CHAPTER 7 Problem 7-1 Requirement 1 a. Accounts receivable 200,000 Cash in bank 200,000 b. Cash in bank 250,000 Accounts payable 250,000 c. Cash in bank 100,000 Accounts payable 100,000 d. Accounts receivable 450,000 Cash 450,000 Requirement 2 Cash in bank per book 3,000,000 Customer check outstanding for 18 months ( 200,000) Undelivered check 250,000 Postdated check delivered 100,000 Collection on January 2017 recorded on December 31, 2016 cC 450,000) Adjusted cash in bank 2,700,000 Time deposit - 30 days 1,000,000 Petty cash fund —.20,000 Total cash and cash equivalent 3,220,000 Requirement 3 The money market placement of P2,000,000 due on June 30, 2017 should be separately shown as current asset. The sinking fund of P1,500,000 is presented as noncurrent asset. Problem 7-2 Requirement 1 a. Accounts receivable 150,000 Cash on hand 150,000b. Expenses Receivable from employee Petty cash fund 15,000 Requirement 2 Cash on hand Postdated check Adjusted cash on hand Petty cash fund Unreplenished petty cash expenses (10,000) Postdated employee check Adjusted petty cash Cash on hand Petty cash fund Security Bank current account PNB current account Bond sinking fund 2,500,000) Total cash and cash equivalents 6,885,000 Requirement 3 10,000 5,000 1,000,000 (150,000) 850,000 50,000 (3,000) 35,000 850,000 35,000 2,000,000 1,500,000 *The BSP 120-day treasury bill of P3,000,000 is separately shown as current asset. “The overdraft in BDO current account of P200,000 is shown as current liability. “The BPI Time deposit of P2,000,000 is shown as noncurrent investment because itis restricted for land acquisition. Problem 7-3 Requirement 1 a. Accounts receivable (100,000 + 150,000) Cash on hand b. Advances to employees Cash short or over Petty cash fund 15,000 . Cash in bank (200,000 + 300,000) Accounts payable Requirement 2 Cash on hand NSF customer check Postdated customer check 250,000 250,000 10,000 5,000 500,000 500,000 1,000,000 ( 100,000) (150,000)Adjusted on hand 750,000 Currency and coins Check drawn payable to petty cashier Adjusted petty cash Cash in bank Undelivered company check Postdated company check delivered 300,000 Adjusted cash in bank 4,500,000 Cash on hand Petty cash fund Cash in bank Saving deposit 2,000,000 Total cash Problem 7-4 Requirement 1 Cash on hand NSF customer check Postdated customer check Adjusted cash on hand Petty cash fund: Currency and coins Philippine Bank current account 5,000,000 Undelivered company check Postdated company check delivered 45,000 Adjusted balance Cash on hand Petty cash fund Philippine Bank current ity Bank current account No. | City Bank current account No. 2 Asia Bank saving deposit 250,000 Asia Bank time deposit Total cash and cash equivalent Requirement 2 1, Accounts receivable Cash on hand 50,000 ¢ 2,000 33,000 35,000 4,000,000 200,000 750,000 35,000 4,500,000 7,285,000 200,000 (35,000) (15,000) 150,000 5,000 25,000 5,070,000 150,000 5,000 5,070,000 4,000,000 100,000) -2,000,000 11,375,000 50,0002. Receivable from officer 2,000 Expenses 12,000 Cash short or over 1,000 Petty cash 15,000 3. Philippine Bank current 70,000 Accounts payable 70,000 4. City Bank current 100,000 Bank overdraft 100,000 Problem 7-5 Fluctuating Fund System Imprest Fund System 1. Petty cash fund 10,000 1. Petty cash fund 10,000 Cash in bank 10,000 Cash in bank 10,000 2. Postage 1,500 2. No entry Supplies 5,500 Transportation 1,200 Miscellaneous expense 800 Petty cash fund 9,000 3. Petty cash fund 14,000 3. Petty cash fund 5,000 Cash in bank 14,000 Postage 1,500 Supplies 5,500 Transportation 1,200 Miscellaneous expense 800 Cash in bank 14,000Problem 7-6 Fluctuating Fund System 1. Petty cash fund ‘10,000 Cash in bank 10,000 2. Postage 1,500 ‘Supplies 3,000 Petty cash fund 4,500 3. Transportation 1,000 Accounts payable 3,500 Petty cash fund 4,500 4, Petty cash fund 19,000 Cash in bank 19,000 Problem 7-7 Fluctuating Fund System May 2 Petty cash fund 10,000 Cash in bank 10,000 10,000 2 May Imprest Fund System Petty cash fund 10,000 Cash in bank No entry No entry Petty cash fund 10,000 Postage 1,500 Supplies 3,000 Transportation ‘1,000 Accounts payable 3,500 Cash in bank 19,000 Imprest Fund System 2 Petty cash fund 10,000 Cash in bank 10,00029 Postage 1,000 29 Postage 1,000 Supplies 3,000 Supplies 3,000 Transportation 2500 Transportation 2,500 Miscellaneous expense 1,500 Miscellaneous expense 1,500 Petty cash fund 8,000 Petty cash fund 8,000 Petty cash fund 8,000 Cash in bank 8,000 June 30 Supplies 2,000 June 30 Supplies 2,000 Accounts payable 1,000 Accounts payable 1,000 Transportation 1,000: Transportation 1,000 Petty cash fund 4,000 Petty cash fund 4,000 July 1 Petty cash fund 4,000 Supplies 2,000 Postage 1,000 Transportation 1,000 To reverse the adjustment made on June 30. 5,000, July 15 Supplies 1,500 3,500 Postage 500 1,500 Transportation 500 1,500 Miscellaneous expense 500 Miscellaneous expense ' 500 Petty cash fund 3,000 Cash in bank 12,000 Petty cash fund 12,000 Cash in bank 12,000 Problem 7-8 2016 Nov. 2 Petty cash fund 10,000 Cash in bank 10,000 30 Postage 2,000 Supplies 5,000 Petty cash fund 10,000 Cash in bank 17,000 Dec. 31 Postage 3,000 Supplies 4,000 Special deposit 2,000 Petty cash fund 9,000 2017 Jan. 1 Petty cash fund 9,000 Postage 3,000 Supplies 4,000 Special deposit 2,000 2 No entry31 Postage Supplies Accounts payable Cash short or over Cash in bank Problem 7:9 Requirement 1 2016 Dec. 1 Petty cash fund Cash in bank 20 Distribution costs Miscellaneous expenses Equipment Cash in bank 31 Receivable from employee Distribution costs Transportation Petty cash fund 2017 Jan. 1 Petty cash fund Receivable from employee 2,000 Distribution costs Transportation 15 Noentry 2017 Jan, 31 Distribution costs Administrative expenses Transportation Purchases Cash in bank Requirement 2 Petty cash Less: Petty cash expenses from December 21, 2016 to January 31, 2017: Distribution costs (1,500 + 500) Administrative expenses Transportation (500 + 1,000) Purchases Petty cash before replenishment Problem 7-10 Answer B Problem 7-11 Answer A 6,000 7,000 1 19,000 10,000 10,000 5,000 2,000 2,000 9,000 2,000 1,500 500 4,000 4,000 1,500 500 2,000 2,000 1,500 1,200 6,700 10,000 2,000 2,000 1,500 6,701Problem 7-12 Answer B Problem 7-13 Answer C Problem 7-14 Answer B Problem 7-15 Answer B Petty cash fund (50,000 - 10,000) Cash on hand (500,000 - 100,000) Cash in bank ~ current account Cash in bank - payroll account Time deposit Cash in sinking fund Total cash and cash equivalents 8,940,000 Problem 7-16 Answer A Petty cash fund Undeposited collections Cash in bank Total Problem 7-17 Answer C Checking account #101 Checking account #201 Time deposit account 250,000 90-day Treasury bill Total cash and cash equivalent Problem 7-18 Answer B Question 1 Answer B Checkbook balance Postdated customer check NSF check Undelivered company check Cash on hand Change fund Adjusted balance Question 2 Answer C Treasury bill Money market placement 3,000,000 Total cash equivalents 40,000 400,000 4,000,000 1,000,000 2,000,000 1,500,000 50,000 1,100,000 2,500,000 3,650,000 1,750,000 ( 100,000) 500,000 2,400,000 8,000,000 (2,000,000) ( 500,000) 1,500,000 2,440,000 2,500,000 5,500,000Problem 7-19 Answer B Problem 7-20 Answer C Problem 7-21 Answer B Problem 7-22 Answer C Cash on hand and in bank Saving deposit 1,000,000 Total Problem 7:23 Question 1 Answer A Question 2 Answer A Problem 7-24 Answer D Checking account at Second Bank Payroll account Value added tax account Foreign bank account 2,000,000 Traveler's check Petty cash fund Money order Total unrestricted cash Problem 7-25 Answer B Security bank Currency and coins Petty cash fund (50,000 - 10,000) Total Problem 7-26 Answer A Checkbook balance Customer check not included in checkbook balance 200,000 Undelivered check payable to supplier Adjusted cash in bank 4,600,000 Coins and currencies on hand Petty cash: Coins and currencies Replenishment check 48,000 5,000,000 6,000,000 5,500,000 500,000 400,000 300,000 20,000 1,000 8,900,000 3,155,000 00 300,000 5,000 43,000Total Problem 7-27 Answer D Problem 7-28 Answer C Coins and currency Accommodation check Total Problem 7-29 Answer C Coins and currency Replenishment check 4,000 Total Problem 7-30 Answer C Total petty cash Currency and coins Amount of replenishment 7,000 Problem 7-31 NOV aWNo oNUeeEag 8 aA 10. D Problem 8-1 Balance per book Add: CM for note collected Total Less: DM for service charge Problem 7-32 NA PPh = >PONBA>O 4,948,000 22,000 15,000 37,000 2,000 Problem 7-33 woENONANnCO PLeNOvayy> 65,000 30,000 95,000 2,000Adjusted book balance Balance per bank Add: Deposit in transit Total Less: Outstanding checks: No. 102 105 107 Adjusted bank balance Adjusting entries: 1. Cash in bank Note receivable 2. Bank service charge Cash in bank Problem 8-2 Balance per book Add: CM for note collected Total Less: DM for service charge NSF check Book error (52,000 - 25,000) Adjusted book balance Balance per bank Add: Deposit in transit Erroneous bank debit 68,000 Total Less: Outstanding checks: No. 770 775 777 Adjusted bank balance Adjusting entries: 1. Cash in bank Bank service charge Note receivable 2. Bank service charge Accounts receivable Accounts payable Cash in bank 93,000 108,000 80,000 188,000 15,000 30,000 50,000 95,000 93,000 30,000 30,000 2,000 2,000 110,000 45,000 155,000 5,000 10,000 27,000 _ 42,000 113,000 135,000 60,000 8,000 203,000 20,000 30,000 40,000 —_90,000 113,000 45,000 5,000 50,000 5,000 10,000 27,000 42,000Problem 8-3 Balance per book Add: CM for note collected Total Less: DM for service charge Adjusted book balance Balance per bank Add: Deposit in transit Total Less: Outstanding checks: No. 116 122 124 125 Adjusted bank balance Adjusting entries 1. Cash in bank Bank service charge Note receivable 250,000 Interest income 30,000 2. Bank service charge Cash in bank 60,000 180,000 120,000 250,000 270,000 10,000 5,000 2,840,000 _ 270,000 3,110,000 —__5,000 3,105,000 3,265,000 —450.000 3,715,000 5,000Problem 8-4 Balance per book 5,000,000 Add: Note collected by bank 2,150,000 Total 7,150,000 Less: Bank service charge 50,000 NSF check 500,000 550,000 Adjusted book balance 6,600,000 Balance per bank 4,450,000 Deposit in transit 3,000,000 Total 7,450,000 Less: Outstanding checks _ 0,00 Adjusted bank balance 6,600,000 Adjusting entries 1, Cash in bank 2,150,000 Bank service charge 50,000 Note receivable 2,000,000 Interest income 200,000 2. Bank service charge 50,000 Accounts receivable 500,000 Cash in bank 550,000Problem 8-5 Book balance Add: Collection of note Interest on note Book error on check no. 175 Total Less: Bank service charge Payment for light and water NSF check Adjusted book balance Bank balance Add: Deposit in transit Total Less: Bank error Outstanding checks 2,750,000 Adjusted bank balance Adjusting entries 1. Cash in bank Note receivable 2,500,000 Interest income Accounts payable 2. Bank service charge Light and water Accounts receivable Cash in bank 1,405,000 2,500,000 150,000 45,000 2,695,000 4,100,000 5,000 245,000 220,000 470,000 3,630,000 5,630,000 —750,000 6,380,000 1,100,000 1,650,000 3,630,000 2,695,000 150,000 45,000 5,000 245,000 220,000 470,000Problem 8-6 a. Balance per book - April 30 Credit memo for note collected Outstanding checks: No. 1331 1332 1334 1335 Total Less: Bank service charge NSF check Undeposited collections Balance per bank - April 30 b. Adjusting entries 1. Cash in bank Note receivable 2. Bank service charge Accounts receivable Cash in bank 30,000 c. Balance per book - April 30 CM for note collected Bank service charge NSF check Adjusted cash in bank 1,130,000 Problem 8-7 a. Balance per bank Add: Undeposited collections NSF check DM for safety deposit Unrecorded check Total Less: Checks outstanding Overstatement of creditor’s check Understatement of customer's check Balance per book b. Adju: ing entries: 1, Cash in bank Accounts payable Accounts receivable 2. Accounts receivable Bank service charge Accounts payable Cash in bank 1,100,000 60,000 40,000 30,000 60,000 10,000 5,000 25,000 270,000 300,000 1,000,000 60,000 60,000 5,000 25,000 1,100,000 60,000 ¢ 5,000) (25,000) 3,500,000 550,000 50,000 5,000 125,000 730,000 4,230,000 650,000 270,000 180,000 1,100,000 3,130,000 450,000 270,000 180,000 50,000 5,000 125,000 180,000c. Balance per book 3,130,000 Overstatement of creditor's check 270,000 Understatement of customer's check = 180,000 Total 3,580,000 Less: NSF check 50,000 DM for safety box 5,000 Unrecorded check 125,000 180,000 Adjusted book balance 3,400,000 Problem 8-8 Balance per book 2,700,000 Add: Proceeds of bank loan 940,000 Note collected by bank 435,000 —_1,375,000 Total 4,075,000 Less: Service charge 10,000 Customer's check charged back 50,000 -60,000 Adjusted book balance 4,015,000 Balance per bank 4,000,000 Add: Deposit in transit 475,000 Incorrect deposit 90,000 Erroneous bank charge 150,000 Erroneous debit memo 200,000 =__915,000 Total 4,915,000 Less: Outstanding checks 600,000 Erroneous bank credit 300,000 900,000 Adjusted bank balance 4,015,000Adjusting entries: 1. Cash in bank Bank service charge Interest expense (60,000 x 1/6) Prepaid interest expense Loan payable (940,000/94%) Note receivable 400,000 Interest income 2. Bank service charge Accounts receivable Cash in bank Problem 8-9 Balance per book Add: Proceeds of bank loan Total Less: Understatement of check in payment of account (200,000 - 20,000) Petty cash fund 190,000 Adjusted book balance Balance per bank Add: Undeposited collections Erroneous bank charge Deposit omitted from bank statement 500,000 Total Less: Erroneous bank credit Outstanding checks 674,000 Adjusted bank balance Adjusting entry Cash in bank Interest expense (84,000 x 1/12) Prepaid interest expense Accounts payable Petty cash fund Supplies Transportation Postage Loan payable (516,000/86%) Problem 8-10 1,375,000 5,000 10,000 50,000 1,000,000 40,000 10,000 50,000 60,000 5,000,000 516,000 5,516,000 180,000 10,000 __ 5,326,000 5,500,000 300,000 50,000 150,000 _ 6,000,000 130,000 544,000 5,326,000 326,000 7,000 77,000 180,000 4,000 2,000 3,000 1,000 600,000Balance per book Add: Overstatement of check number 765 Check number 555 stopped for payment Total Less: Service charge NSF check Adjusted book balance Balance per bank Add: Undeposited collections 275,000 Total Less: Outstanding checks: Number 761 762 763 764 765 Adjusted bank balance Adjusting entries 1. Cash in bank Accounts payable Miscellaneous income 10,000 2. Bank service charge Accounts receivable Cash in bank 3. Receivable from cashier Accounts receivable Sales discounts 10,000 Problem 8-11 Balance per book Service charge 10,000) Debit memo for printed checks Proceeds of bank loan 570,000 Proceeds of customer's note 810,000 NSF check Adjusted book balance Balance per bank Outstanding checks Deposit in transit 500,000 Bank error in recording check 20,000 10,000 5,000 85,000 55,000 40,000 25,000 65,000 30,000 30,000 5,000 85,000 40,000 1,300,000 30,000 1,330,000 90,000 1,240,000 1,200,000 1,475,000 235,000 1,240,000 20,000 90,000 30,000 1,719,000 ( (12,000) (77,000) 000,000 3,195,000 ( 685,000) (90,000)Stolen check deducted by bank in error 80,000 Adjusted bank balance 1. Cash in bank Interest expense Loan payable Note receivable Interest income 10,000 2. Service charge (10,000 + 12,000) Accounts receivable Cash in bank Problem 8-12 Answer A Balance per bank Deposit in transit 325,000 Total Outstanding checks Adjusted bank balance Problem 8-13 Answer D Per bank statement Deposit in transit 520,000 Outstanding checks Bank error 40,000) Adjusted bank balance Problem 8-14 Answer A Balance per book Bank charges Customer note collected by bank 1,500,000 Interest on customer note 60,000 NSF customer check Depositor’s note charged to account (1,000,000) Adjusted book balance Problem 8-15 Answer B Balance per bank Add: Deposit in transit Total 3,000,000 1,380,000 30,000 600,000 800,000 22,000 77,000 99,000 1,805,000 2,130,000 (275,000) 1,855,000 3,800,000 ( 675,000) ( 3,605,000 4,000,000 (10,000) ( 250,000) 4,300,000 2,000,000 —200,000 2,200,000Less: Outstanding checks 400,000 Erroneous bank credit 300,000 700,000 Adjusted bank balance 1,500,000 The adjusted cash in bank can also be computed by starting with the balance per book. Balance per book 850,000 Add: Proceeds of note collected = 750,000 Total 1,600,000 Less: NSF checks (150,000 - 50,000) = 100,000 Adjusted book balance 1,500,000 Problem 8-16 Answer C Balance per book 8,500,000 Note collected by bank 950,000 Book error (200,000 - 20,000) ( 180,000) NSF check ( 250,000) Bank service charge Adjusted book balance Problem 8-17 Answer A Problem 8-18 Answer B Problem 8-19 Answer B February 28 book balance 1,460,000 Note collected by bank 100,000 Interest earned on note 10,000 NSF check (130,000) Bank service charges (2,000 + 3,000) ¢ 5,000) Adjusted book balance 1,435,000 Balance per bank statement (SQUEEZE) 1,532,000 Deposit in transit 85,000 Bank error - erroneous charge 20,000 Outstanding checks (202.000) Adjusted bank balance 1,435,000 The bank statement balance is “squeezed” by working back from the adjusted balance. Problem 8-20 Answer B Problem 8-21 Answer B Problem 8-22 Answer B Balance per bank 2,800,000transit Outstanding check Adjusted cash in bank 2,895,000 Cash on hand Total cash Problem 8-23 Question | Answer A Balance per book (SQUEEZE) 2,120,000 Add: Proceeds of bank loan Proceeds of note collected Total Less: Bank service charge DAIF check Adjusted book balance Question 2 Answer B Balance per bank (SQUEEZE) 3,070,000 Add: Deposit in transit Bank error (200,000 - 20,000) 630,000 Total Less: Outstanding checks (750,000 - 50,000) Adjusted bank balance Problem 8-24 Question | Answer A Book balance Note collected 1,900,000 Book error (1,930,000 ~ 1,390,000) NSF check