Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

CHAPTER 8
INVESTMENT PROPERTY, OTHER NONCURRENT FINANCIAL ASSETS
AND NONCURRENT ASSETS HELD FOR SALE

PROBLEMS

8-1 (Sebastian Corporation)

a. Purchase price P 8,600,000
Commission to real estate agent 430,000
Costs of clearing the land (net of timber and gravel recovered
aounting to P65,000) 70,000
Total cost . P 9,100,000

b. Down payment P 4,000,000

Market value of shares issued (20,000 x 240) 4,800,000
Present value of non-interest bearing note issued
(2,000,000 x 2.4869) 4,973,800
Total cost of land and building P13,773,800

Cost allocated to land (30% x 13,773,800) P 4,132,140

Cost allocated to building (70% x 13,773,800) P 9,641,660

8-2 (Precious Realty Corporation)

1/2/09 Buildings 8,200,000
Accumulated Depreciation – Building Held as
Investment Property 4,200,000
Buildings Held as Investment Property 8,200,000
Accumulated Depreciation - Buildings 4,200,000

12/31/09 Depreciation Expense – Buildings 200,000

Accumulated Depreciation - Buildings 200,000

8.3 Raymond Company

1. Building Construction Fund Cash
Cash

2. Building Expansion Fund Securities

Building Expansion Fund Securities

3. Building Expansion Fund Securities

Interest Receivable – Building Expansion Fund
Building Expansion Fund Cash

4. Building Expansion Fund Cash

Dividend Income

5. Building Expansion Fund Expenses

Building Expansion Fund Cash

6. Building Expansion Fund Cash

Interest Receivable – Building Expansion Fund
Interest Income

7. Building Expansion Fund Securities

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

Building Expansion Fund Cash

8. Building Expansion Fund Cash
Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities

9. Building Expansion Fund Cash

Dividend Income

10. Building Expansion Fund Cash

Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities

11. Buildings
Building Expansion Fund Cash

12. Cash
Building Expansion Fund Cash

8.4 Cordero Corporation

a. Required Semiannual Deposit
= P15,000,000/ PV of annuity of 1 discounted at 4% for 20 periods
= P15,000,000 / 13.5903 = P1,103,728

b. 1/2/08
Bond Sinking Fund Cash 1,103,728
Cash 1,103,728

6/30/08
Bond Sinking Fund Cash 1,147,877

Cash 1,103,728
Interest Income 44,149

12/31/08
Bond Sinking Fund Cash 1,193,792
Cash 1,103,728
Interest Income 90,064
4% ( 1,103,728 + 1,147,877) = 90,064

8.5 Dorina Company

a. Entries for 2007 through 2011

7/01/06 Prepaid Life Insurance 120,000

Cash 120,000

12/31/06 Life Insurance Expense 60,000

Prepaid Life Insurance 60,000

06/30/07 Prepaid Life Insurance 120,000

Cash 120,000

12/31/07 Life Insurance Expense 120,000

Prepaid Life Insurance 120,000

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

06/30/08 Prepaid Life Insurance 120,000

Cash 120,000

12/31/08 Life Insurance Expense 120,000

Prepaid Life Insurance 120,000

06/30/09 Prepaid Life Insurance 120,000

Cash 120,000

12/31/09 Life Insurance Expense 120,000

Prepaid Life Insurance 120,000

12/31/09 Cash Surrender Value 36,000

Life Insurance Expense 36,000

06/30/10 Prepaid Life Insurance 120,000

Cash 120,000

12/31/10 Life Insurance Expense 120,000

Prepaid Life Insurance 120,000

Cash Surrender Value 13,000

Life Insurance Expense 13,000

3/31/11 Life Insurance Expense 30,000

Prepaid Life Insurance 30,000

Receivable from Insurance Company 4,000,000

Prepaid Life Insurance 30,000
Cash Surrender Value 49,000
Gain on Insurance Settlement 3,921,000

b. If the president or his heirs were the beneficiaries of the policy, the premiums paid shall
be charged to employees benefit expense and no cash surrender value will be set up by
the company.

8.6 Solidbank
a. P10,000,000 x 0.3220 = P3,220,000
b. Interest Income in 2008 = 12% x P3,220,000 = P386,400
c. 1/1/08 Advances to Officers 3,220,000
Prepaid Compensation Expense 6,780,000
Cash 10,000,000
12/31/08 Advances to Officers 386,400
Interest Revenue 386,400

Compensation Expense 386,400

Prepaid Compensation Expense 386,400

12/31/09 Advances to Officers 432,768

Interest Revenue 432,768
(3,220,000 + 386,400) x 12% = 432,768

d. Amortized Cost at December 31, 2009 = 3220,000 + 386,400 + 432,768 =

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

4,039,168

8.7 Patriarch, Inc.

a 12/31/08 Machinery Group Held For Sale 1,400,000
Accumulated Depreciation – Machinery 1,200,000
Impairment Loss – Machinery 200,000
Machinery 2,200,000
Machinery Tools 380,000
Machinery Parts 220,000

b. 07/17/09 Cash (1,520,000 – 60,000) 1,460,000

Machinery Group Held For Sale 1,400,000
Gain on Sale of Machinery 60,000

8.8 (Invecargill Ltd.)

a. 08/01/08 Impairment Loss – Equipment 15,000
Loss from Decline in NRV of Inventory 5,000
Equipment 15,000
Inventory 5,000

b. Assets Held for Sale 350,000

Accumulated Depreciation 80,000
Impairment Loss 30,000
Plant 220,000
Equipment 145,000
Inventory 75,000
Goodwill 20,000

c. 02/01/09 Cash (380,000 – 30,000) 350,000

Assets Held For Sale 350,000

MULTIPLE CHOICE
MC1 C
MC2 C
MC3 A
MC4 B
MC5 B
MC6 C
MC7 C
MC8 C
MC9 B
MC10 A
MC11 B
MC12 A
MC13 B
MC14 D
MC15 B
MC16 A
MC17 A 110,000 – (115,000 – 80,000)
MC18 D 9,000,000 – 1,500,000 = 7,500,000 which is lower than carrying amount of
P8,000,000.
MC19 D (9,200,000 – 1,300,000) – 7,500,000 = 400,000

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Chapter 8 – Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

MC20 C 2,000,000 x 0.7972 = 1,594,400

1,594,400 x 12% x 6/12 = 95,664; 1,594,400 + 95,664 = 1,690,064

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