113,208
2007: (P80,000 x 0.8900) 71,200 184,408 -
Total impairment loss 133,333

*Since goodwill does not generate cash flows independently from other assets or group
of assets, the recoverable amount of goodwill as an individual asset cannot be
determined. Therefore, the recoverable amount is determined for the cash
generating unit to which goodwill belongs.

Question No. 3 - C
Cost 300,000
Less impairment loss 133,333
Carrying value, 12/31/05 166,667

Question No. 4 - A
Since goodwill is not amortized and is not impaired as of 12/31/05,
the carrying value is P1,500,000.

Question No. 5 - B
Cost 220,000
Less amortization for 2005 73,333
Carrying value, 12/31/05 146,667

PROBLEM NO. 9
1B
2B 11 D
3D 12 B
4A 13 A
5C 14 A
6A 15 D
7A 16 A
8D
9D
10 D