Service charge 50,000) Adjusted book balance Bank balance Deposit in transit 1,450,000 Checks outstanding (770,000 - 70,000) 700,000) 500,000 435,000 5,000 50,000 450,000 (_100,000) 935,000 3,055,000 55,000 3,000,000 180,000 3,700,000 200,000 3,000,000 19,000,000 (540,000) (760,000) C— 19,550,000 18,800,000Adjusted bank balance Question 2 Answer A 1. Cash in bank Note receivable Interest income 2. Accounts payable Accounts receivable Service charge Cash in bank Problem 8-25 Question | Answer A Balance per bank statement Deposit in transit 1,200,000 Outstanding checks (1,500,000 - 200,000) Bank error 150,000) Adjusted bank balance Question 2 Answer A Balance per ledger (SQUEEZE) Note collected by bank Service charge 20,000) NSF checks Book error Question 3 Answer A Cash in bank Currency and coins on hand Petty cash fund Total cash Problem 8-26 NOVEwNE Pannep>og 1,900,000 540,000 760,000 50,000 1,700,000 200,000 1,350,000 8,000,000 (1,300,000) Cc 2,750,000 7,070,000 1,100,000 ¢ ( 500,000) 2,750,000 7,750,000 900,000 50,000 8,700,000See ome CHAPTER 9 Problem 9-1 Bank reconciliation - June 30 Book balance Add: Credit memo for note collected 300,000 Total Less: NSF check 100,000 Service charge 4,000 Adjusted book balance Bank balance Add: Deposit in transit Total Less: Outstanding checks 854,000 Adjusted bank balance Bank reconciliation ~ july 31 Book balance Add: Credit memo for bank loan 500,000 Total Less: Service charge Adjusted book balance Bank balance Add: Deposit in transit Total Less: Outstanding checks 1,851,000 Adjusted bank balance 1,000,000 1,300,000 104,000 1,196,000 1,650,000 — 400,000 2,050,000 1,196,000 1,400,000 1,900,000 1,000 1,899,000Adjusting entries, July 31 1. Cash in bank 500,000 Bank loan payable 500,000 2. Bank service charge 1,000 Cash in bank 1,000 Computation of deposit in transit - July 31 Deposit in transit - June 30 400,000 Add; Deposits during July: Book debits 4,000,000 Less: June credit memo for note collected 300,000 3,700,000 Total 4,100,000 Less: Deposits credited by bank during July: Bank credits 3,500,000 Less: July credit memo for bank loan 500,000 3,000,000 Deposit in transit ~ July 31 1,100,000 Computation of outstanding checks - July 31 Outstanding checks, June 30 854,000 Add: Checks drawn by company during July: Book credits 3,600,000 Less: June debit memos for NSF check 100,000 Service charge 4,000 104,000 3,496,000 Total 4,350,000 Less: Checks paid by bank during July: Bank debits 2,500,000 Less: July service charge 1,000 2,499,000 Outstanding checks, July 31 1,851,000 Problem 9:2 Reconciliation - October 31 Adjusted book balance 600,000 Bank balance 400,000 Add: Deposit in transit 300,000 Total 700,000 Less: Outstanding checks 100,000 Adjusted bank balance 600,000 Reconciliation - November 30Book balance 1,000,000 Add: Understatement of collection from customer 90,000 Total 1,090,000 Less: Understatement of check disbursement 270,000 Adjusted book balance 820,000 Bank balance 930,000 Add: Deposit in transit 190,000 Check of Susan Company charged in error 200,000 390,000 Total 1,320,000 Less: Outstanding checks 400,000 Deposit of Susan Company erroneously credited 100,000 500,000 Adjusted bank balance 820,000 Adjusting entries - November 30 1. Cash in bank 90,000 Accounts receivable 90,000 2. Accounts payable 270,000 Cash in bank 270,000 Computation of outstanding checks - October 31 Outstanding checks - October 31 (SQUEEZE) 100,000 Add: Checks issued by depositor: Book disbursements 1,800,000 Understatement of check paid 270,000 2,070,000 Total 2,170,000 Less: Checks paid by bank: Bank disbursements 1,970,000 Check of Susan Company charged in error (200,000) 1,770,000 Outstanding checks - November 30 400,000 Computation of deposit in transit - November 30 Deposit in transit - October 31 300,000 Add: Cash receipts deposited during November: Book receipts 2,200,000 Understatement of collection from customer 90,000 2,290,000 Total 2,590,000 Less: Deposits credited by bank during November: Bank receipts 2,500,000 Deposit of Susan Company erroneously credited (_100,000) 2,400,000 Deposit in transit - November 30 190,000Problem 9-3 a. Reconciliation on July 1 Adjusted book balance 1,270,000 Bank balance 1,720,000 Add: Deposit in transit _500,000 Total 2,220,000 Less: Outstanding checks _ 950,000 Adjusted bank balance 1,270,000 Reconciliation on July 31 Book balance 470,000 Add: Note collected by bank 1,500,000 Total 1,970,000 Less: Bank service charge _ 20,000 Adjusted book balance 1,950,000 Bank balance 2,700,000 Add: Deposit in transit 400,000 Total 3,100,000 Less: Outstanding checks: Check # 107 650,000 108 500,000 1,150,000 Adjusted bank balance 1,950,000 b. Adjusting entries on July 31 1. Cash in bank 1,500,000 Note receivable 1,500,000 2. Bank service charge 20,000 Cash in bank 20,000 Computation of deposit in transit - July 1 Deposit in transit - July 1 (SQUEEZE) 500,000 Cash receipts per book 3,400,000 Total Less: Deposits credited by bank 3,500,000 Deposit in transit - July 31 —400,000Computation of outstanding checks - July | Outstanding checks - July 1 (SQUEEZE) 950,000 Checks drawn by depositor 4,200,000 Total 5,150,000 Less: Checks paid by bank 4,000,000 Outstanding checks - July 31 1,150,000 Problem 9-4 Balance per book - November 30 500,000 Less: Service charge 10,000 NSF check 50,000 Customer's note erroneously recorded as cash receipt 100,00¢ 160,000 Adjusted book balance 340,000 Balance per bank - November 30 600,000 Add: Deposit in transit Total Less: Outstanding checks 380,000 Adjusted bank balance 340,000 Deposit in transit - October 31 45,000 Cash receipts deposited: Book debits 710,000 October collections recorded in November (45,000) Customer’s note recorded as cash receipt (00,000) 565,000 Total 610,000 Less: Deposits credited by bank: Bank credits 500,000 Correction of bank error (10,000) 490,000 Deposit in transit - November 30 120,000 Outstanding checks - October 31 125,000Checks issued by depositor: Book credits 1,200,000 October bank service charge ( 5,000) 1,195,000 Total 1,320,000 Checks paid by bank: Bank debits 1,000,000 November bank service charge (10,000) November NSF check 50,000) 940,000 Outstanding checks - November 30 = 380,000 Adjusting entry Bank service charge 10,000 Accounts receivable 50,000 Note receivable 100,000 Cash in bank 160,000 Problem 9-5 March 31 Receipts Disbursements April 30 Book balance 200,000 800,000 720,000 280,000 Note collected by bank March 60,000 _( 60,000) April 100,000 100,000 Service charge March (8,000) (8,000) April 2,000 (2,000) NSF check March ( 20,000) ( 20,000) April 30,000 ( 30,000) Deposit in transit March 31 ( 80,000) 80,000 April 30 (220,000) (220,000) Outstanding checks March 31 178,000 178,000 April 30 (372,000) 372,000 Bank balance 330,000 700,000 530,000 Adjusting entry Bank service charge 10,000 Accounts receivable 50,000 Note receivable 100,000 Cash in bank 160,000 Problem 9-6 July 31 Receipts Disbursements August 31Bank balance Book error on collection Book error on payment 540,000 Bank error on deposit Bank error on payment 400,000 NSF check: July August Note collected by bank: July ‘August Deposit in transit: July August Outstanding checks: July August Book balance Problem 9-7 Book balance Bank service charge November 30 December 31 4,000) Collection of note November 30 December 31 300,000) Adjusted book balance 2,856,000 Bank balance Outstanding checks November 30 December 31 592,000) Deposit in transit November 30 December 31 800,000 5,000,000 3,940,000 1,860,000 (180,000) (180,000) ( 540,000) ( 200,000) ( 200,000) (400,000) 100,000 100,000 (50,000) 50,000 ( 200,000) 200,000 ( 300,000) ( 300,000) 600,000 = (_ 600,000) 480,000 480,000 100,000) 650,000 3,600,000 ( 100,000) ( (650,000) 1,200,000 4,400,000 2,000,000 Nov.30 Receipts Disbursements Dec. 31 2,032,000 3,160,000 (2,000) ( 2,568,000 1,440,000 2,000) 4,000 ( 200,000 (300,000) ___ Cc 2,468,000 ( 200,000) 1,830,000 1,442,000 1,890,000 2,090,000 1,080,000 —2,900,000 ( 180,000) 592,000 ( ( 180,000) 80,000 ( 498,000 80,000) 498,000 Check erroneously charged by bank November 30 December 31 50,000 Adjusted bank balance Adjusting entry 40,000 ( 40,000) ($0,000) __ 1,830,000 2,468,000 1,442,000 -—2,856,000Bank service charge 4,000 Note receivable 300,000 Cash in bank 304,000 Problem 9:8 Sept.30 Receipts Disbursements Oct. 31 Book balance 1,900,000 1,400,000 2,400,000 900,000 NSF check: September 30 (60,000) (60,000) October 31 40,000 ( 40,000) Collection of accounts receivable September 30 30,000 ( 30,000) October 31 50,000 50,000 Overstatement of check September 30 90,000 ( 90,000) October 31 (120,000) 20,000 Adjusted balance 1,960,000 1,330,000 2:260,000 1,030,000 Bank balance 2,100,000 1,200,000 2,500,000 800,000 Deposit in transit September 30 130,000 ( 130,000) October 31 260,000 260,000 Outstanding checks September 30 ( 270,000) ( 270,000) October 31 30,000 ( 30,000) Adjusted balance 1,960,000 1,330,000 2,260,000 1,030,000 Adjusting entries on October 31 1. Accounts receivable 40,000 Cash in bank 40,000 2. Cash in bank 170,000 Accounts receivable 50,000 Salaries 120,000 Problem 9:9 May 31 Receipts Disbursements june 30 Balance per book 2,500,000 5,300,000 5,400,000 2,400,000 Bank service charge: May 31 (20,000) (20,000) June 30 25,000 ( 25,000) NSF check: June 30 200,000 (200,000) Interest collected: June 30 75,000 75,000 Book error: June 30 (_ 300,000) 300,000Adjusted balance 2,480,000 5,375,000 Balance per bank 2,700,000 5,500,000 Deposit in transit May 31 625,000 ( 625,000) June 30 500,000 Outstanding checks May 31 ( 845,000) June 30 Adjusted balance 2,480,000 5,375,000 Adjusting entries on June 30 1, Cash in bank Interest income Equipment 2. Bank service charge Accounts receivable Cash in bank Problem 9-10 Answer D Balance per ledger Service charges Collection of note 1,500,000 Book error 100,000) Unrecorded check for traveling expenses Adjusted book balance Balance per bank Deposit in transit 1,400,000 Total Outstanding checks (SQUEEZE) Adjusted bank balance 5,305,000 5,600,000 ( 845,000) 550,000 5,305,000 375,000 25,000 200,000 2,550,000 2,600,000 500,000 (550,000) 2,550,000 75,000 300,000 225,000 3,750,000 (50,000) (500,000) 4,600,000 6,200,000 7,600,000 3,000,000 4,600,000Problem 9-11 Answer C Outstanding checks - May 31 3,000,000 Checks issued by depositor in June: Total credits to cash in June Service charge in May recorded in June 8,900,000 Total Checks paid by bank in June: Checks and charges by bank in June Service charge in June NSF check in June Outstanding checks - June 30 Problem 9-12 Question 1 Answer B Outstanding checks - May 31 100,000 Checks recorded by book in June Total Less: Checks recorded by bank in June Outstanding checks - June 30 Question 2 Answer D Deposits outstanding - May 31 Deposits recorded by book in June Total Less: Deposits recorded by bank in June 1,600,000 Deposits outstanding - June 30 Question 3 Answer A Balance per book - June 30 Service charges Collection by bank NSF check Adjusted book balance Balance per bank - June 30 Deposits outstanding - June 30 Checks outstanding - June 30 400,000) Adjusted bank balance 9,000,000 (____100,000; 11,900,000 8,000,000 (50,000) (1,000,000) —_6,950,000 4,950,000 2,500,000 2,600,000 2,200,000 —400,000 300,000 1,800,000 2,100,000 500,000 2,100,000 (50,000) 550,000 (_100,000) 2,500,000 2,400,000 500,000 (cm 2,500,000Problem 9-13 Question 1 Answer B Checks outstanding - November 30 30,000 Checks recorded by book in December Total Checks recorded by bank in December Checks outstanding - December 31 Question 2 Answer A Deposits in transit - November 30 Deposits recorded by book - December 1,800,000 Total Deposits recorded by bank - December 620,000) Deposits in transit - December 31 Question 3 Answer B Balance per bank - December 31 1,830,000 Deposits in transit - December 31 Outstanding checks - December 31 90,000) Adjusted bank balance Balance per book Note collected by bank NSF check Adjusted book balance Problem 9-14 Question 1 - Answer D Balance per bank - November 30 3,600,000 December deposits Total December disbursements (4,400,000) Balance per bank - December 31 4,700,000 Deposit in transit - December Outstanding checks - December 500,000) Adjusted bank balance - December 31 300,000 2,100,000 480,000 480,000 ¢ 2,220,000 1,810,000 420,000 (10,000) 2,220,000 5,500,000 9,100,000 700,000 4,900,000Balance per book - December 31 (SQUEEZE) Note collected by bank NSF check Service charge 50,000) Adjusted book balance Question 2 - Answer B Bank receipts in December Noted collected Deposit in transit - November Deposit in transit - December Cash receipts per book in December 4,400,000 Question 3 - Answer C Bank disbursements in December NSF check Service charge 50,000) Outstanding checks - November (1,200,000) Erroneous bank credit in November 200,000) Outstanding checks - December 500,000 Book disbursements in December Problem 9-15 Question | Answer B Balance per bank - June 30 July bank deposits 9,000,000 July bank disbursements 7,000,000) Balance per bank - July 31 July deposit in transit 1,000,000 July outstanding checks Adjusted bank balance Balance per book - July 31 (SQUEEZE) Note collected by bank in July NSF check in July Service charge in July 10,000) Adjusted book balance 4,300,000 1,000,000 (350,000) ¢ 4,900,000 5,500,000 (1,000,000) ( 800,000) 700,000 4,400,000 (350,000) ¢ 3,100,000 3,000,000 5,000,000 (_ 600,000) 5,400,000 5,350,000 200,000 ( 140,000) i. 5,400,000 The balance per book on July 31 is “squeezed” by working back from the adjusted balance.Question 2 Answer A Deposit per bank statement for July 9,000,000 Note collected by bank in July Deposit in transit - June 30 Deposit in transit - July 31 Cash receipts per book for July Question 3 Answer A Disbursements per bank statement for July 7,000,000 NSF check in July Service charge in July 10,000) Outstanding checks - June 30 Outstanding checks - July 31 600,000 Cash disbursements per book for July Proof of the cash balance per book - July 31 Balance per book - June 30 Book receipts for July 9,400,000 Book disbursements for July (6,550,000) Balance per book - July 31 Problem 9-16 Question 1 Answer A Balance per bank - June 30 Bank deposits for July 6,500,000 Bank disbursements for July 0, r bank - July 31 Deposit in transit - July Outstanding checks Adjusted bank balance ( 200,000) ( 400,000) 1,000,000 9,400,000 ( 140,000) ¢ ( 900,000) 6,550,000 2,500,000 5,350,000 9,800,000 7,300,000 600,000 (4,000,000) 6,900,000The adjusted bank balance is also the cash balance per book because there are no book reconciling items. Question 2 Answer A Bank deposits for July 6,500,000 Deposit in transit - July 31 600,000 Deposit in transit - June 30 (400,000) ts per book for July 6,700,000 Question 3 Answer A Cash rec Bank disbursements for July 9,000,000 Outstanding checks - July 31 1,000,000 Outstanding checks - June 30 (1,400,000) Cash disbursements per book for July 8,600,000 Problem 9-17 Question 1 Answer A Balance per bank - March 31 4,650,000 Bank deposits for April 6,000,000 Bank disbursements for April (5,000,000) Balance per bank - April 30 5,650,000 Deposit in transit - April 30 1,500,000 Outstanding checks - April 30 (750,000) Adjusted bank balance 6,400,000 Question 2 Answer B Bank deposits for April 6,000,000 Deposit in transit ~ April 30 1,500,000 Deposit in transit - March 31 4,000,000) Cash receipts per book for April 6,500,000 Question 3 Answer C Bank disbursements for April 5,000,000 Outstanding checks - April 30 750,000 Outstanding checks - March 31 (4,250,000) Cash disbursements per book for April 4,500,000 The adjusted bank balance is also the cash balance per ledger because there are no book reconciling items.Problem 10-1 a. Accounts receivable 775,000 Notes receivable 100,000 Installments receivable 300,000 Advances to sup} 150,000 Advances to subsidiary 400,000 Claim receivable 15,000 Subscriptions receivable 300,000 Accrued interest receivable 10,000 Customer's credit balances 30,000 Advances from customers 20,000 Receivables 2,000,000 b, Accounts receivable 775,000 Allowance for doubtful accounts (50,000) Notes receivable 100,000 Installments receivable 300,000 Advances to suppliers 150,000 Claim receivable 15,000 Subscription receivable 300,000 Accrued interest receivable 10,000 Total trade and other receivables 1,600,000 c. The advances to subsidiary should be classified as noncurrent and presented as long-term investment.The class payables”. Problem 10-2 a. Accounts receivable - January 1 Charge sales Total Less: Collections from customers Writeoff Merchandise returns Allowances to customers Accounts receivable - December 31 b. Subscription receivable Deposit on contract Claim receivable Advances to employees Advances to affiliated Advances to supplier Accounts receivable © Accounts receivable Claim receivable Advances to employees Advances to supplier Total trade and other receivables stomers’ credit balances and advances from customers should be d as current liabilities and included as part of “trade and other 600,000 6,000,000 6,600,000 5,300,000 35,000 40,000 25,000 5.400,000 1,200,000 150,000 120,000 60,000 10,000 100,000 50,000 490,000 1,200,000 60,000 10,000 50,000 1,320,000d. The subscriptions receivable should be deducted from subscribed share capital. The deposit on contract should be classified as noncurrent and presented as other noncurrent asset. The advances to affiliates should be classified as noncurrent and presented as long-term investment. Problem 10-3 1. Accounts receivable 3,600,000 Sales 3,600,000 2. Notes receivable 400,000 Accounts receivable 400,000 3. Doubtful accounts 90,000 Allowance for doubtful accounts 90,000 4. Allowance for doubtful accounts 20,000 Accounts receivable 20,000 5. Sales return 15,000 Accounts receivable 15,000 6. Cash 2,450,000 Accounts receivable 2,450,000 7. Sales discount 45,000 Accounts receivable 45,000 8. Cash 150,000 Notes receivable 150,000 Accounts receivable 670,000 Less: Allowance for doubtful accounts 70,000 Net realizable value 600,000 Problem 10-4 FOB destination and freight collect 1, Accounts receivable 500,000 Freight out 10,000 Sales 500,000 Allowance for freight charge 10,000 2. Cash 475,000 Sales discount 15,000 Allowance for freight charge 10,000 Accounts receivable 500,000FOB destination and freight prepaid 1. Accounts receivable Freight out Sales Cash 2. Cash Sales discount Accounts receivable FOB shipping point and freight collect 1. Accounts receivable Sales 2. Cash Sales discount Accounts receivable FOB shipping point and freight prepaid 1. Accounts receivable Sales Cash 2. Cash Sales discount Accounts receivable Problem 10-5 1. Accounts receivable Sales 2. Cash Sales discount Accounts receivable 3. Cash Accounts receivable 4. Sales return Accounts receivable 100,000 5. Sales return Allowance for sales return 40,000 500,000 10,000 500,000 10,000 485,000 15,000 500,000 500,000 500,000 485,000 15,000 500,000 510,000 500,000 10,000 495,000 15,000 510,000 4,000,000 4,000,000 1,470,000 30,000 1,500,000 1,000,000 1,000,000 100,000 40,000Problem 10-6 Gross method Net method 1 Accounts receivable 49,000 Sales 49,000 2 Accounts receivable 196,000 sales 196,000 fash 196,000 Accounts receivable ‘ash 50,000 Accounts receivable Sales discount forfeited July 1 Accounts receivable 50,000 July sales 50,000 2 Accounts receivable 200,000 Sales 200,000 12 Cash 196,000 12 c: Sales discount 4,000 196,000 ‘Accounts receivable 200,000 30 Cash 50,000 30 C Accounts receivable 50,000 49,000 1,000 Problem 10-7 Accounts receivable - customers (7,800,000 + 400,000) 8,200,000 Allowance for doubtful accounts 200,000) Accounts receivable - officers Debit balances ~ creditors Total trade and other receivables 8,800,000 Problem 10-8 Answer A Accounts receivable Trade installments receivable (850,000 - 50,000) Accounts receivable from officers Accounts on which postdated checks are held Total trade accounts receivable 500,000 _300,000 3,500,000 800,000 150,000 200,000 4,650,000Problem 10-9 Answer A Trade accounts receivable Allowance for doubtful accounts. 100,000) Claim receivable Total trade and other receivables 2,200,000 Problem 10-10 Answer B Accounts receivable-January 1 Credit sales Collections from customers Sales return Accounts written off Accounts receivable-December 31 Allowance for doubtful accounts Allowance for sales return Net realizable value Problem 10-11 Answer A Accounts receivable - January 1 1,300,000 Add: Credit sales Total Less: Collection from customers Accounts written off 4,875,000 Accounts receivable - December 31 1,825,000 Problem 10-12 Answer C Accounts receivable (SQUEEZE) Allowance for doubtful accounts (900,000 - 200,000) Net realizable value Problem 10-13 Answer B Allowance - January 1 300,000 Doubtful accounts expense Recovery of accounts written off 100,000 Total Accounts written off Allowance - December 31 2,000,000 ( 300,000 1,300,000 5,500,000 (5,000,000) ( 150,000) (100,000) 1,550,000 ( 250,000) (50,000) 1,250,000 5,400,000 6,700,000 4,750,000 125,000 6,700,000 (700,000) 6,000,000 650,000 1,050,000 450,000 600,000Problem 10-14 Answer D Allowance - January | 280,000 Uncollectible accounts expense (SQUEEZE) 100,000 Recovery of accounts written off 50,000 Total 430,000 Accounts written off (230,000) Allowance - December 31 (2,700,000 - 2,500,000) 200,000 Problem 10-15 Answer A Allowance - December 31, 2016 180,000 Doubtful accounts expense 50.000 Total 230,000 Accounts written off (SQUEEZE) 30,000 Allowance - December 31, 2017 200,000 Problem 10-16 Answer B Only the bad debt expense decreases working capital. The writeoff does not affect anymore the working capital because the effect is offsetting. Problem 10-17 Answer A Allowance - 12/31/2016 (4,800,000 - 4,725,000) 75,000 Recovery of accounts written off 40,000 Doubtful accounts expense (SQUEEZE) 195,000 Total 310,000 Accounts written off (160,000) Allowance - 12/31/2017 (5,250,000 - 5,100,000) 150,000 Problem 10-18 Problem 10-19 Problem 10-20 Problem 10-21 1D we wc LA 2D 2A 2d. 2A 3.D 3.D 3 3A 4A 4c 4A 4.D 5.D 5. 5. 5. ¢ 6D 6c 7D 72D 8. 9A 10. €Problem 11-1 a. Credit sales (75% x 5,000,000) Doubtful accounts (2% x 3,750,000) 75,000 Doubtful accounts Allowance for doubtful accounts 75,000 b, Doubtful accounts (196 x 5,000,000) Allowance for doubtful accounts 50,000 & Required allowance Less: Credit balance of allowance 20,000 Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts 60,000 d. Required allowance (10% x 500,000) 50,000 Less: Credit balance of allowance 20,000 Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts 30,000 Problem 11-2 a, Required allowance (5% x 600,000) Add: Debit balance in allowance account 10,000 Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts 40,000 b. Required allowance ‘Add: Debit balance in allowance account 10,000 Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts 60,000 ¢, Doubtful accounts (2% x 1,900,000) 75,000 50,000 60,000 30,000 40,000 60,000 38,000 3,750,000 80,000 60,000 30,000 30,000 40,000 50,000Allowance for doubtful accounts 38,000 Problem 11-3 a. Doubtful accounts (3% x 8,000,000) Allowance for doubtful accounts 240,000 b. Doubtful accounts Allowance for doubtful accounts 170,000 Allowance - January 1 100,000 Doubtful accounts (SQUEEZE) 170,000 Recovery Total Accounts written off Allowance ~ December 31 (8% x 2,000,000) © Doubtful accounts Allowance for doubtful accounts 210,000 Allowance ~ January 1 100,000 Doubtful accounts (SQUEEZE) 210,000 Recovery Total Accounts written off Allowance - December 31 Problem 11-4 Requirement a 1. Accounts receivable Sales 2. Cash Sales discount Accounts receivable (2,450,000 / 98%) 3. Cash Accounts receivable 4, Allowance for doubtful accounts Accounts receivable 30,000 5. Accounts receivable 240,000 170,000 20,000 290,000 130,000 160,000 210,000 20,000 330,000 130,000 200,000 7,000,000 7,000,000 2,450,000 50,000 2,500,000 3,900,000 3,900,000 30,000 10,000Allowance for doubtful accounts 10,000 Cash 10,000 Accounts receivable 10,000 6. Sales return 70,000 ‘Accounts receivable 70,000 Requirement b Doubtful accounts 40,000 Allowance for doubtful accounts 40,000 Rate = 40,000/1,000,000 = 4% Allowance for doubtful accounts - December 31 (4% x 1,500,000) 60,000 Less: Allowance before adjustment 20,000 Doubtful accounts expense 40,000 Requirement ¢ Accounts receivable - December 31 1,500,000 Allowance for doubtful accounts ( 60,000) Net realizable value 1,440,000 Problem 11-5 Requirement a 1. Cash 800,000 Accounts receivable 7,200,000 Sales (800,000/10%) 8,000,000 2. Cash 684,000 Sales discount (5% x 720,000) 36,000 Accounts receivable (10% x 7,200,000) 720,000 3. Cash 5,940,000 Accounts receivable 5,940,000 4, Sales discount 10,000 Allowance for sales discount 10,000 5. Sales return 80,000 Accounts receivable 80,0006. Allowance for doubtful accounts 60,000 Accounts receivable 60,000 Accounts receivable 10,000 Allowance for doubtful accounts 10,000 Cash 10,000 Accounts receivable 10,000 7. Doubtful accounts 70,000 Allowance for doubtful accounts 70,000 Required allowance ~ December 31 (5% x 2,400,000) 120,000 Less: Allowance before adjustment 50,000 Doubtful accounts 70,000 Rate = 100,000/2,000,000 = 5% Requirement b Accounts receivable 2,400,000 Less: Allowance for doubtful accounts 120,000 Allowance for sales discount 10,000 _ 130,000 Net realizable value 2,270,000 Problem 11-6 Requirement a 1. Accounts receivable 2,600,000 Sales (3,070,000 - 470,000) 2,600,000 2. Cash (2,455,000 - 1,455,000) 1,000,000 Accounts receivable 1,000,000 3. Cash 1,455,000 Sales discount 45,000 Accounts receivable (1,455,000/97%) 1,500,000 4, Allowance for doubtful accounts 20,000 Accounts receivable 20,000 5. Cash 470,000 Sales 470,0006. Sales return and allowances Accounts receivable 55,000 7. Sales return and allowances Cash 8. Accounts receivable Allowance for doubtful accounts 5,000 Cash Accounts receivable Requirement b Doubtful accounts Allowance for doubtful accounts 50,000 Credit sales Less: Sales discount Sales return and allowances Net credit sales Doubtful accounts (2,500,000 x 2%) 50,000 Requirement c Accounts receivable Less: Allowance for doubtful accounts Net realizable value Problem 11-7 Requirement a 1. Accounts receivable Sales 2. Cash Sales discount Accounts receivable (4,410,000 x 98%) 3. Cash Sales discount Accounts receivable (2,475,000 / 99%) 4, Accounts receivable Allowance for doubtful accounts 15,000 Cash Accounts receivable 55,000 10,000 10,000 5,000 5,000 5,000 50,000 2,600,000 45,000 55,000 100,000 2,500,000 625,000 60,000 565,000 7,935,000 7,935,000 4,410,000 90,000 4,500,000 2,475,000 25,000 2,500,000 15,000 15,000 15,0005. Cash 1,100,000 Accounts receivable 1,100,000 (8,000,000 - 4,410,000 - 2,475,000 - 15,000) 6. Allowance for doubtful accounts 55,000 Accounts receivable 55,000 7. Sales return 30,000 Accounts receivable 30,000 Requirement b Rate (60,000 / 1,500,000) 4% Required allowance (4% x 1,250,000) 50,000 Allowance before adjustment (60,000 + 15,000 - 55,000) 20,000 Increase in allowance 30,000 Doubtful accounts 30,000 Allowance for doubtful accounts 30,000 Requirement c Accounts receivable - December 31 1,250,000 Allowance for doubtful accounts ( 50,000) Net realizable value 1,200,000Problem 11-8 Percent of Required Amount —__uncollectible allowance 1, Not yet due 1,700,000 : : 1 - 30 days past due 1,200,000 5% 60,000 31 - 60 days past due 100,000 25% 25,000 61 - 90 days past due 150,000 50% 75,000 ‘Over 90 days past due 1,200,000 100% 120,000 3,270,000 280,000. 2. Allowance - January 1 170,000 Recoveries 30,000 Doubtful accounts expense (SQUEEZE) 345,000 Total 545,000 Less: Writeoff (235,000 + 30,000) 265,000 Required allowance - December 31 280,000 63 3. Doubtful accounts expense 345,000Allowance for doubtful accounts 345,000 4, Accounts receivable Less: Allowance for doubtful accounts Net realizable value Problem 11-9 1. 1,000,000 x 1% 400,000 x 5% 300,000 x 10% 200,000 x 25% 60,000 x 100% 1,960,000 2. Allowance ~ January 1 90,000 Recoveries Doubtful accounts (SQUEEZE) Total Less: Writeoff (100,000 + 40,000) Allowance - December 31 170,000 3. Doubtful accounts Allowance for doubtful accounts 20,000 Correct amount Recorded (2% x 9,000,000) Understatement 20,000 3,270,000 280,000 2,990,000 10,000 20,000 30,000 50,000 60,000 120,000 20,000 200,000 310,000 140,000 200,000 180,000 20,0004, Accounts receivable - December 31 1,960,000 Less: Allowance for doubtful accounts 170,000 Net realizable value 1,790,000 Problem 11-10 2013 2014 2015 Total 1. Writeoff 26,000 29,000 30,000 -—85,000 Less: Recoveries 2,000 3,000 4,000 9,000 Net writeoff 24,000 26,000» .26,000 76,000 76,000 Percentage to be used in computing the allowance 3,800,000 2. Credit sales for 2016 3,000,000 Multiply by bad debt percentage 2% Provision for doubtful accounts 60,000 3. Accounts receivable - January 1, 2016 250,000 Add: Credit sales for 2016 3,000,000 Recoveries 5,000 3,005,000 Total 3,255,000 Less: Collections in 2016 2,615,000 Writeoff 40,000 2,655,000 Accounts receivable - December 31, 2016 600,000 64 4. Allowance for doubtful accounts - January 1 20,000 ‘Add: Doubtful accounts for 2016 60,000 Recoveries 5,000 65,000 Total 85,000 Less: Writeoff 40,000 Allowance for doubtful accounts - December 31 45,000 Problem 11-11 1. Accounts receivable - December 31, 2015 600,000 Add: Sales for 2016 5,000,000 Recovery of accounts written off 10,000 5,010,000 Total 5,610,000 Less: Collection from customers 4,360,000 Accounts written off 50,000 Accounts settled by issuance of note Accounts receivable - December 31, 2016 200,000 4,610,000 1,000,0002. Allowance for doubtful accounts - December 31, 2015 30,000 Add: Recovery of accounts written off 10,000 Total 40,000 Less: Accounts written off 50.000 Allowance before adjustment - December 31, 2016 (debit balance) (10,000) 3. Required allowance - December 31, 2016 On current accounts (700,000 x 5%) 35,000 On past due accounts (300,000 x 20%) 60,000 Total 95,000 4, Required allowance ~ December 31, 2016 95,000 Add: Debit balance before adjustment 10,000 Increase in allowance 105,000 5. Doubtful accounts 105,000 Allowance for doubtful accounts 105,000 Problem 11-12 170,000 - 10,000 258,000 - 20,000 Rate in 2015 = woo = OIG Rate in 2016 = = 017 10,000,000 14,000,000 1. Retained earnings (.016 x 1,250,000) 20,000 Allowance for doubtful accounts 20,000 2. Allowance - January 1, 2016 20,000 Recoveries - 2016 10,000 Doubtful accounts - 2016 (SQUEEZE) 92,000 Total 122,000 Less: Writeoff - 2016 88,000 Allowance - December 31, 2016 (.017 x 2,000,000) 34,000 3. Accounts receivable ~- December 31, 2016 2,000,000 Less: Allowance for doubtful accounts 34,000 Net realizable value 1,966,000Problem 11-13 1, Allowance - January 1, 2016 Doubtful accounts recorded (2% x 20,000,000) 400,000 Recovery Total Less: Writeoff (300,000 + 100,000) Allowance balance before adjustment 550,000 2. 5,000,000 x 5% 2,000,000 x 10% 1,000,000 x 25% 500,000 - 100,000 x 75% Required allowance ~ December 31, 2016 3. Doubtful accounts 450,000 Allowance for doubtful accounts (1,000,000 - 550,000) 450,000 Problem 11-14 1, Allowance - 1/1/2016 (1% x 2,800,000) 8,000 2. Allowance - 1/1/2016 Doubtful accounts recorded in 2016 (1% x 3,000,000) 00 «Recovery Allowance before adjustment - December 31, 2016 38,000 3. 300,000 x 176 80,000 x 5% 60,000 x 20% 25,000 x 80% Required allowance - 12/31/2016 500,000 50,000 950,000 400,000 250,000 200,000 250,000 300,000 1,000,000 28,000 65,000 3,000 4,000 12,000 20,000 32,0004. Doubtful accounts 1,000 Allowance for doubtful accounts (39,000 - 38,000) 1,000 Problem 11-15 Answer C Problem 11-16 Answer B 0 -60 days (1,200,000 x 1%) 61 - 120 days (900,000 x 2%) Over 120 days (1,000,000 x 6%) 60,000 Allowance - December 31, 2016 90,000 Allowance -January 1, 2016 60,000 Uncollectible accounts expense (SQUEEZE) 80,000 Recovery Total Accounts written off Allowance - December 31, 2016 90,000 Problem 11-17 Answer D Allowance for sales discount (5,000,000 x 2% x 50%) Problem 11-18 Answer A Problem 11-19 Answer B Doubtful accounts expense (3% x 3,000,000 + 10,000) 100,000 Problem 11-20 Answer A Doubtful accounts expense (2% x 7,000,000) Problem 11-21 Answer D Allowance - January | 200,000 Doubtful accounts expense (5% x 8,000,000) Recovery of accounts written off 50.000 Total Accounts written off Allowance - December 31 550,000 Problem 11-22 Answer D 12,000 18,000 20,000 160,000 (20,000) 140,000 400,000 650,000 (100,000)Allowance - January 1 250,000 Doubtful accounts expense (SQUEEZE) Total Accounts written off 205,000 Allowance - December 31 220,000 Problem 11-23 Answer B Accounts receivable Allowance for doubtful accounts (5% x 2,000,000) 100,000) Net realizable value Problem 11-24 Answer A Allowance for bad debts - 12/31/2015 60,000 Bad debts expense for 2016 (2% x 3,500,000) Total Allowance for bad debts - 12/31/2016 80,000 Accounts written off in 2016 50,000 Problem 11-25 Question | Answer A Purchases Ending inventory Cost of sales Question 2 Answer A Sales (3,750,000 x 140%) Credit sales (5,250,000 x 80%) Collections (3,000,000) Accounts written off Accounts receivable - December 31 175,000 Question 3 Answer B Provision for doubtful accounts (4,200,000 x 5%) Accounts written off Allowance for doubtful accounts - December 31 185,000 175,000 425,000 2,000,000 ( 4,500,000 (_750,000) 3,750,000 5,250,000 4,200,000 (25,000) 210,000 (25,000)Problem 11-26 Question | Answer A Accounts receivable - 12/31/2015 Credit sales (5,900,000 - 2,100,000) 3,800,000 Total Cash received from credit customers (3,024,000) Sales discounts (3,024,000 / 96% = 3,150,000 - 3,024,000) Accounts receivable written off Sales returns and allowances 250,000) Accounts receivable - 12/31/2016 Question 2 Answer B Credit sales Sales discounts Sales returns and allowances 250,000) Net credit sales Allowance for bad debts - 12/31/2015, 90,000 Recovery of accounts written off 80,000 Bad debt expense for 2016 (2% x 3,484,000) Total Accounts written off Allowance for bad debts - 12/31/2016 188,480 Problem 11-27 Question | Answer B Allowance - January 1 1,000,000 Recoveries 50,000 Writeoff (200,000 + 100,000) 01 Allowance - December 31 before adjustment Question 2 Answer A 0 - 60 days (6,000,000 x 10%) 61 - 180 days (2,000,000 x 20%) 181 - 360 days (1,500,000 x 30%) 950,000 4,750,000 ( 126,000) (50,000) ( 1,300,000 3,800,000 ( 126,000) ( 3,424,000 68,480 238,480 (50,000) ( 750,000 600,000 400,000 450,000Over 360 days (500,000 - 100,000 x 50%) Required allowance - 12/31/2016 Question 3 Answer C Allowance - 1/1/2016 Recoveries 50,000 Doubtful accounts expense (SQUEEZE) Total Writeoff (200,000 + 100,000) 300,000) Required allowance - 12/31/2016 Question 4 Answer D Doubtful accounts expense Recorded amount (2% x 20,000,000) 400,000 Year-end adjustment to the allowance account 500,000 Question 5 Answer B Accounts receivable - December 31, 2016 Allowance for doubtful accounts (1,650,000) Net realizable value 200,000 1,650,000 1,000,000 200,000 1,450,000 ( 1,650,000 900,000 9,900,000 8,250,000Problem 11-28 Answer C Chicken House Landmark Hotel Other accounts receivable (5% x 9,500,000) 475,000 Total impairment loss 3,975,000 Problem 11-29 Answer A Trisha Company Francis Company Other accounts receivable (4% x 8,500,000) 340,000 Total pairment loss 1,840,000 Problem 11-30 Problem 11-31 awNe o>>o PENAnewne eNe>>owoR CHAPTER 12 Problem 12-1 2016 Jan. 1 Cash Notes receivable Land Gain on sale of land Dec. 31 Accrued interest receivable Interest income (12% x 6,000,000) 2017 Dec. 31 Accrued interest receivable Interest income (12% x 6,720,000) 2018 Jan. 1 Cash Notes receivable 6,000,000 Accrued interest receivable 1,526,400 1,500,000 2,000,000 500,000 1,000,000 1,000,000 6,000,000 5,000,000 2,000,000 720,000 720,000 806,400 806,400 7,526,400Problem 12-2 1 Notes receivable 600,000 Sales Unearned interest income Jan. 540,000 60,000 Dec. 31 Cash 200,000 Notes receivable 200,000 31 Unearned interest income 30,000 Interest income 30,000 Year Notes receivable Fraction Interest income 2016 600,000 6/12 30,000 2017 400,000 4/\2 20,000 2018 200,000 2/i2 10,000 1,200,000 60,000 Problem 12-3 Face value 900,000 Present value (300,000 x 2.4018) 720,540 Unearned interest income 179,460 Present value 720,540 Cash received 100,000 Sales price 820,540 Cost of generator 700,000 Gross income 20,540 Jan. 1 Cash 100,000 Notes receivable 900,000 Sales 820,540 Unearned interest income 179,460 70 Dec. 31 Cash 300,000 Notes receivable 300,000 31 Unearned interest income 86,465 Interest income 86,465 Date Collection Interest’ Principal Present value Jan. 1, 2016 720,540 Dec. 31, 2016 300,000 = 86,465 213,535 507,005 Dec. 31, 2017 300,000 —-60,841-—-239,159 267,846 Dec. 31, 2018 300,000 32,154 267,846 :~Propiem 12-4 Requirement 1 12/31/2016 Note receivable 2,500,000 Sales (500,000 x 3.99) 1,995,000 Unearned interest income 505,000 12/31/2017 Cash 500,000 Note receivable 500,000 Unearned interest income 159,600 Interest income (8% x 1,995,000) 159,600 Requirement 2 Note receivable (2,500,000 - 500,000) 2,000,000 Unearned interest income (505,000 - 159,600) « 345,400) Carrying amount - 12/31/2017 1,654,600 Requirement 3 Interest income for 2018 (8% x 1,654,600) 132,368 Problem 12-5 Face value of note 400,000 Present value (400,000 x 7118) 284,720 Unearned interest income 115,280 Present value 284,720Cash received Sales price 409,720 Carrying amount Gain on sale 2016 Jan. 1 Cash Notes receivable Accumulated depreciation Equipment Gain on sale of equipment 59,720 Unearned interest income Dec. 31 Unearned interest income Interest income Date Interest income Jan. 1, 2016 Dec. 31, 2016 34,166 Dec. 31,2017 38,266 Dec. 31,2018 42,848 2017 Dec. 31 Unearned interest income Interest income 38,266 125,000 350,000 59,720 125,000 400,000 150,000 500,000 115,280 34,166 34,166 71 Present value 284,720 318,886 357,152 400,000 Unearned interest 115,280 81,114 42,848 38,2662018 Dec. 31 Unearned interest income 42,848 Interest income 42,848 2019 Jan. 1 Cash 400,000 Notes receivable 400,000 Problem 12-6 1._ Note receivable from sale of building due 5/1/2017 2,500,000 Accrued interest on note receivable from sale of building from 5/1/2016 to 12/31/2016 (5,000,000 x 9% x 8/12) 300,000 Principal payment of note receivable from sale of land due on 7/1/2017: Annual instaliment 880,000 Interest from 7/1/2016 to 7/1/2017 (10% x 2,800,000) 280,000 600,000 Accrued interest on NR from sale of land from 7/1/2016 to 12/31/2016 (1/2 x 280,000) 140,000 Total current receivables - 12/31/2016 3,540,000 2._ NR from sale of building due 5/1/2018 2,500,000 NR from officer 2,000,000 NR from sale of land - noncurrent portion:Principal 2,800,000 Due 7/1/2017 (600,000) 2,200,000 Total noncurrent notes receivable - 12/31/2016 6,200,000 Problem 12-7 Answer B Note receivable - june 30, 2015 1,500,000 Less: Payment on July 1, 2016 500,000 Balance - July 1, 2016 1,000,000 Accrued interest from July 1, 2016 to June 30, 2017 (1,000,000 x 8%) 80,000 Problem 12-8 Answer B Interest income from July to December 2016 (10% x 5,000,000 x 6/12 250,000 Problem 12-9 Answer A (2,500,000 - 2,300,000) 200,000 Problem 12-10 Answer B Note receivable 1,700,000 Present value equal to cash price (1,600,000 x 90%) 1,440,000 Interest revenue _260,000Problem 12-11 Answer C November 2016 (500,000 x 1%) 5,000 December 2016 (500,000 x 1%) 5,000 Accrued interest receivable 10,000 Problem 12-12 Answer B Total payments (500,900 x 5) 2,504,500 Present value of note 1,948,500 Total interest revenue 556,000 Problem 12-13 Answer A First payment on January 1, 2016 600,000 Present value of remaining six payments (600,000 x 4.36) 2,616,000 Correct sales revenue 3,216,000 Problem 12-14 Answer C The note receivable is shown at the present value on December 31, 2016. Face value - remaining nine payments (500,000 x 9) 4,500,000 Present value (500,000 x 6.25) 3,125,000Unearned interest income 1,375,000 Problem 12-15 Question 1 Answer A NR from Zeta Question 2 Answer B NR from Yola (1,150,000 x .68) Problem 12-16 Question 1 Answer B Present value of NR (500,000 x 3.99) 1,995, Question 2 Answer C Interest income for 2017 (8% x 1,995,000) Question 3 Answer A NR - 12/31/2017 (2,500,000 ~ 500,000) Unearned interest income - 12/31/2017 (505,000 - 159,600) 345,400) Carrying amount - 12/31/2017 Question 4 Answer A Interest income for 2018 (8% x 1,654,600) Problem 12-17 Question 1 Answer Question 2 Answer Question 3 Answer owno Question 4 Answer Problem 12-18 Question 1 Answer C (2,712,000 - 2,200,000) Question 2 Answer B Note receivable - December 31, 2016 Present value (1,200,000 x 1.76) 2,112,000 Unearned interest income 288,000 1,000,000 782,000 159,600 2,000,000 ( 1,654,600 32.368 2,825,000 825,000 339,000 2,664,000 512,000 2,400,000Interest income for 2017 (9% x 2,112,000) 190,080 Question 3 Answer B Note receivable - December 31, 2017 1,200,000 Unearned interest income - 12/31/2017 (288,000 - 190,080) « 97,920) Carrying amount ~ December 31, 2017 1,102,080 Problem 12-19 Answer D Note receivable 4,000,000 Less: Present value (4,000,000 x .75) 3,000,000 Unearned interest income 1,000,000 The unearned interest income is amortized 3 years using the effective interes! method as follows: Present value, January 1, 2016 3,000,000 Interest income for 2016 (10% x 3,000,000) 300,000 Present value, December 31, 2016 3,300,000 Interest income for 2016 (10% x 3,300,000) 330,000 Present value, December 31, 2017 3,630,000 Interest income for 2018 (1,000,000 - 630,000) 320,000 Present value, December 31, 2018 4,000,000 Interest income for 2016 300,000 Interest income for 2017 330,000 Interest income for 2018 (simply the remainder) 370,000 Total interest income 1,000,000 Problem 12-20 1. Answer © Note receivable 6,000,000 Present value of note receivable (6,000,000 x .75) 4,500,000 Unearned interest income 1,500,000 Interest income: 2016 (10% x 4,500,000) 450,000 2017 (10% x 4,950,000) 495,000 2018 (1,500,000 - 450,000 - 495,000) 555,000 Total 1,500,0002. Answer D Present value of note receivable 4,500,000 Carrying amount of equipment 4,800,000 Loss on sale of equipment (300,000) Problem 12-21 Question 1 Answer D Present value of note receivable (1,000,000 x .712) 712,000 Carrying amount of equipment 800,000 Loss on sale (88,000) Question 2 Answer D Interest income for first year (12% x 712,000) 85,440 Question 3 Answer C Note receivable 1,000,000 Unearned interest income (288,000 - 85,440) (202,560) Carrying amount - December 31, 2016 797,440 Question 4 Answer A Interest income for 2017 (12% x 797,440) 95,693 Problem 12-22 Answer C Installment receivable - 1/1/2016 758,200 Payment on December 31, 2016 200,000 Interest for 2016 (10% x 758,200) 75,820 124,180 Carrying amount ~ 12/31/2016 634,020 Interest income for 2017 (10% x 634,020) 63,402 Problem 12-23 Answer B Note receivable - January 1, 2016 6,000,000 Principal payment on December 31, 2016: Annual payment 1,975,400 Interest (12% x 6,000,000) 720,000) 1,255,400 Carrying amount - December 31, 2016 4,744,600 Problem 12-24 Answer B Present value of note receivable (4,000,000 x .71) 2,840,000 Carrying amount of building 2,200,000 Gain on sale _640,000Problem 12-25 e 1,200,000 3,330,000 4,772,960 1,442,960 1,470,000 2,646,000 4,000,000 211,680 86 5,000,000 450,000 5,450,000 (4.207.400) 1,242,600CHAPTER 14 Problem 14-1 March | Cash Note payable - bank April 1 Cash Sales discount Accounts receivable 1,000,000 June 1 Cash Accounts receivable 2,000,000 Sept. 1 Note payable - bank Interest expense (12% x 2,000,000 x 6/12) Cash Problem 14-2 Requirement 1 2016 Oct. 1 Cash Discount on note payable (10% x 4,000,000) Note payable - bank 1 Interest expense (400,000 x 3/12) Discount on note payable 2017 Oct. 1 Note payable - bank Cash Dec. 31 Interest expense Discount on note payable Requirement 2 Current liabilities: Note payable - bank (Note 3) 4,000,000 Discount on note payable Carrying amount 3,200,000 Note 3 - Note payable - bank 2,000,000 2,000,000 980,000 20,000 2,000,000 2,000,000 120,000 2,120,000 3,600,000 400,000 4,000,000 100,000 100,000 4,000,000 4,000,000 300,000 300,000 (300,000) Accounts of P5,000,000 are pledged to secure the bank loan of P4,000,000.Problem 14-3 May 1 Accounts receivable - assigned Accounts receivable 800,000 1 Cash (640,000 - 20,000) Service charge Note payable - bank 5 Sales return Accounts receivable - assigned 30,000 May 10 Cash Sales discount (2% x 500,000) Accounts receivable - assigned 500,000 June 1 Note payable - bank Interest expense (2% x 640,000) Cash 7 Allowance for doubtful accounts Accounts receivable - assigned 10,000 800,000 620,000 20,000 640,000 30,000 88 490,000 10,000 490,000 12,800 502,800 10,00020 Cash Accounts receivable - assigned 200,000 July 1 Note payable - bank (640,000 - 490,000) Interest expense (2% x 150,000) Cash 1 Accounts receivable Accounts receivable - assigned 60,000 Accounts receivable - assigned 800,000 Less: Collections Sales discount Sales return Worthless accounts Balance Problem 14-4 July 1 Accounts receivable - assigned Accounts receivable 1,500,000 1 Cash (1,125,000 - 60,000) Service charge (4% x 1,500,000) Note payable ~ bank Aug. 1 Note payable - bank Accounts receivable - assigned 800,000 1 Interest expense (2% x 1,125,000) Cash Sept. 1 Cash Interest expense Note payable - bank Accounts receivable - assigned 500,000 Accounts receivable Accounts receivable - assigned 200,000 Collections by bank 500,000 Less: Payment of loan (1,125,000 - 800,000) 325,000 Excess collection Less: Interest (2% x 325,000) Cash remittance from bank 200,000 150,000 3,000 153,000 60,000 690,000 10,000 30,000 10,000 1,500,000 1,065,000 60,000 1,125,000 800,000 22,500 22,500 168,500 6,500 325,000 200,000 175,000 6,500 168,500Problem 14-5 July 1 Accounts receivable - assigned Accounts receivable 500,000 1 Cash (400,000 - 10,000) Service charge (2% x 500,000) Note payable - bank 400,000 Aug. 1 Cash Accounts receivable - assigned 330,000 1 Interest expense (1% x 400,000) Note payable - bank Cash Sept. 1 Cash Accounts receivable ~ assigned 170,000 1 Interest expense (1% x 74,000) Note payable - bank Cash 500,000 390,000 10,000 330,000 4,000 326,000 330,000 170,000 740 74,000 74,740Problem 14-6 Requirement a Dec. 1 Accounts receivable - assigned 1,500,000 ‘Accounts receivable 1,500,000 1 Cash 1,250,000 Service charge 50,000 Note payable - bank 1,300,000 31 Cash 970,000 Sales discount 30,000 Accounts receivable - assigned 1,000,000 31 Interest expense (1% x 1,300,000) 13,000 Note payable - bank 957,000 Cash 970,000 Requirement b The accounts receivable - assigned with a balance of P500,000 should be classified as current asset and included in trade and other receivables. The note payable - bank of P343,000 should be classified and presented as a current liability. The company should disclose the equity in assigned accounts as follows:Accounts receivable - assigned Note payable - bank Equity in assigned accounts Problem 14-7 July 1 Accounts receivable - assigned Accounts receivable 800,000 1 Cash (640,00 0 - 24,000) Service charge (3% x 800,000) Note payable ~ bank 640,000 Aug. 1 Interest expense (1% x 640,000) Note payable - bank Accounts receivable - assigned 420,000 Sept.1 Cash Interest expense Note payable - bank Accounts receivable - assigned 320,000 Accounts receivable Accounts receivable - assigned 60,000 500,000 (343,000) 157,000 90 800,000 616,000 24,000 6,400 413,600 91,336 2,264 226,400 60,000Bank loan 640,000 August I payment 413,600 Balance 226,400 Collections by bank 320,000 Less: Payment of loan 226,400 Interest (1% x 226,400) 2264 228,664 Remittance from bank 91,336 Problem 14-8 Cash 400,000 Allowance for doubtful accounts 30,000 Loss on factoring 70,000 Accounts receivable 500,000 Problem 14-9 Cash 5,000,000 Receivable from factor 300,000 Allowance for bad debts 250,000 Loss on factoring 450,000 Accounts receivable 6,000,000Problem 14-10 1. Cash Allowance for doubtful accounts Receivable from factor Loss on factoring Accounts receivable AR factored Factor's holdback (10% x 6,000,000) 600,000) Commission (15% x 6,000,000) Cash received AR Commission Net sales price 5,100,000 Carrying amount of AR (6,000,000 - 200,000) Loss on factoring 2. Cash Receivable from factor Problem 14-11 Feb. 1 Cash Service charge (5% x 800,000) Receivable from factor (10% x 800,000) Accounts receivable 800,000 4,500,000 200,000 600,000 700,000 6,000,000 6,000,000 ( (900.000) 4,500,000 91 6,000,000 (900,000) 5,800,000 (700,000) 600,000 600,000 680,000 40,000 80,00015. Sales return and allowances Receivable from factor 28 Cash (80,000 - 20,000) Receivable from factor Problem 14-12 June 1 Accounts receivable Sales 3 Cash Sales discount (2% x 500,000) Commission (5% x 500,000) Receivable from factor (25% x 500,000) Accounts receivable 500,000 9 Sales return and allowances Sales discount (2% x 50,000) Receivable from factor 11 No entry 15. Cash (125,000 - 49,000) Receivable from factor Problem 14-13 July 26 Cash Commission (5% x 1,000,000) Receivable from factor (20% x 1,000,000) Accounts receivable 1,000,000 July 28 Sales return and allowances Receivable from factor Aug. 31 Cash Receivable from factor 20,000 60,000 500,000 340,000 10,000 25,000 125,000 50,000 76,000 750,000 50,000 200,000 50,000 150,000 20,000 60,000 500,000 1,000 49,000 76,000 50,000 150,000Problem 14-15 1. Cash 150,000 Service charge (5% x 200,000) 10,000 Receivable from factor (20% x 200,000) 40,000 ‘Accounts receivable 200,000 2. Accounts receivable - assigned 300,000 Accounts receivable 300,000 Cash 225,000 Service charge (5% x 300,000) 15,000 Note payable - bank 240,000 3. Doubtful accounts 35,000 Allowance for doubtful accounts 35,000 Required allowance (5% x 1,300,000) 65,000 Less: Allowance - January 1 30,000 Doubtful accounts 35,000 4, The net realizable value of the accounts receivable is included in trade and other receivables and presented as current asset. Accounts receivable - unassigned 1,000,000 Accounts receivable - assigned 300,000 Total 1,300,000 Less: Allowance for doubtful accounts 65,000 Net realizable value 1,235,000 The receivable from factor of P40,000 is also included in trade and other receivables. The note payable ~ bank of P240,000 is classified and presented as current liability. However, the company should disclose the equity in assignedaccounts as_ follows: Accounts receivable - assigned Note payable - bank Equity in assigned accounts Problem 14-15 Books of Motorway Company 1. Cash Receivable from factor Allowance for doubtful accounts Loss on factoring Accounts receivable Gross amount 3,000,000 Holdback (10% x 3,000,000) Commission (15% x 3,000,000) Cash received Sales price (3,000,000 x 85%) 2,250,000 300,000 (240,000) 60,000 2,250,000 300,000 100,000 350,000 3,000,000 ( 300,000) (450,000) 2,250,000 Carrying amount of accounts receivable (3,000,000 - 100,000) 2,900,000 Loss on factoring 2. Cash Receivable from factor Accounts receivable factored 3,000,000 Collections by factor Balance - December 31 Receivable from factor per book 300,000 Required holdback (10% x 500,000) Re ance from factor Books of Freeway Company (factor) 1, Accounts receivable Cash Clients retainer Commission income 2. Cash Accounts receivable 3. Clients retainer Cash 4, Doubtful accounts (350,000) 250,000 250,000 2,500,000 —500,000 50,000 250,000 3,000,000 2,250,000 300,000 450,000 2,500,000 2,500,000 250,000 250,000 20,000 Allowance for doubtful accounts (4% x 500,000) 20,000Problem 14-16 Answer A Note payable Finance charge (4% x 2,000,000) Cash received Problem 14-17 Question 1 Answer C Note payable Finance charge (6% x 3,500,000) 210,000) Cash received Question 2 Answer A AR - assigned Collections Sales discount 150,000) Sales returns Accounts written off Balance Problem 14-18 Question 1 Answer D Note payable Finance fee (5% of 5,000,000) Cash received on December | Question 2 Answer C Note payable Principal payment: Remittance Interest (4,000,000 x 12% x 1/12) 1,760,000 Note payable - December 31 2,240,000 Question 3 Answer C Accounts receivable - assigned 5,000,000 Collections (1,800,000) Sales discounts Sales returns Accounts written off Balance of accounts assigned 2,600,000 2,000,000 (__80,000) 1,920,000 3,500,000 ¢ 3,290,000 4,000,000 (1,200,000) ¢ ( 100,000) (50,000) 2, 10 4,000,000 (250,000) 3,750,000 4,000,000 1,800,000 (40,000) ( 200,000) ( 100,000) 300,000)Note payable Equity in assigned accounts Problem 14-19 Question 1 - Answer A Question 2 - Answer B Problem 14-20 Answer A Problem 14-21 Answer A Finance charge (5% x 4,000,000) Problem 14-22 Answer C Accounts receivable factored 2,000,000 Finance charge (3% x 2,000,000) 60,000) Holdback (5% x 2,000,000) Cash received Problem 14-23 Answer A Accounts receivable factored 6,000,000 Commission Net sale price Carrying amount of AR (6,000,000 - 200,000) Loss on factoring (2,240,000) (_100,000) 1,840,000 900,000 5,100,000 5,800,000 (700,000)Another approach Commission Allowance for doubtful account Loss on factoring Problem 14-24 Answer B Sale price Carrying amount of accounts receivable (6,000,000 - 250,000) 5,750,000 Loss on factoring Problem 14-25 Question 1 Answer B Accounts receivable Factor's holdback (6,000,000 x 5%) Factoring fee (6,000,000 x 3%) Interest (6,000,000 x 15% x 54/365) 133,150 Cash initially received from factoring 5,386,850 900,000 (200,000) 700,000 95 5,300,000 (450,000) ( ( 6,000,000 300,000) 180,000) (Question 2 Answer A Factoring fee Interest Total cost of factoring 313,150 Problem 14-26 Question 1 Answer A Cash received from factoring 1,390,000 Cash received from assignment: Loan Finance charge (2% x 2,500,000) Total cash received Question 2 Answer A Accounts receivable - unassigned Accounts receivable - assigned Total accounts receivable 6,000,000 Question 3 Answer B Required allowance - 12/31/2016 (3% x 6,000,000) CHAPTER 15. 180,000 Allowance for bad debts before adjustment 65,000 Bad debt expense for the year Problem 14-27 Problem 14-28 Lec 1c 2.8 2C€ Be 3A 4.C 4c 5. Cc 5. Cc 6A 7A 8. Cc 9D 10. ¢ Problem 15-3 Jan. 1 Notes receivable Sales March 1 Cash Loss on note discounting 180,000 133,150 2,500,000 (50,000) 2,450,000 3,840,000 1,000,000 5,000,000 115,000 500,000 500,000 503,500 6,500Notes receivable 500,000 Interest income Principal Interest (500,000 x 12% x 6/12) Maturity value Discount (530,000 x 15% x 4/12) Net proceeds Principal Accrued interest receivable (500,000 x 12% x 2/12) 10,000 Carrying amount of NR 510,000 Net proceeds Less: Carrying amount of NR Loss on note discounting July 1 Noentry. Problem 15-2 March 14 Accounts receivable Sales April 7 Notes receivable Freight out Accounts receivable April 20 Cash Loss on discounting Notes receivable discounted 2.000.000 2,050,000 2,000,000 50,000 2,001,750 8,250 10,000 500,000 30,000 530,000 26,500 503,500 503,500 510,000 (6,500) 2,050,000 2,050,000Interest income 10,000 Principal 2,000,000 interest (2,000,000 x 12% x 60/360) 40,000 value 2,040,000 Less: Discount (2,040,000 x 15% x 45/360) 38,250 Net proceeds 2,001,750 Principal 2,000,000 Accrued interest receivable (2,000,000 x 12% x 15/360) 10,000 Carrying amount of NR 2,010,000 Net proceeds 2,001,750 Loss: Carrying amount of NR 2,010,000 Loss on discounting (8250) 97 June 4 Accounts receivable (2,040,000 + 10,000) 2,050,000 Cash 2,050,000 Notes receivable discounted 2,000,000Notes receivable 2,000,000 July 4 Cash 2,070,000 Accounts receivable 2,050,000 Interest income (2,000,000 x 12% x 30/360) 20,000 Problem 15-3 Requirement a April 5. Notes receivable 500,000 Accounts receivable 500,000 19 Cash 501,075 Loss on note discounting 1,425 Notes receivable discounted 500,000 Interest income 2,500 cipal 500,000 : Interest (500,000 x 12% x 60/360) 10,000 Maturity value 510,000 Less: Discount (510,000 x 14% x 45/360) 8,925 Net proceeds 501,075 Principal 500,000 Accrued interest receivable (500,000 x 12% x 15/360) 2 Carrying amount of NR 502,500 Net proceeds 501,075 Loss: Carrying amount of NR 502,500 Loss on discounting (1,425)May 3 Notes receivable Accounts receivable 16 Cash Loss on discounting Notes receivable discounted Principal Less: Discount (1,000,000 x 12% x 15/360) Net proceeds May 25 Notes receivable Interest income Accounts receivable Add: Interest (1,500,000 x 12% x 60/360) Maturity value 1,530,000 Less: Discount (1,530,000 x 12% x 50/360) 25,500 Net credit June 7 Accounts receivable (510,000 + 20,000) Cash Notes receivable discounted Notes receivable 15 Notes receivable Sales 18 Cash Accounts receivable Interest income (530,000 x 12% x 15/360) Requirement b - Adjustments on June 30 1. Accrued interest receivable Interest income (800,000 x 12% x 15/360) Accrued interest on D’s note. 2. Notes receivable discounted Notes receivable 1,000,000 995,000 5,000 1,500,000 4,500 530,000 500,000 800,000 532,650 4,000 1,000,000 To cancel the contingent liability on B’s note. This note matured on May 31. Since there is no notice of dishonor it is assumed that the said note is paid on the date of maturity. 1,000,000 1,000,000 1,000,000 995,000 1,504,500 1,500,000 30,000 & & p 8 530,000 500,000 800,000 530,000 2,650 4,000 1,000,000Problem 15-4 May 1 Notes receivable 200,000 Accounts receivable 200,000 Notes receivable 300,000 Accounts receivable 300,000 July 30 Accounts receivable 206,000 Notes receivable 200,000 Interest income (200,000 x 12% x 90/360) 6,000 Aug. 1 Cash 306,075 Loss on note discounting 2,925 Note receivable discounted 300,000 Interest income 9,000 Principal 300,000 Interest (300,000 x 12% x 6/12) 18,000 Maturity value 318,000 Less: Discount (318,000 x 15% x 3/12) 11,925 Net proceeds 306,075 Principal 300,000 Accrued interest receivable (300,000 x 12% x 3/12) 9,000 Carrying amount of NR 309,000 Net proceeds 306,075 Loss: Carrying amount of NR 309,000 Loss on discounting (2,925)Sept. 1 Notes receivable 132,000 Accounts receivable 120,000 Interest income 28 Cash 210,120 Accounts receivable Interest income (206,000 x 12% x 60/360) 4,120 Oct. 1 Notes receivable 500,000 Sales Nov. 1 Accounts receivable (318,000 + 12,000) 330,000 Cash 330,000 Notes receivable discounted 300,000 Notes receivable Dec.30 Cash 515,000 Notes receivable Interest income (500,000 x 12% x 90/360) 31 Cash 336,600 Accounts receivable Interest income (330,000 x 12% x 2/12) 6,600 Problem 15-5 1. Cash 5,021,250 Interest expense 28,750 Liability for note receivable discounted 5,000,000 Interest income Principal Interest (5,000,000 x 12% x 90/360) 150,000 Maturity value 5,150,000 Discount (5,150,000 x 15% x 60/360) Net proceeds Principal Accrued interest receivable (5,000,000 x 12% x 30/360) Carrying amount of NR Net proceeds 12,000 206,000 500,000 300,000 500,000 15,000 330,000 50,000 5,000,000 128,750 5,021,250 5,000,000 ___50,000 5,050,000 5,021,250Lo: ‘arrying amount of NR 5,050,000 Loss on discounting (28,750) 2. Liability for note receivable discounted 5,000,000 Notes receivable 5,000,000 Problem 15-6 jan. 1 Note receivable 2,000,000 Land 1,500,000 Gain on sale of land 500,000 April 1 Cash 2,021,000 Interest expense 29,000 Liability for note receivable discounted 2,000,000 Interest income 50,000 Principal 2,000,000 Interest (2,000,000 x 10% x 9/12) 150,000 Maturity value 2,150,000 Discount (2,150,000 x 12% x 6/12) 129,000 Net proceeds. 2,021,000 Principal 2,000,000 Accrued interest receivable (2,000,000 x 10% x 3/12) 50,000 Carrying amount of NR 2,050,000 Net proceeds 2,021,000 Loss: Carrying amount of NR 2,050,000 Interest expense (29,000) Oct. 1 Accounts receivable 2,160,000 Cash (2,150,000 + 10,000) 2,160,000 1 Liability of note receivable discounted 2,000,000 Note receivable 2,000,000 Dec. 31 Cash 2,224,800 Accounts receivable 2,160,000 Interest income (2,160,000 x 12% x 3/12) 64,800 Problem 15-7 Requirement 1 June 1 Notes receivable 5,000,000Sales 5,000,000 July 1 Notes receivable 6,000,000 Accounts receivable 6,000,000 Cash 5,047,000 Interest expense 3,000 Liability for note receivable discounted 5,000,000 Interest income 50,000 Principal 5,000,000 Interest (5,000,000 x 12% x 90/360) —150,000 Maturity value 5,150,000 Discount (5,150,000 x 12% x 60/360) _103,000 Net proceeds 5,047,000 Principal 5,000,000 Accrued interest receivable (5,000,000 x 12% x 30/360) 50,000 Carrying amount of NR 5,050,000 Net proceeds 5,047,000 Loss: Carrying amount of NR 5,050,000 Interest expense ( 2Anm July 16 Cash 6,008,500 Interest expense 16,500 Liability for note receivable discounted 6,000,000 Interest income 25,000 Principal 6,000,000 Interest (6,000,000 x 10% x 60/360) 100,000 Maturity value 6,100,000 Discount (6,100,000 x 12% x 45/360) 91,500 Net proceeds 6,008,500 Principal 6,000,000 Accrued interest receivable (6,000,000 x 10% x 15/360) 25,000 Carrying amount of NR 6,025,000 Net proceeds 6,008,500 Loss: Carrying amount of NR 6,025,000 Interest expense 16,500) Aug. 30 Liability for note receivable discounted 6,000,000 Notes receivable 6,000,00030 Accounts receivable 5,170,000 Cash (5,150,000 + 20,000) 5,170,000 30 Liability for note receivable discounted 5,000,000 Notes receivable 5,000,000 Dec. 30 Cash 5,376,800 Accounts receivable 5,170,000 Interest income (5,170,000 x 12% x 4/12) 206,800 Requirement 2 June 1 Notes receivable 5,000,000 Sales 5,000,000 July 1 Notes receivable 6,000,000 Accounts receivable 6,000,000 1 Cash 5,047,000 Loss on discounting 3,000 Notes receivable discounted 5,000,000 Interest income 50,000 16 Cash 6,008,500 Loss on discounting 16,500 Notes receivable discounted 6,000,000 Interest income 25,000‘Aug. 30 30 Aug. 30 Dec. 30 Notes receivable discounted Notes receivable Accounts receivable Cash Notes receivable discounted Notes receivable Cash Accounts receivable Interest income Problem 15-8 Answer C Principal Add: Interest (500,000 x 8%) Maturity value 540,000 Less: Discount (540,000 x 10% x 6/12) 27,000 Net proceeds 6,000,000 5,170,000 5,000,000 5,376,800 6,000,000 5,170,000 102 5,000,000 5,170,000 206,800 500,000 40,000 513,000Problem 15-9 Answer C Principal 200,000 Less: Discount (200,000 x 10% x 6/12) 10,000 Net proceeds 190,000 Problem 15-10 Answer B Principal 4,000,000 Interest (4,000,000 x 12% x 90/360) 4,120,000 Less: Discount (4,120,000 x 15% x 60/360) 103,000 Net proceeds 4,017,000 Principal 4,000,000 Accrued interest receivable (4,000,000 x 12% x 30/360) ___40,000 Carrying amount of NR 4,040,000 Net proceeds 4,017,000 Loss on discounting (23,000) Problem 15-11 Answer C Principal 600,000 Add: Interest (600,000 x 10% x 6/12) 30,000 Maturity value 630,000 Less: Discount (630,000 x 12% x 4/12) 25,200 Net proceeds 604,800 Problem 15-12 Answer D Principal 500,000 Add: Interest (500,000 x 10%) 50,000 Maturity value 550,000 Less: Discount (550,000 x 12% x 6/12) 33,000 Net proceeds 517,000 Only the balance of PS00,000 on December 31, 2016 was discounted because the first installment of P500,000 was paid on said date. This balance of P500,000 matures on December 31, 2017 and therefore the corresponding interest is for one year from December 31, 2016 to December 31, 2017. However, the discount period is only 6 months because the note was discounted on July 1, 2017. Problem 15-13 Answer D Principal 1,000,000 Add: Interest (1,000,000 x 8% x 6/12) 40,000Maturity value 1,040,000 Less: Discount (1,040,000 x 10% x 6/12) 52,000 Net proceeds 988,000 Net proceeds 988,000 Carrying amount of note receivable - equal to principal (1,000,000) Interest expense (12,000) Problem 15-14 Answer A The contingent liability is equal to the principal or face value of the note receivable discounted. Problem 15-15 Answer C Note payable 1,000,000 Discount on note payable (1,000,000 x 10.8%) (108,000) Net proceeds 892,000 Discount on note payable 108,000 Amortization from August 1 to December 31, 2016 (108,000 x 5/12) ( 45,000) Balance - December 31, 2016 _63,000 Note payable 1,000,000 Discount on note payable ¢ 63,000) Carrying amount 237,000Problem 15-16 Answer D Note payable Discount (5,000,000 x 12%) Net proceeds Effective interest rate = Discount / Net proceeds = 600,000 / 4,400,000 3.6% Problem 15-17 Question 1 Answer A Question 2 Answer C Question 3 Answer C Question 4 Answer B Problem 15-18 Problem 15-19 1.8 1c 28 2A yay ae aw eo 5,000,000 (600,000) 4,400,000 6,063,000 87,000 6,695,000 interest expense 104CHAPTER 16 Problem 16-1 Items counted in the bodega 4,000,000 Items included in count specifically segregated per sales contract 100,000) Items returned by customer Items ordered and in receiving department 400,000 Items shipped today, FOB destination Items for display Items on counter for sale 800,000 Damaged and unsalable items included in count 50,000) Items in shipping department 250,000 Problem 16-2 Materials Goods in process Finished goods in factory 2,000,000 Finished goods in company-owned retail store (750,000/150%) 500,000 Finished goods in the hands of consignees (400,000 x 60%) Finished goods in transit 250,000 Finished goods out on approval 100,000 Materials in transit (330,000 + 30,000) Correct inventory Problem 16-3 Finished goods Finished goods held by salesmen 100,000 Good: 900,000 Materials Materials returned to suppliers for replacement 100,000 Factory supplies (110,000 + 60,000) 170,000 process (720,000/80%) Correct inventory 4,270,000 50,000 150,000 200,000 5,200,000 1,400,000 650,000 240,000 360,000 2,000,000 1,000,000Problem 16: Periodic System Requirement a Perpetual System 1. Purchases 800,000 1, Merchandise inventory 800,000 ‘Accounts payable 800,000 Accounts payable 800,000 2. Accounts payable 50,000 2. Accounts payable 50,000 Purchase returns 50,000 ‘Merchandise inventory 50,000 3. Accounts payable 600,000 3. Accounts payable 600,000 Cash 600,000 Cash 600,000 4, Accounts receivable 1,580,000 4, Accounts receivable 1,580,000 sales 1,580,000 sales 1,580,000 Cost of sales 790,000 Merchandise inventory 790,000 5. Sales return 40,000 5. Sales return 40,000 Accounts receivable 40,000 Accounts receivable 40,000 Merchandise inventory 20,000 Cost of sales. 20,000 6. Cash 1,360,000 6. Cash 1,360,000 ‘Accounts receivable 1,360,000, Accounts receivable 1,360,000 7. Inventory-Dec. 31 60,000 7. Inventory shortage 10,000 Income summary 60,000 ‘Merchandise inventory 10,000 (60 x 1,000) 70,000 Periodic System Inventory - January | Merchandise inventory per book Physical count Shortage Requirement b Perpetual System 90,000 Cost of sales recorded (790,000 770,000 Purchases 800,000 Inventory shortage Purchase returns (50,000) 750,000 Adjusted cost of sales 780,000 Goods available for sale 840,000 Less: Inventory - December 31 60,000 Cost of sales 780,000 Problem 16-5 60,000 10,000 ~ 20,000) 10,000Company A List price Less: First trade discount (20% x 500,000) Second trade discount (10% x 400,000) Third trade discount (10% x 360,000) Invoice price Less: Cash discount (2% x 324,000) Payment within the discount period 317,520 Company & List price Less: Trade discount (35% x 500,000) Invoice price Less: Cash discount (2% x 325,000) Payment within the discount period 318,500 500,000 100,000 400,000 40,000 360,000 36,000 324,000 6,480 107 500,000 175,000 325,000 — 6,500Requirement a Gross method 1. Purchases 4,750,000 Accounts payable 4,750,000 2. Freight in 250,000 Cash 250,000 3. Accounts payable 1,650,000 Cash 1,617,000 Purchase discount 33,000 Accounts payable 2,100,000 Cash 2,100,000 4, No entry 5. Inventory 1,000,000 Income summary 1,000,000 Requirement b Purchases Freight in Total Less: Purchase discounts Goods available for sale Less: Inventory - December 31 Cost of sales Ending inventory: Gross (5,000,000 / 5) Net (4,905,000 / 5) Net method 1. Purchases 4,655,000 ‘Accounts payable 4,655,000 2. Freight in 250,000 Cash 250,000 3. Accounts payable 1,617,000 Cash 1,617,000 Accounts payable 2,058,000 Purchase discount lost 42,000 Cash 2,100,000 4, Purchase discount lost 20,000 Accounts payable 20,000 (1,000,000 x 2%) 5. Inventory 981,000 Income summary 981,000 Gross method Net method 4,750,000 4,655,000 250,000 250,000 5,000,000 4,905,000 — 33.000 — 4,967,000 4,905,000 981,000 3,924,000 1,000,000 981,000Problem 16-7 Gross method 1. Merchandise inventory 1,000,000 Accounts payable 1,000,000 2. Accounts payable 50,000 Cash 50,000 3. Accounts payable 800,000 Cash 784,000 784,000 Cost of sales 16,000 4, Accounts payable 150,000, Cash 150,000 5. Cash 1,200,000 sales 1,200,000 Cost of sales Merchandise 686,000 (1,000,000 x 70%) Problem 16-8 . Inventory Income summary 2. Accounts payable Purchases 3. Purchases Accounts payable 30,000 Inventory Income summary 30,000 4. Income summary Inventory 90,000 700,000 Net method 1. Merchandise inventory 980,000 Accounts payable 980,000 2. Accounts payable Cash 50,000 50,000 3. Accounts payable Cash (800,000 x 98%) 784,000 4. Accounts payable Purchase discount lost Cash 5. Cash Sales 146,000 4,000, 150,000 1,200,000 1,200,000 Cost of sales 686,000 Merchandise inventory (980,000 x 70%) 50,000 50,000 75,000 75,000 30,000 30,000 90,0005. Purchases 140,000 Accounts payable 140,000 Problem 16-9 1. EXCLUDE - The term of the shipment is FOB destination. 2. EXCLUDE - The goods are held only for consignment. 3. INCLUDE - There is no perfected sale yet as of December 31, 2016. 4. INCLUDE - The term FOB supplier's warehouse is synonymous with FOB shipping point. 5. EXCLUDE - There is already a constructive delivery since the article was specifically made according to the customer's specifications and the article is already completed on December 31, 2016. Problem 16-10 Answer C Physical count 1,500,000 Problem 16-11 Answer D Physical count 2,500,000 Merchandise shipped FOB shipping point on December 30, 2016 from a vendor 100,000 Goods shipped FOB shipping point to a customer on January 4, 2017 400,000 Correct inventory 3,000,000 Problem 16-12 Answer C Physical count 3,600,000 Inventory marked “hold for shipping instruction” 80,000 Goods in process 300,000 Correct inventory 3,280,000 Problem 16-13 Answer D Physical inventory 4,000,000 Merchandise shipped FOB seller 50,000 Correct inventory 4,050,000 “FOB seller” means FOB shipping pointProblem 16-14 Answer Problem 16-15 Answer Problem 16-16 Answer Problem 16-17 Answer Problem 16-18 Answer Problem 16-19 Answer Problem 16-20 Answer neononoe go Problem 16-21 Answer Purchase price 1,000,000 Normal freight charge 30,000 Handling cost Insurance on shipment Total cost of inventory The abnormal freight charge should be charged to expense. Problem 16-22 Answer B Inventory shipped on consignment Freight paid Consigned inventory Problem 16-23 Answer A Consignment sales revenue (40 x P10,000) 400,000 Problem 16-24 Answer B Sales (900 x 1,000) Commission (10% x 900,000) 90,000) Payable to consignor Problem 16-25 Answer C Merchandise purchased Freight in Total Purchase returns Inventoriable cost 4,080,000 Problem 16-26 Answer C List price 20,000 ___5,000 600,000 _50,000 650,000 900,000 4 810,000 4,000,000 100,000 100,000 |__20,000) 900,000Trade discounts 20% x 900,000 10% x 720,000 Invoice price Freight 50,000 Cost of purchase Problem 16-27 Answer B List price Trade discounts 20% x 1,000,000 10% x 800,000 Invoice price Cash discount (5% x 720,000) Net amount Freight charge 50,000 Total remittance Problem 16-28 Answer A (1,500,000 - 10,000) Problem 16-29 Answer B Purchases of IBM compatibles 1,700,000 Purchases of commercial software packages 1,200,000 Total Less: Purchase return 50,000) Net purchases 2,850,000 Discounts available on purchases (2% x 2,850,000) 57,000 Less; Purchase discount taken Purchase discount lost Problem 16-30 Answer C Inventoriable shipping costs (3,000,000 / 12,000,000 x 1,500,000) Problem 16-31 Answer C Problem 16-32 Answer D Accounts payable per book Goods lost in transit, FOB shipping point 100,000 Purchase return Adjusted balance Problem 16-33 Answer C Net method (180,000) 720,000 (72,000) 000 2,900,000 17,000 : 375,000Purchases (800,000 + 1,000,000) 1,800,000 Purchase discount taken (2% x 800,000) (16,000) Purchase discount not taken (2% x 1,000,000) (__20,000) Net amount 1,764,000 Under the net method, the purchase discount is deducted from purchases regardless of whether taken or not taken. Gross method Purchases 1,800,000 Purchase discount taken ( 16,000) Net purchases 1,784,000 Under the gross method, the purchases are recorded at gross and only the purchase discount taken is deducted from purchases in determining cost ol goods available for sale. Problem 16-34 Answer D Accounts payable per book Undelivered checks Unrecorded purchases on December 28 (150,000 x 98%) Purchase on December 20 (200,000 x 95%) 190,000 1,637,000 Problem 16-35 Answer C Problem 16-36 Answer D Beginning inventory 1,220,000 Purchases 5,400,000 Freight in (100,000 + 50,000) 150,000 Goods available for sale 6,770,000 Ending inventory (1.650.000) Cost of goods sold 5,120,000 Problem 16-37 Answer A Markup 560,000 Goods held on consignment 900,000 Total deduction 1,460,000Problem 16-38 Answer A Physical count 4,410,000 Goods sold in transit, FOB destination Goods purchased in transit, FOB shipping point inventory Problem 16-39 Answer A Reported inventory Goods sold in transit, FOB destination Goods purchased in transit, Fob shipping point 300,000 Correct amount of inventory 2,500,000 Problem 16-40 Answer A Inventory per book Item 3 (18,500 - 1,000 / 140%) m 4 (50,000 + 2,500) Item 5 (35,000 / 140% = 25,000 + 2,000) Adjusted inventory Problem 16-41 Answer D Inventory before adjustment 7,600,000 Goods out on consignment Goods purchased FOB shipping point Goods sold FOB shipping point Goods sold FOB destination Goods purchased FAS 350,000 Goods sold FOB destination Correct December 31 inventory 380,000 5,300,000 2,000,000 200,000 950,000 12,500 52,500 27,000 1,042,000 1,000,000 250,000 (850,000) 260,000 840,000 9,450,000Problem 16-42 Answer A Inventory per book 5,000,000 Merchandise transferred to delivery department 80,000 Imported merchandise 800,000 Merchandise shipped FOB destination incorrectly included ( 25,000) Correct inventory - 12/31/2016 5,855,000 Problem 16-43 Answer A Net sales per book 5,000,000 sales return (50,000) ped on December 31, 2016 300,000 ped on January 3, 2017 recorded on December 30,2016 ( 200.000) Adjusted net sales 5,050,000 Problem 16-44 Answer A Gross sales 4,000,000 Estimated sales return (10% x 4,000,000) 400,000) Net sales 3,600,000Problem 16-45 Answer D Problem 16-46 Answer B Problem 16-47 Answer A Goods sold FOB shipping point Delivered one piece of equipment on February 10, 2016 Goods sold by installment and delivered on October 1, 2016 200,000 Total sales 350,000 Problem 16-48 Question 1 Answer A Question 2 Answer D Question 3 Answer C Inventory Unadjusted 1,250,000 A (165,000) B (20,000) c 2 D 210,000 4 25,000 Adjusted 1,300,000 Accounts payable 1,000,000 ( 165,000) 25,000 860,000 113 50,000 100,000 Net sales 9,000,000 40,000 9,040,000Problem 16-49 Question 1 Answer B Question 2 Answer A Question 3 Answer D Inventory Accounts payable Net sales Unadjusted 1,750,000 1,200,000 8,500,000 A : (35,000) B 50,000 50,000 : c 20,000 : : D 26,000 : (40,000) E 25,000 : : F 30,000 : : G : 60,000 : H _10,000 20,000 — Adjusted 1,911,000 1,330,000 8,425,000 Problem 16-50 Problem 16-51 Problem 16:52 Problem 16-53 1D LA 1D 1. 2¢ 2 ¢ 2A Bui 3.D 3.0 3. 3. D 4.D 4.D aA 4c 5. A 5.€ 5. € GA 6c 6.8 7G 7A 7.0 8B 8B BA 9A 9A 9A 10. D 10. A 10. D Problem 16-54 Problem 16-55 Problem 16-56 Lec LB 8B 2A 2A 2A 3. 3.8 3.0 4. 4A 4. S.A 5G 5. B 6.D 6A 70 7C 8D BA 9.¢ 9. 8 10. C 10. CCHAPTER 17 Problem 17-1 FIFO Jan. 20 Purchase (2,500 x 300) 750,000 25 Purchase (2,000 x 400) 800,000 1,550,000 Weighted Units Unit cost Total cost Jan. 1 balance 150 900,000 S purchase 200 400,000 20 purchase 300 750,000 25 purchase 400 __800,000 Goods available 228 2,850,000 228 1,026,000 Ending inventory Problem 17-2 Units Unit cost Total cost 1. FIFO - periodic Lot No. 4 500 100 50,000 5 14,500 90 1,305,000 15,000 1,355,000 2. Beginning inventory 10,000 80 800,000 Purchases: Lot No. 1 2,000 100 200,000 2 8,000 110 880,000 3 6,000 120 720,000 4 9,500 100 950,000 5 14,500 90 1,305,000 Goods available for sale 50,000 4,855,000 Weighted average (4,855,000/50,000) 15,000 97.10 1,456,500 3. Specific identification Lot 3 6,000 120 720,000 4 9,000 100 900,000 15,000 1,620,000 Goods available Inventory-Dec. 31 Cost of goods sold FIFO 4,855,000 1,355,000 3,500,000 Weighted average 4,855,000 1,456,500 3,398,500 Specific identification 4,855,000 1,620,000 3,235,000 Problem 17-3 Units Unit cost Total costFIFO December 17 22 Average method December 1 7 17 22 Available for sale Inventory (5,580,000/120,000) Goods available for sale Less: Inventory - December 31 Cost of goods sold 10,000 20,000 30,000 Units 10,000 30,000 60,000 20,000 120,000 30,000 45 43 Unit cost 52 50 45 43 46.50 FIFO 5,580,000 1,310,000 4,270,000 450,000 860,000 1,310,000 116 Total cost 520,000 1,500,000 2,700,000 860,000 5,580,000 1,395,000 Average 5,580,000 1,395,000 4,185,000Problem 17-4 The stock cards are not prepared anymore. The end results are simply given. Units Unit cost Total cost FIFO Ending inventory 4,000 210 840,000 Cost of sales 2,200,000 Moving average Ending inventory 4,000 252.50 1,010,000 Cost of sales 2,530,000 Problem 17-5 Purchases Sales_Inventory increment 2014 5, 4,000 F 2015 9,000 2,000 2016 15,000 3,000 Total inventory-December 31, 2016 (units) 6,000 sales 1,200,000 Cost of sales: Inventory - December 31, 2015 (3,000 x 60) 180,000 Purchases 1,125,000 Goods available for sale 1,305,000 Less: Inventory - December 31, 2016 (6,000 x 75) 450,000 855,000 Gross income 345,000 Problem 17-6 Units Unit cost Total cost FIFO October 1 15,000 60 900,000Weighted average - periodic January 1 April 1 October 1 Goods available for sale Less: Sales Ending inventory Weighted average (2,650,000/50,000) Moving average - perpetual January 31 200.000) Balance April 1 750,000 Total July 31 Balance October 1 Total December 31 Balance 10,000 40 400,000 15,000 50 750,000 25,000 60 1,500,000 50,000 2,650,000 35,000 15,000 117 Units Unit cost Total cost 15,000 33 795,000 10,000 40 400,000 (5,000) 40 ¢ 5,000 40 200,000 15,000 50 20,000 950,000 (18,000) (855,000) 2,000 95,000 25,000 1,500,000 27,000 1,595,000 (12,000) 59.07 (_708,840) 15,000 59.07 _ 886,160FIFO Weighted average Inventory - January 1 400,000 400,000 Purchases 2,250,000 2,250,000 Goods available for sale 2,650,000 2,650,000 Less: Inventory - December 31 900,000 795,000 Cost of sales 1,750,000 1,855,000 Cost of sales - Weighted average perpetual January 31 Sale 200,000 July 31. Sale 855,000 December 31 Sale 708,840 Total cost of sales 1,763,840 Problem 17-7 Units Unit cost Total cost FIFO October | purchase 300 10,000 3,000,000 Weighted average January 1 200 7,500 1,500,000 April 5 300 9,000 2,700,000 October 1 500 10,000 5,000,000 Goods available for sale 1,000 9,200,000 Inventory - December 31 (9,200,000/1,000) 300 9,200 2,760,000 FIFO Weighted average Inventory - January 1 1,500,000 1,500,000 Purchases 7,700,000 7,700,000 Goods available for sale 9,200,000 9,200,000 Less: Inventory - December 31 3,000,000 2,760,000 Cost of goods sold 6,200,000 6,440,000 Problem 17-8 Sales 6,000,000 Gross profit (2,400,000) Cost of goods sold 3,600,000 Inventory - July 31 (see below) 928,000 Cost of goods available for sale 4,528,000 Purchases for July (8,174,000) Inventory ~ July 1 1,354,000 Quantity Unit cost_—Total cost July 12 1,000 60 60,000 25 14,000, 62 868,000 FIFO inventory - July 31 15,000 928,000Problem 17-9 1. Cost of units available for sale for July Purchases for July 1,042,100) Cost of inventory - July 1 410,000 Number of units - July 1 (410,000 / P4) 102,500 2. July | inventory Purchases for July 200,000 Total units available for sale for July 302,500 July 31 inventory Units sold during the month of July 242,500 3. Average unit cost (1,452,100 / 302,500) 4.80 Inventory ~ July 31 (60,000 x 4.80) Another computation (1,452,100 - 1,164,100) Problem 17-10 FIFO December 15 (2,000 x 360) December 14 (3,500 x 300) Total cost of ending inventory Average method Units December 1 7,000 1s 4,500 24 3,500 15,000 Cost of ending inventory (5,500 x 290) Unit cost 240 360 300 290 1,452,100 102,500 (60,000) 288,000 288,000 720,000 1,050,000 1,770,000 Total cost 1,680,000 1,620,000 1,050,000 4,350,000 1,595,000Problem 17-11 Units Average unit cost Total cost 1, Inventory - December 31, 2016 2016 layer 11,000 138 1,518,000 2, Inventory - December 31, 2015 14,000 1,480,000 Purchases - 2016 12,000 138 1,656,000 Materials available 26,000 3,136,000 Less: Inventory - December 31,2016 11,000 1,518,000 Raw materials used - 2016 15,000 1,168,000 3. Inventory - December 31, 2017 2017 layer 15,000 153 2,295,000 4. Inventory - December 31, 2016 11,000 1,518,000 Purchases - 2017 20,000 153 3,060,000 Materials available 31,000 4,578,000 Less: Inventory - December 31,2017 15,000 2,295,000 Raw materials used - 2017 16,000 2,283,000 Problem 17-12 Available for sale 42,000 Units sold (2,800,000/100) 28,000 Ending inventory 14,000 Units Unit cost Total cost FIFO September 5 2,000 43.00 86,00025 12,000 510,000 Weighted average (1,753,500/42,000) 14,000 Available for sale Less: Ending inventory Cost of sales Problem 17-13 FIFO June 21 (1,500 x 330) 495,000 30 (2,500 x 313) Cost of ending inventory 1,277,500 Average method Units 3,000 7,500 4,000 6,000 3,500 2,500 26,300 June Sowa Cost of ending inventory (4,000 x 315) 42.50 41.75 Average 1,753,500 584,500 1,169,000 (Sch. 1) Unit cost 300 304 320 325 330 313 315 596,000 584,500 FIFO 1,753,500 596,000 1,157,500 (Sch. 2) 782,500 Total cost 900,000 2,280,000 1,280,000 1,950,000 1,155,000 782,500 8,347,500 1,260,000Problem 17-14 Cost of sales - Average Understatement of ending inventory: 2016 2017 2018 Cost of sales - FIFO Sales Cost of sales - FIFO Gross income Operating expenses Operating income 1,470,000 Proof Net income - Average 1,400,000 Understatement of ending inventory: 2016 2017 2018 Net income ~ FIFO 1,470,000 Problem 17-15 FIFO January 9 (250 x 540) 29 (500 x 600) Total cost of ending inventory Average method January 1 250,000 9 29 January 31 inventory Cost of goods sold Problem 17-16 Purchase price 26,850,000 Improving and subdividing cost 43,500,000 Total cost 2016 2017 2018 1,500,000 2,000,000 2,400,000 (150,000) 150,000 ( 200,000) 200,000 —___ ________ (_270,000) 1,350,000 1,950,000 2,330,000 3,000,000 = 4,000,000 4,800,000 1,350,000 1,950,000 —2,330,000 1,650,000 2,050,000 2,470,000 800,000 1,000,000 850,000 1,150,000 700,000 1,100,000 150,000 ( 150,000) 200,000 ( 200,000) 270,000 850,000 1,150,000 135,000 3 10, 435,000 Units Unit cost Total cost 500 1,500 540 810,000 500 600 300,000 2,500 544 1,360,000 (_750) 544 (408,000) 1,250 544 —952,000 70,350,000Group 1 (20 x 3,000,000) 2 (10x 2,500,000) 3 (10x 2,000,000) Group 1 (40,200,000 / 20) 10,050,000 2 (16,750,000 / 10) 6,700,000 3 (13,400,000 / 10) 4,020,000 20,770,000 Problem 17-17 Highland (20 x 1,000,000) Midland (40 x 750,000) Lowland (100 x 500,000) Problem 17-18 Sales price 60,000,000 25,000,000 20,000,000 Cost per lot 2,010,000 1,675,000 1,340,000 Sales price 20,000,000 30,000,000 50,000,000 100,000,000 Fraction 60/105 25/105 20/105 Unsold 5 4 3 Fraction 20/100 30/100 50/100 Cost 40,200,000 16,750,000 13,400,000 20,350,000 121 Cost Total Cost 12,000,000 18,000,000 30,000,000 60,000,000Aye Company Units January 1 8,000 Purchases 25,000 Goods available for sale 33,000 Inventory - December 31 (1,056,000 / 33,000 = 32 x 10,000) 320,000 Bee Company Sales price Fraction Class A (25 x 400,000) 10,000,000 10/20 Class B (30 x 300,000) 9,000,000 9/20 Class C (10 x 100,000) 000 1/20 100 Cost perlot Unsold Class A (6,250,000 / 25) 250,000 15 Class B (5,625,000 / 30) 187,500 6 Class C (625,000 / 10) 62,500 3 Total inventory ‘Cee Company Inventory per book Beds received December 30, 2016 recorded January 2, 2017 Beds received recorded twice 190,000) Beds shipped FOB shipping point on December 30, 2016 recorded January 2017 Beds on hand unrecorded 230,000 Correct inventory 2,200,000 Cost 240,000 816,000 1,056,000 Cost 6,250,000 5,625,000 625,000 12,500,000 Cost 3,750,000 1,125,000 187,500 5,062,500 1,960,000 900,000 ( ( 700,000)Problem 17-19 Answer A January 18 345,000 28 240,000 Total FIFO cost Problem 17-20 Answer A (4,500 x 73.50) Problem 17-21 Answer D Problem 17-22 Answer A January 10 February 8 Units Unit cost 15,000 10,000 24 25,000 Units Unit cost 2,000 100 3,000 10 Total cost 585,000 122 330,750 Total cost 200,000 330,000Weighted average unit cost (530,000/5,000) Cost of inventory (3,000 x 106) Problem 17-23 Answer B January 1 200,000 January 17 (175,000) Balance January 28 160,000 Balance Problem 17-24 Answer D January 1 April 3 October 1 Total Less: Sales (400 + 400) Ending inventory Average unit cost (1,825,000/1,000) 1,825 Cost of inventory (200 x 1,825) Problem 17-25 Answer C January 1 1,600,000 8 20 2,880,000 (3,680,000/16,000 = 230) Problem 17-26 Answer A January 31 balance Problem 17-27 Answer C 5,000 530,000 318,000 Units Unit cost Total cost 40,000 5 (35,000) s_ 5,000 5 25,000 20,000 8 25,000 7.40 185,000 Units Total cost 200 300,000 300 525,000 500 1,000,000 1,000 1,825,000 ‘800 200 365,000 Units Unit cost Total cost 8,000 200 (4,000) 200 (800,000) 4,000 200 800,000 12,000 240 16,000 230 3,680,000 Units Unit cost Total cost 50,000 152,50 2,625,000Sales price Fraction _—_ Allocated cost A. (100 x 240,000) 24,000,000 24/60 6,000,000 B (100 x 160,000) 16,000,000 16/60 4,000,000 C (200 x 100,000) 20,000,000 20/60 5,000,000 60,000,000 15,000,000 Problem 17-28 Answer B Units Sales price Total Class A (60% x 60,000) 36,000 500 18,000,000 Class B (40% x 60,000) 24,000 250 6,000,000 60,000 24,000,000 Total average cost (60,000 x 360) 21,600,000 Allocated cost: Class A (18/24 x 21,600,000) 16,200,000 Class B (6/24 x 21,600,000) _5,400,000 Total average cost 21,600,000 Unit cost: Class A (16,200,000 / 36,000) 450 Class B (5,400,000 / 24,000) 225 Inventory cost: Class A (2,200 x 450) 990,000 Class B (3,000 x 225) 675,000 Total inventory 1,665,000 Problem 17-29 Problem 17-30 SVenanawnNa PRA>BA>>Hyoy PRENAR EONS BEAOBNeADDCHAPTER 18 Problem 18-1 Units Materials: R 1,000 s 2,000 Tr 3,000 Goods in process: x 4,000 Y 5,000 Finished goods: A 2,000 B 2,000 Valuation at lower of cost or NRV 9,560,000 Problem 18-2 Units Unit cost A 1,000 120 B 1,500 110 c 1,200 150 D 1,800 140 E 1,700 130 Problem 18-3 Unit cost Product 1 700 2 475 3 255 4 450 Problem 18-4 Units — Unit cost Appliances: A 500 2,500 B 300 3,700 Car accessories: c 600 1,400 D 800 2,100 Valuation at lower of cost or NRV LCNRV 100 250 300 480 620 790 730 NRV 150 120 140 160 160 NRV 650 745 250 740 NRV 2,700 3,600 2,000 2,000 Inventory value 100,000 500,000 900,000 1,920,000 3,100,000 1,580,000 1,460,000 (Lower of cost or NRV) Inventory value 120,000 165,000 168,000 252,000 221,000 926,000 Lower of cost or NRV 650 475 250 450 Lower of cost or NRV 1,250,000 1,080,000 840,000 1,600,000 4,770,000Problem 18-5 Skis Boots Ski equipment 700,000 Ski apparel 400,000 Direct method Ending inventory Income summary Allowance method Ending inventory Income summary Loss on inventory writedown Allowance for inventory writedown 200,000 Problem 18-6 Category 1: A B Category 2: c D Category 1: A B Subtotal Category 2: Cc D Subtotal Grand total Cost 2,200,000 1,700,000 700,000 _400,000 (a) Units 25,000 20,000 40,000 30,000 (ax b) Total cost 2,625,000 1,700,000 4,325,000 2,000,000 1,950,000 3,950,000 8,275,000 NRV 2,500,000 1,500,000 800,000 _500,000 5,000,000 200,000 (b) Unit cost 105 85 50 65 @xo NRV 2,875,000 1,600,000 4,475,000 LCNRV 2,200,000 1,500,000 5,000,000 © NRV 115 80 40 60 LCNRV 2,625,000 1,600,000 1,600,000 1,800,000 2,625,000a. LCNRV - individual 7,625,000 b. LCNRV - by category Total cost NRV Category | 4,325,000 4,475,000 Category 2 3,950,000 3,400,000 3,400,000 c. Total cost Total NRV LCNRV - by total Problem 18-7 1, September 30 (40,000 x 75) December 31 (10,000 x 90) Total FIFO cost 3,900,000 NRV (50,000 x 72) Required allowance for inventory writedown 300,000 Inventory - January 1 Purchases Purchase discount 400,000) Goods available for sale Less: Inventory - December 31 Cost of goods sold before reversal of inventory writedown 6,300,000 Gain on reversal of inventory writedown 100,000) Cost of goods sold after inventory writedown Lower 4,325,000 2,225,000 8,275,000 7,875,000 7,875,000 126 3,000,000 900,000 3,600,000 1,200,000 9,400,000 ( 10,200,000 3,900,000 6,200,0002. Inventory - December 31 3,900,000 Income summary 3,900,000 Allowance for inventory writedown (400,000 - 300,000) _——-100,000 Gain on reversal of inventory writedown 100,000 Problem 18-8 a. No adjustment is necessary because the market price is higher than the agreed price. Any gain on purchase commitment is not recognized. b. No adjustment is necessary because the market price has not declined as of December 31, 2016. The market decline is only a possible loss. c. Loss on purchase commitment (10,000 x 30) 300,000 Estimated liability for purchase commitment 300,000 d, December 31, 2016 Loss on purchase commitment 300,000 Estimated liability for purchase commitment 300,000 January 31,2017 Purchases (100,000 x 150) 1,500,000 Loss on purchase commitment 200,000 Estimated liability for purchase commitment 300,000 Accounts payable (10,000 x 200) 2,000,000 e. December 31, 2016 Loss on purchase commitment 300,000 Estimated liability for purchase commitment 300,000 January 31, 2017 Purchases 2,000,000 Estimated liability for purchase commitment 300,000 Accounts payable 2,000,000 Gain on purchase commitment 300,000Problem 18-9 12/31/2016 Loss on purchase commitment 500,000 Estimated liability for PC 500,000 03/31/2017 Purchase (100,000 x 54) 5,400,000 Estimated liability for PC 500,000 Accounts payable 5,500,000 Gain on purchase commitment 400,000 Problem 18-10 Answer B Estimated selling price 4,050,000 Cost of disposal (200,000) Net realizable value (lower than cost) 3,850,000 Problem 18-11 Answer 8 Estimated sales price 4,000,000 Cost to complete 1,200,000) Net realizable value 2,800,000 FIFO cost (lower than NRV) 2,600,000 Problem 18-12 Answer D Problem 18-13 Question 1 Answer B 3,200,000 Question 2 Answer A 3,300,000 Cost NRV Lower Product X 1,500,000 1,400,000 ‘1,400,000 Product Y 1,800,000 2,300,000 1,800,000 3,300,000 3,700,000 3,200,000 Problem 18-14 Answer A Problem 18-15 Answer AHistorical cost NRV Value Markers 240,000 312,000 240,000 Pens 188,000 200,000 188,000 Highlighters 300000 292,000 292,000 720,000 Problem 18-16 Question 1 Answer C 200,000 Question 2 Answer B 100,000 Problem 18-17 Question | Answer A 500,000 Question 2 Answer B 700,000 Problem 18-18 Question 1 Answer C Question 2 Answer C Question 3 Answer C Cost of inventory (2,500 x 100) 250,000 Measurement (2,500 x 20) 50,000 Loss on inventory writedown 200,01 Remaining contract - 1,000 units each year 2017 (1,000 x P100) 100,000 2018 (1,000 x P100) 100,000 Total 200,000 Estimated realizable value 40,000 Loss on purchase commitment 160,000 Problem 18-19 Problem 18-20 Problem 18-21 Problem 18-22 Le 1D LA 1B 20 2A 2A 28 3.8 3A 3. 3A 4A 4.8 4.D 4D 5.B 5.B 5.D 6A Wie B.A 9D 10. DCHAPTER 19 Problem 19-1 Requirement 1 1. Biological asset 600,000 Cash 600,000 2. Biological asset 700,000 Gain from change in fair value 700,000 a logical asset 100,000 Gain from change in fair value 100,000 4. Loss from change in fair value 90,000 Biological asset 90,000 5. Cash 400,000 Biological asset 400,000 Requirement 2 Acquisition cost - January 1 600,000 Increase in fair value on initial recognition 700,000 Increase in fair value due to growth and price fluctuation 100,000 Decrease in fair value due to harvest ( 90,000) Decrease due to sale (400,000) Carrying amount ~ December 31 910,000 Problem 19-2Requirement 1 1, To record the purchase of one animal aged 2.5 years on July 1. Biological assets 108 Cash 108 2. To record the birth of one animal on July 1 with fair value of P70. Biological assets 70 Gain on biological asset 70 3. To record the change in the fair value: Biological assets 222 Gain on biological asset 222 Fair value of 10 animals on January 1 (10 x P100) 1,000 Newborn animal on July | at fair value 70 Acquisition cost of one animal on July 1 Total book value of biological assets - December 31 1,178 Fair value of 3-year old animals on December 31 (11 x P120) 1,320 Fair value of 0.5-year old animal on December 31, the newborn (1 x P80) 80 ~~ Total fair value - December 31 1,400 Book value of biological assets - December 31 1,178 Increase in fair value 222 Requirement 2 Increase in fair value due to price change: 10 2-year old animals (105 - 100 = 5 x 10) 50 1 25-year old animal (111 - 108 = 3 x 1) 3 1 newborn on July 1 (72 - 70 = 2x1) 2 Increase due to price change S5 Increase in fair value due to physical change: 10 3-year old animals acquired January 1 (120 - 105 = 15 x 10) 150 1 3-year old animal acquired July 1 (120 - 111 = 9x 1) 9 1 0.5-year old born on July 1 (80 ~ 72 =8 x 1) 81 newborn (70 x 1) Increase due to physical change 237 Price change Physical change Total increase in fair value Problem 19-3 Carrying amount - January 1 5,000,000 Increase due to purchase 2,000,000 Gain from change in fair value due to price change 400,000 Gain from change in fair value due to physical change 600,000 Decrease due to sales 850,000) Decrease due to harvest Carrying amount - December 31 6,950,000 Problem 19-4 Income statement Fair value of milk produced Gain from change in fair value Total income Inventories used Staff costs (120,000) Depreciation expense 15,000) Other operating expenses (190,000) Income before tax 185,000 Income tax expense Net income Statement of financial position Current assets: Cash Trade and other receivables Inventories ¢ (_ 200,000) 600,000 50,000 650,000 (140,000) ($5,000) 130,000 ASSETS 500,000 1,500,000 100,0002,100,000 Noncurrent assets: Biological assets (NOTE) 450,000 Property, plant and equipment 1,400,000 1,850,000 Total assets 3,950,000 LIABILITIES AND EQUITY Current liabilities: Trade and other payables 520,000 Noncurrent lial 1,500,000 2,020,000 Equity Share capital 1,000,000 Retained earnings 930,000 1,930,000 Total liabilities and equity 3,950,000 Note livestock - immature 50,000 fivestock - mature 400,000 Total biological assets 450,000 Problem 19-5 Answer C Problem 19-6 Answer A Problem 19-7 Question 1 Answer B Question 2 Answer A Question 3 Answer C Problem 19-8 Question | Answer B Question 2 Answer D Problem 19-9 Answer C Fair value measurement stops at the point of harvest and PAS 2 applies after such date. Accordingly, the coffee beans inventory shall be measured at the lower of cost and net realizable value on December 31, 2017. For purposes of applying PAS 2, the fair value less cost to sell of P3,500,000 at the point of harvest is the initial cost of coffee beans inventory. The netrealizable value of P3,200,000 is the measurement on December 31, 2017 because this is lower than the deemed cost of P3,500.000 Accordingly, loss on inventory writedown of P300,000 should be recognized in 2017. Problem 19-10 Question 1 Answer A Question 2 Answer B Fair value - December 31 (same age) 2,800,000 Carrying amount (2,100,000 + 250,000) 2,350,000 Price change 450,000 Question 3 Answer C Fair value - December 31 (different age) 3,160,000 Fair value - December 31 (same age) 2,800,000 Physical change _360,000Problem 19-11 Question 1 Answer A Fair value of biological assets on January 1, 2016: Cows which are 2 years old on January 1, 2016 (2,100 x 4,000) 8,400,000 Heifers which are | year old when purchased on 1/1/2016 (300 x 3,000) 900,000 9,300,000 Question 2 Answer A Fair value of heifers which are | year old when purchased on July 1, 2016 (750 x 3,000) 2,250,000 Question 3 Answer A Fair value of biological assets on December 31, 2016: ‘Cows which are now 3 years old (2,100 x 5,000) 10,500,000 Heifers which are now 2 years old (300 x 4,500) 1,350,000 Heifers which are now 1.5 years old (750 x 3,600) 2,700,000 14,550,000 Question 4 Answer A Fair value - December 31, 2016 14,550,000 Fair value - January 1, 2016 (9,300,000) Fair value - July 1, 2016 (2,250,000) Increase in fair value 3,000,000Question 5 Answer B Increase due to price change: 2,100 x (4,500 - 4,000) 1,050,000 300 x (3,200 ~ 3,000) 60,000 750 x (3,200 - 3,000) 150,000 —_1,260,000 Increase due to price change: 2,100 x (5,000 - 4,500) 1,050,000 300 x (4,500 - 3,200) 390,000 750 x (3,600 - 3,200) 300,000 41,740,000 Total increase in fair value 3,000,000 Problem 19-12 Problem 19-13 Problem 19-14 Problem 19-15 1B Lc 1€ 1.0 2A 2B 28 2.0 3.D 3.D 3A 3.8 48 4c 4A 4.0 5. A 5. D 5c 5. B 6c 6A 6. D 6.8 7.0 7.8 7A 2¢ 8D BA 8D 8c 9A 9.8 9D 9A 10. D 10. A 10. C 10. B CHAPTER 20 Problem 20-1 Answer C Inventory - January 1 6,600,000 Purchases 1,000,000 Freight in 300,000 Goods available for sale 9,900,000 Cost of goods sold (7,800,000 x 70%) 5,460,000 Ending inventory destroyed 4,440,000 Problem 20-2 Answer B Inventory - January 1 5,500,000 Purchases 4,300,000 Purchase returns (_ 200,000) Goods available for sale 9,600,000 Cost of goods sold (7,500,000 x 125%) (6,000,000) Inventory - March 31 3,600,000Problem 20-3 Answer D Inventory - January 1 2,500,000 Net purchases 7,500,000 Goods available for sale Cost of goods sold (15,000,000 / 166 2/3%) 9,000,000) Total inventory - October 31 1,000,000 Undamaged inventory 150,000) Inventory destroyed by fire Problem 20-4 Answer A Inventory - January 1 650,000 Purchases Freight in Total Less: Purchase returns Goods available for sale Less: Cost of sales (4,500,000 x 60%) Inventory - March 31 Problem 20-5 Answer B Inventory - January 1 500,000 Purchases Goods available for sale Less: Cost of sales (3,200,000 x 75%) Inventory - December 31 600,000 Less: Physical inventory Missing inventory 100,000 3,200,000 — 30,000 3,250,000 —75,000 10,000,000 ( 3,175,000 3,825,000 2,700,000 1,125,000 2,500,00 3,000,00( 2,400,00( 500,001Problem 20-6 Answer A Sales 3,400,000 Sales returns (__30,000) Net sales 3,370,000 The sales discounts are ignored for purposes of estimating inventory under the gross profit method. Inventory - January 1 650,000 Purchases 2,300,000 Purchase returns (80,000) Freight in 60,000 Goods available for sale 2,930,000 Cost of sales (70% x 3,370,000) (2,359,000) Inventory - December 31 571,000 Physical inventory - December 31 _420,000 Cost of missing inventory 151,000 Problem 20-7 Answer C sales 5,600,000 Sales returns (400,000) Net sales 5,200,000 Cost of goods sold (75% x 5,200,000) 3,900,000 Like sales discounts, sales allowances are ignored in determining net sales under the gross profit method. Problem 20-8 Answer D Cost of sales (3,640,000/130%) 2,800,000 Problem 20:9 Answer D Cost of sales (7,000,000 - 1,400,000) 5,600,000 Multiply bySales Less: Collections Accounts receivable Problem 20-10 Answer B Problem 20-11 Answer A Problem 20-12 Answer A Problem 20-13 Question 1 Answer D 7,840,000 4,000,000 3,840,000 Cost of goods sold for June (7,200,000 + 720,000 = 7,920,000 / 120%) 6,600,000 Question 2 Answer A Cost of goods sold for July (7,360,000 + 800,000 = 8,160,000 / 120%) 6,800,000 Question 3 Answer B Cost of goods sold for August (7,600,000 + 1,040,000 = 8,640,000 / 120%) 7,200,000 Quest Inventory - July 1 (30% x 6,800,000) 2,040,000 Purchases for July (SQUEEZE) 6,920.000 Goods available for sale Inventory ~ July 31 (30% x 7,200,000) Cost of goods sold n4 Answer D Problem 20-14 Answer D Net sales = 1,200,000 x 5 Inventory - January 1 1,800,000 Purchases Goods available for sale Less: Cost of sales (6,000,000 x 60%) Inventory - December 31 2,700,000 Problem 20-15 Answer B Sales (950,000 x 8) Cost of sales (1,150,000 x 4) Gross margin Problem 20-16 Answer C Cost of goods sold (60% x 3,600,000) Ending inventory 8,960,000 (2,160,000) 6,800,000 4,500,000 6,300,000 3,600,000 7,600,000 4,600,000 3,000,000 2,160,000 240,000Cost of goods available for sale 0 Problem 20-17 Answer B Sales - 2015 6,000,000 Cost of sales: Net purchases - 2015 5,500,000 Less: Inventory - December 31, 2015 1,000,000 4,500,000 Gross income 1,500,000 Rate in 2015 (1,500,000 / 6,000,000) 25% Rate in 2016 (25% + 5%) 30% Inventory - January 1, 2016 1,000,000 Net purchases - 2016 7,500,000 Goods available for sale 8,500,000 Less: Cost of sales (9,000,000 x 70%) 6,300,000 Inventory - December 31, 2016 2,200,000 Less: Undamaged merchandise (500,000 x 70%) 350,000 Realizable value of damaged merchandise 10,000 360,000 Fire loss 1,840,000 Problem 20-18 Answer A Total manufacturing cost 100% Goods in process - end 10%) Cost of goods manufactured 90% Finished goods - end (20% x 90%) (18%) Cost of goods sold 72% Total manufacturing cost (4,320,000 / 72%) 6,000,000 Direct labor (30% x 6,000,000) 1,800,000 Problem 20-19 Answer A Cost of goods sold (10% / 25%) 40% Gross sales (2,000,000 / 40%) 5,000,000 Sales discount ( 100,000) Net sales 4,900,000 Cost of goods sold (2,000,000) Gross income 2,900,000 Administrative expenses (25% x 2,000,000) ( 500,000) Selling expenses (500,000 / 20% = 2,500,000 - 500,000) (2,000,000)Interest expense Net income Problem 20-20 Answer C Problem 20-21 Answer A Sales - 2014 and 2015 Cost of sales: Inventory - January 1,2014 Purchases - 2014 and 2015, Goods available for sale Less: Inventory - December 31, 2015 Gross income Average rate (2,220,000/7,400,000) 30% Inventory - January 1, 2016 Purchases - 2016 Goods available for sale Less: Cost of sales (5,000,000 x 70%) Inventory - December 31, 2016 Less: Goods consigned (300,000 x 70%) Goods in transit 400.000 Fire loss Problem 20-22 Answer C Average gross profit rate (2,250,000/9,000,000) Inventory - January 1 660,000 Net purchases 4,240,000 Goods available for sale Less: Cost of sales (5,600,000 x 75%) Inventory - September 30 700,000 Less: Undamaged goods (60,000 x 75%) Realizable value of damaged goods 70,000 Fire loss Problem 20-23 Answer A Inventory - January 1 1,200,000 (__20,000) 850,000 5,370,000 6,220,000 1,040,000 210,000 190,000 45,000 380,000 7,400,000 5,180,000 2,220,000 1,040,000 4,360,000 5,400,000 3,500,000 1,900,000 1,500,000 4,900,000 4,200,000Purchases Goods available for sale Less: Inventory - December 31 Cost of goods sold Gross profit Total sales 3,000,000 Less: Cash sales Sales on account Accounts receivable - January 1 800,000 Total Less: Collections Accounts receivable - December 31 700,000 Problem 20-24 Answer A Sales - 2015 Cost of sales: Beginning inventory Purchases Freight in Purchase discounts Purchase returns Purchase allowances Goods available Ending inventory Gross income Beginning inventory - 2016 Purchases Freight in Purchase discounts Purchase returns Purchase allowances Goods available Cost of sales - 2016 (4,500,000 x 73%) Ending inventory - 2016 Problem 20-25 Answer A Collections of accounts receivable Accounts receivable - January 1 700,000) Accounts receivable - December 31 1,100,000 Sales on account Cash sales 900,000 Total sales 9,200,000 1,260,000 6,450,000 350,000 (90,000) ( 120,000) (20,000) 7,830,000 (2,355,000) 2,000,000 3,200,000 da 2,100,000 900,000 500,000 2,500,000 3,300,000 2,600,000 7,500,000 5,475,000 2,025,000 2,355,000 3,180,000 220,000 (45,000) (40,000) (15,000) 5,655,000 3.285,000 2,370,000 8,400,000 ( 8,800,000Inventory - January 1 1,500,000 Purchases Goods available Cost of goods sold (9,700,000 x 60%) Inventory - December 31 1,180,000 Problem 20-26 Answer B Net sales in 2015 Less: Cost of sales Beginning inventory Net purchases in 2015 Goods available for sale Less: Ending inventory Gross profit Gross profit rate (2,400,000/8,000,000) 30% Inventory, January 1, 2016 Net purchases - 2016 4,960,000 Goods available for sale Less: Cost of sales Sales Less: Sales return and allowances Net sales Cost of sales (7,800,000 x 70%) Estimated value of ending inventory 700,000 Less: Cost of inventory not stolen Estimated cost of stolen inventory Problem 20-27 Answer B Sales Cost of sales (9,600,000 / 125%) 7,680,000 Gross profit Problem 20-28 Average rate = 2,000,000 1,200,000 7,880,000 7,800,000 5,500,000 7,000,000 5,820,000 8,000,000 5,600,000 2,400,000 1,200,000 6,160,000 5,460,000 100,000 600,000 9,600,000 1,920,000Question 1 Answer A Question 2 Answer A Question 3 Answer D Inventory - January 1 500,000 Purchases (1,600,000 + 500,000 - 400,000) 1,200,000 Goods available for sale Less: Cost of sales: Collections Accounts receivable - December 31 Accounts receivable ~ January 1 Sales Cost of sales (2,600,000 x 60%) Inventory - December | Less: Goods on consignment (200,000 x 60%) Salvage value Fire loss Problem 20-29 Question | Answer B Raw materials - January 1 1,700,000 Purchases Freight in Raw materials available for use Raw materials - December 31 2,000,000) Raw materials used 2,200,000 2,640,000 440,000 (_ 480,000) 2,600,000 1,560,000 640,000 120,000 20,000 140,000 500,000 3,800,000 200,000 5,700,000 3,200,000Question 2 Answer C Raw materials used 3,700,000 Direct labor 5,000,000 Manufacturing overhead (60% x 5,000,000) 3,000,000 Total manufacturing cost 11,700,000 The change in the factory supplies is no longer considered because it is already part of the manufacturing overhead applied. Question 3 Answer D Cost of goods sold (70% x 20,000,000) 14,000,000 The cost ratio is 70% because the gross profit rate is 30% on sales. Question 4 Answer A Total manufacturing cost 11,700,000 Goods in process - January 1 4,300,000 Total goods in process 16,000,000 Goods in process - December 31 (SQUEEZE) ( 3,500,000) Cost of goods manufactured 12,500,000 Finished goods - January | 6,000,000 Goods available for sale 18,500,000 Finished goods - December 31 (4,500,000) Cost of goods sold 14,000,000 The cost of ending goods in process is computed by working back from the cost of goods sold.Problem 20-30 Question 1 Answer A Physical inventory Purchases up to Purchases up to May 31, 2016 May 31, 2016 June 30, 2016 Balances 950,000 6,750,000 8,000,000 1 : 75,000 : 2 = (10,000) (15,000) 3 : (20,000) (20,000) 4 (35,000) (55,000) - Adjusted 895,000 6,740,000 7,965,000 Inventory - July 1, 2015 875,000 Purchases up to May 31, 2016 6,740,000 Goods available for sale 7,615,000 Less: Inventory - May 31, 2016 _ 895,000 Cost of goods sold 6,720,000 Sales up to May 31, 2016 8,400,000 Cost of goods sold 6,720,000 Gross profit 1,680,000 Rate (1,680,000 / 8,400,000) Question 2 Answer B Sales for year ended June 30, 2016 9,600,000 Less: Sales for 11 months ended May 31, 2016 8,400,000 Sales for June 1,200,000 Question 3 Answer C Cost of goods sold with profit (1,100,000 x 80%) 880,000 Cost of goods sold without profit 100,000 Cost of goods sold during June 980,000 Question 4 Answer D Inventory, July 1, 2015 875,000 Purchases for year ended June 30, 2016 (as adjusted) 7,965,000 Goods available for sale 8,840,000 Less: Cost of goods sold Sales with profit (9,500,000 x 80%) 7,600,000 Sales without profit 100,000 7,700,000 Inventory, June 30, 2016 1,140,000Problem 20-31 Question 1 Answer A Accounts receivable - April 30 1,040,000 Writeoff 60,000 Collections (440,000 - 20,000) 420,00 Total 1,520,000 Less: Accounts receivable - March 920,000 Sales for April 600,000 Sales up to March 31 3,600,000 Total sales 4,200,000 Question 2 Answer B Accounts payable - April 30 for April shipments 340,000 Payment for April merchandise shipments 80,000 Purchases of April 420,000 Purchases up to March 31 1,680,000 Total purchases Question 3 Answer C Question 4 Answer D Inventory - January 1 1,880,000 Purchases 2,100,000 Less: Purchases return 20,000 2,080,000 Goods available for sale 3,960,000 Less: Cost of goods sold (4,200,000 x 60%) 2,520,000 Inventory - April 30 1,440,000 Less: Goods in transit 100,000 Salvage value 140,000 240,000 Fire loss 1,200,000 Problem 20-322014 2015 1. AR- 12/31/2016 4,000 9,000 Cash received applied to: Current year 744,000 809,000 Accounts of prior year 75,000 84,000 Accounts of two years prior 10,000 : Sales on account 833,000 902,000 Cash sales 85,000 _ 130,000 156,000 Total sales 918,000 1,032,000 1,341,000 2. Accounts payable ~ 12/31/2016 55,000 Payment of accounts payable: 2014 2015 2016 Total Accounts payable - 12/31/2013 25,000) Purchases - 2014, 2015 and 2016 3. Inventory ~ 12/31/2013 58,000 Purchases - 2014, 2015 and 2016 Goods available for sale 2,288,000 Inventory - 12/31/2016 94,000) Cost of goods sold - 2014, 2015 and 2016 2,194,000 4, Sales - 2014, 2015 and 2016 3,291,000 Cost of sales - 2014, 2015 and 2016 Gross profit Average gross profit rate (1,097,000 / 3,291,000) 13% 5. 2014 2015 sales 100% 918,000 —_ 1,032,000 Cost of sales 66 2/3% 612,000 __ 688,000 Gross profit 331/3% 306,000 344,000 2016 141,000 1,044,000 1,185,000 625,000 2,230,000 2,194,000 1,097,000 33 2016 1,341,000 894,000 447,000Problem 20-33 NOY awN> novowo>ro yom on CHAPTER 21 Problem 21-1 Answer A Beginning inventory Purchases Purchase returns Net markup Net markdown GAS at retail Less: Sales Sales return Employee discounts Normal shortage Abnormal shortage 3,920,000 Ending inventory at retail 2,720,000 Problem 21-2 Answer A Beginning inventory Purchases Purchase discounts Freight in Markups 600,000 GAS - conservative Conservative cost ratio (6,630,000 / 10,200,000 = 65%) Markdowns GAS - Average _ 9,400,000 180,000 6,000,000 ( 300,000) 900,000 (140,000) 6,640,000 3,600,000 ( 90,000) 80,000 130,000 200,000 Cost Retail 530,000 900,000 6,080,000 —_ 8,700,000 (85,000) 105,000 6,630,000 10,200,000 (__ 800,000) 6,630,000Sales (8,600,000) Ending inventory at retail 800,000 Ending inventory at cost (800,000 x 65%) 520,000 Problem 21-3 Answer B Cost Beginning inventory 280,000 Purchases 2,480,000 Freight in 75,000 Markup Markup cancellation ( ) GAS 2,835,000 6,300,000 Cost ratio (2,835/6,300) 45% Markdown ( 250,000) Markdown cancellation 50,000 GAS - Average 2,835,000 6,100,000 Sales (5,000,000) Shrinkage (2% x 5,000,000) 100,000) Ending inventory 1,000,000 Conservative cost (1,000,000 x 45%) 450,000 The “approximate lower of average cost or market” retail is the same as the conservative or conventional retail.Problem 21-4 Answer C Beginning inventory Purchases Markup Markdown 500,000) GAS Cost ratio (4,800/7,500) Sales Normal shrinkage and breakage 100.000) Inventory at retail 1 Average cost (1,500,000 x 64%) Problem 21-5 Answer D Beginning inventory and purchases 9,200,000 Net markup GAS Cost ratio (6,000/9,600) Sales Net markdown 600,000) Ending inventory Conservative cost (1,200,000 x 62.5%) Goods available for sale Less: Ending inventory Cost of sales Problem 21-6 Answer C Beginning inventory Purchases Markup (5,000 x P100) Markup cancelation (1,000 x P100) Goods available Markdown (reduction in retail price) 200,000) 64% 62.5% 60% Cost 700,000 4,100,000 4,800,000 960,000 Cost Retail 1,000,000 6,300,000 700,000 ( 7,500,000 (5,900,000) ( Retail 6,000,000 6,000,000 750,000 Cost 560,000 4,000,000 4,560,000 400,000 9,600,000 (7,800,000) ( 1,200,000 6,000,000 750,000 5,250,000 Retail 1,000,000 6,200,000 500,000 (100,000) 7,600,000 (Goods available - average 7,400,000 Net sales Ending inventory Conservative cost (62% x 2,000,000) 1,240,000 Problem 21-7 Answer A Beginning inventory Purchases Net markups Net markdown 1,000,000) Net purchases 5,000,000 Cost ratio (3,000/5,000) GAS Sales Ending inventory FIFO cost (2,000,000 x 60%) Problem 21-8 Answer A Beginning inventory 1,800,000 Purchases Freight in Net markup Net markdown 600,000) Net purchases (6,000/8,000) 8,000,000 Goods available for sale Sales Ending inventory 200,000 x 75%) Goods available for sale Less: Ending inventory Cost of goods sold Problem 21-9 Question 1 Answer A 62% 4,560,000 (5,400,000) Cost Retail 600,000 1,500,000 3,000,000 5,500,000 500,000 3,000,000 60% 3,600,000 —_ 6,500,000 (4,500,000) 2,000,000 000 Cost Retail 1,200,000 5,600,000 7,200,000 400,000 1,400,000 ( 75% 6,000,000 2,200,000 9,800,000 (7,600,000) 1,650,000 1,650,000 5,550,000Question 2 Answer A Problem 21-10 Answer C Available for sale 7,000,000 Markdown Ending inventory Average cost (1,400,000 x 71%) Cost ratio (4,900,000 / 6,900,000) Problem 21-11 Answer A Problem 21-12 Question 1 Answer B Question 2 Answer C Beginning inventory Purchases Transportation in Purchases return Purchase discount Markup Cancelation of markup 30,000) Goods available for sale - conservative 5,100,000 Cost ratio - conservative (357/510) Markdown Cancelation of markdown 10,000 Goods available for sale - average cost 4,760,000 Cost ratio - average cost (357/476) Less: Sales Sales return 10 ntory at selling price Conservative cost (840,000 x 70%) Average cost (840,000 x 75%) Cost Retail ( 1,400,000 994,000 21% Cost Retail 500,000 770,000 3,070,000 —_ 4,300,000 70,000 (25,000) ( 40,000) (45,000) 100,000 ( 3,570,000 70% (350,000) 3,520,000 75% 4,000,000 ¢ 00) 588,000 630,000Problem 21-13 Beginning inventory Purchases Freight in Purchase returns Purchase allowances Departmental transfer in 160,000 Markup Goods available for sale - conventional 8,000,000 Cost ratio (4,800/8,000) Markdown 500,000) Goods available for sale - average Cost ratio (4,800/7,500) Less: Sales Employee discount Spoilage and breakage 6,900,000 Ending inventory Conservative cost (600,000 x 60%) Average cost (600,000 x 64%) Problem 21-14 Beginning inventory Purchases Freight in Markup Markup cancellation Goods available for sale - conservative 3,770,000 Cost ratio (3,016/3,770) Markdown 150,000) Markdown cancellation 40,000 Goods available for sale - average Less: Sales Shrinkage (4% x 3,000,000) Ending inventory Conservative cost (540,000 x 80%) Physical inventory (500,000 x 80%) Shortage 60% 64% 80% Cost Retail 340,000 640,000 4,500,000 7,300,000 100,000 (150,000) ( 250,000) (90,000) 100,000 150,000 4,800,000 ¢ 4,800,000 7,500,000 6,600,000 100,000 200,000 360,000 384,000 Cost Retail 168,000 400,000 2,806,000 3,100,000 42,000 300,000 30,000) 3,016,000 3,016,000 3,660,000 3,000,000 120,000 3,120,000 540,000 432,000 400,000 —32,000Problem 21-15 Beginning inventory Net purchases 4,950,000 Departmental transfer - credit Net markup Markdown (500,000 - 400,000) Goods available for sale 6,900,000 Sales Inventory shortage - sales price ,000) Employee discounts Ending inventory Average cost (2,600,000 x 75%) Problem 21-16 Finished goods - January 1 Cost of goods manufactured (SQUEEZE) 2,000,000 Goods available for sale Les: 840,000 Cost of goods sold The amount of goods manufactured at retail is deters back. inished goods - December 31 Cost Retail 1,650,000 2,200,000 3,725,000 ( 200,000) ( 300,000) 150,000 —ee 100,000) (75%) 5,175,000 (4,000,000) ( (200,000) 2,600,000 1,950,000 Cost Retail 144,000 240,000 1,200,000 1,344,000 2,240,000 —504,000 840,000 1,400,000 ed by simply workingGoods manufactured at cost Cost ratio Goods manufactured at retail 1,200,000/2,000,000 60% Finished goods: January 1- 240,000 x 60% 144,000 December 31 - Problem 21-17 Inventory - January 1, 2016 Purchases Net markup Net markdown 30,000) Net purchases (65%) Goods available for sale Sales Inventory ~ December 31, 2016 FIFO inventory (65% x 1,128,000) 1,128,000 Inventory - January 1, 2017 Purchases Net markup Net markdown 68,000) Net purchases (70%) Goods available for sale Sales Inventory - December 31, 2017 FIFO inventory (70% x 1,000,000) 00 Problem 21-18 Inventory, January 1, 2016 Purchases adjusted for markup and markdown 72% 6,960,000 Goods available for sale Sales - 2016 Inventory, December 31, 2016 FIFO cost (721,000 x 72%) 840,000 x 60% 504,000 149 Cost Retail 556,800 928,000 4,576,000 7,028,000 42,000 ( 4,576,000 7,040,000 5,132,800 7,968,000 (6,840,000) 1,128,000 733,200 733,200 1,128,000 4,760,000 6,812,000 56,000 ( 4,760,000 6,800,000 5,493,200 7,928,000 (6,928,000) 1,000,000 700,000 Cost Retail 420,000 600,000 5,011,200 5,431,200 7,560,000 (6,839,000)Inventory, January 1, 2017 Purchases adjusted Goods available for sale Sales - 2017 Inventory, December 31, 2017 FIFO cost (788,800 x 70%) Problem 21-19 D PP RNAVSYNS o>>>nnaD Problem 22-1 1. Unrealized loss - TS Trading securities 60,000 2. Cash 70% Problem 21-20 payne O>a>> CHAPTER 22 Loss on sale of trading securities ‘Trading securities 160,000 3. Trading securities (680,000 - 610,000) Unrealized gain - TS A_ Ordinary (4,000 x 80) 320,000 C Preference (2,000 x 180) Problem 22-2 2016 Jan. 1 Trading securities Cash Dec. 31 Unrealized loss - TS Trading securities 200,000 Cost Retail 519,120 721,000 4,970,000 7,100,000 5,489,120 7,821,000 (7,033,000) 788,000 551,600 60,000 140,000 20,000 70,000 70,000 Carrying amount Market 300,000 310,000 360,000 610,000 680,000 1,450,000 1,450,000 200,0002017 Oct. 1 Cash 375,000 Trading securities 325,000 Gain on sale of TS 50,000 sale price Carrying amount sold (650,000 x 1/2) Gain on sale Dec.31 Unrealized loss - TS 125,000 Trading securities 125,000 Aura Bora Cara Total carrying amount - December 31, 2016 925,000 Fair value - December 31, 2017 Decrease in fair value 125,000 Problem 22-3 December 31, 2016 Trading secur 500,000 Unrealized g - TS (2,500,000 - 2,000,000) Unrealized loss - other comprehensive income 100,000 Financial asset - FVOCI 375,000 325,000 325,000 200,000 400,000 500,000 100,000December 31, 2017 Unrealized loss - TS Trading securities (2,500,000 - 2,200,000) Unrealized loss - other comprehensive income Financial asset - FVOCI Problem 22-4 December 31, 2016 Unrealized loss - other comprehensive income Financial asset - FVOCI December 31, 2017 Financial asset - FVOCI Unrealized loss - other comprehensive income 50,000 Problem 22-5 1, Unrealized loss ~ other comprehensive income Financial asset -FVOCI (600,000 - 500,000) 100,000 2. Cash Financial asset - FVOCI Retained earnings 100,000 300,000 300,000 600,000 600,000 150,000 150,000 50,000 100,000 2,100,000 2,000,000Retained earnings 500,000 Unrealized loss - other comprehensive income 500,000 3. Unrealized loss - OCI Financial asset - FVOCI XYZ RST Total (1,400,000 - 1,150,000 = 250,000) Total cost (1,000,000 + 500,000) Market value 1,150,000 Cumulative unrealized loss 350,000 Unrealized loss per book 100,000 Increase in unrealized loss 250,000 Problem 22-6 2016 1. Trading securities Financial asset at FVOCI Cash 2. Unrealized loss - TS Trading securities (2,900,000 - 2,400,000) 250,000 250,000 Carrying amount Market 1,200,000 ‘1,000,000 200,000 150,000 1,400,000 1,150,000 1,500,000 2,900,000 3,600,000 6,500,000 500,000 500,0003. Financial asset - FVOCI Unrealized gain - OCI (3,600,000 - 4,000,000) 2017 1. Cash Trading securities (1/2 x 1,400,000) 700,000 Gain on sale of TS 300,000 2. Cash Financial asset - FVOCI (1/2 x 2,500,000) Retained earnings 50,000 Unrealized gain - OCI (500,000 x 1/2) Retained earnings 250,000 3. Trading securities Unrealized gain - TS (2,000,000 - 1,700,000) 400,000 1,000,000 1,300,000 250,000 300,000 Carrying amount Security One Security Two 4, Financial asset - FVOCI Unrealized gain - OCI 50,000 Security Three 1,600,000 Security Four Problem 22-7 December 31, 2016 Unrealized loss - TS Trading securities 400,000 Financial asset - FVOCI Unrealized gain - other comprehensive income 100,000 December 31, Trading securi Unrealized gain - TS (5,500,000 - 4,600,000) 700,000 1,000,000 1,700,000 50,000 1,500,000 1,250,000 2,750,000 400,000 100,000 900,000 400,000 1,250,000 300,000 Market 900,000 1,100,000 2,000,000 1,200,000 2,800,000 900,000Financial asset - FVOCI 200,000 Unrealized gain - other comprehensive income 200,000 (3,300,000 ~ 3,100,000) Problem 22-8 01/01/2016 Trading securities 2,000,000 Financial asset - FVOCI 4,000,000 Cash 6,000,000 12/31/2016 Trading securities 500,000 Unrealized gain - TS 500,000 Unrealized loss - other comprehensive income 700,000 Financial asset - FVOCI 700,000 12/31/2017 Trading securities 200,000 Unrealized gain - TS 200,000 12/31/2018 Unrealized loss - TS 600,000 Trading securities 600,000 Financial asset - FVOCI (4,200,000 - 3,300,000) —_ 900,000 Unrealized loss - other comprehensive income 700,000 Unrealized gain - other comprehensive income 200,000 Problem 22-9 01/01/2016 Financial asset - FVPL 6,000,000 Cash 6,000,000 12/31/2016 Unrealized loss 300,000 Financial asset - FVPL (6,000,000 ~ 5,700,000) 300,000 01/01/2017 Investment in bonds 5,700,000 Financial asset - FVPL 5,700,000Problem 2016 Jan. 1 Dec. 31 320,000 31 44,960 2017 Dec. 31 31 2018 Jan. 1 455,984 22-10 Investment in bonds 3,649,600 Cash 3,649,600 Cash (8% x 4,000,000) 320,000 Interest income Investment in bonds 44,960 Interest income Interest income (10% x 3,649,600) 364,960 Interest received 320,000 Amortization ~44,960 Cash 320,000 Interest income 320,000 Investment in bonds 49,456 Interest income 49,456 Interest income (10% x 3,694,560) 369,456 Interest received 320,000 Amortization ~49,456 Investment in bonds 455,984 Gain on reclassification of financial asset Market value (4,000,000 x 105) 4,200,000 Carrying amount 3,744,016 Gain on reclassification _455,984 ‘nancial asset at FVPL 4,200,000 Investment in bonds 4,200,000Problem 22-11 Answer A Problem 22-12 Answer A Total market value - December 31, 2017 2,000,000 Total market value - December 31, 2016 Unrealized gain 350,000 Problem 22-13 Answer C Problem 22-14 Answer B Under PFRS 9, there is no more impairment loss on equity investment measured at fair value, whether through profit or loss, or through other comprehensive income. The cumulative unrealized loss of P1,800,000 would continue to be reported as component of OCI. Problem 22-15 Answer A Total market value - December 31, 2017 4,500,000 Total market value - December 31, 2016 4,800,000 Unrealized loss in 2017 ( 300,000) Unrealized loss - December 31, 2016 (200,000) Total unrealized loss ~ December 31,2017 (800,000) Problem 22-16 Answer B (200,000 x 40) 8,000,000 Problem 22-17 Answer C (360,000 - 320,000) 40,000 Problem 22-18 Answer BUnrealized losses 260,000 Unrealized gains Net unrealized loss - December 31, 2016 Problem 22-19 Question 1 Answer B Trading fair value - 12/31/2017 3,800,000 Trading fair value - 12/31/2016 4,000,000 Unrealized loss for 2017 200,000) Question 2 Answer C Nontrading fair value - 12/31/2017 3,700,000 Historical cost 3,000,000 Cumulative unrealized gain - 12/31/2017 Problem 22-20 Answer C sale price Less: Carrying amount of B Loss on sale debited to retained earnings 40,000 220,000 —Z00,000 1,450,000 1,550,000 (100,000)Cash 1,450,000 Retained earnings 100,000 Financial asset - FVOCI 1,550,000 Retained earnings 150,000 Unrealized loss - other comprehensive income 150,000 Problem 22-21 Answer D Zero Problem 22-22 Answer B The nonredeemable preference share is an equity security. The redeemable preference share is a debt security. Whether equity or debt security, trading securities are carried at market value. Problem 22-23 Answer C Sales price of Security B 1,100,000 Carrying amount of Security B - 12/31/2016 1,600,000 Loss on sale of trading securities ( 500,000) Market value of Security A - 12/31/2017 600,000 Market value of Security A - 12/31/2016 1,000,000 Unrealized loss on TS in 2017 (— 400,000) Total loss (500,000 + 400,000) (900,000) Problem 22-24 Problem 22:25 Problem 22:26 Problem 22-27 1D 1.8 1.8 1D 2.D Ze 2.8 2¢ 3A 3c B.A B.A 4.8 4.B 4A 4.€ 5.D 5.C 5.D 6.8 6. A 6.D 7A 7D 7A 8. 8D 8.D 9D 2B 10. B 10. €CHAPTER 23 Problem 23-1 Market value Fraction Allocated cost A (8,000 x 100) 800,000 8/41 600,000 B (16,000 x 150) 2,400,000 24/41 1,800,000 € (1,000,000 x 90%) 900,000 9/41 ‘675,000 4,100,000 3,075,000 Investment in A shares 600,000 Investment in B shares 1,800,000 Investment in C Bonds 675,000 Cash 3,075,000 Problem 23-2 Requirement 1 a. Investment in equity securities 309,000 Cash 309,000 b, Investment in equity securities 1,030,000 Cash 1,030,000 Requirement 2 a, Cash 405,000 Loss on sale of investment 32,750 Investment in equity securities 437,750 Lot No. 1 - 1,000 shares 309,000 Lot No.2- 500 shares (500/4,000 x 1,030,000) 128,750 437,750 b. Cash 405,000 Investment in equity securities (1,500/5,000 x 1,339,000) 401,700 Gain on sale of investment 3,300 Problem 23-3 July 15 Cash 25,000 Dividend income (5,000 shares x 5) 25,000 Dec. 15 Memo - Received 1,000 shares representing 20% stock dividend on 5,000 original shares held. Dec. 28 Cash (3,000 shares x 60) 180,000 Investment in equity securities 133,000 Gain on sale of investment 47,000 Lot No. 1 (2,400 shares) 100,000 Lot No. 2 (600/3,600 x 198,000) — 33,000 Cost of investment sold 133,000Problem 23-4 1, Investment in Aye ordinary shares (40,000 x 50) 2,000,000 Cash 2,000,000 2. Memo - Received 200,000 Aye ordinary shares as a result of 5 for 1 split of 40,000 original shares. 3. Investment in Aye preference shares 125,000 Investment in Aye ordinary shares 125,000 Market value Fraction Cost Ordinary shares (200,000 x 15) 3,000,000 30/32 _1,875,000 Preference shares (20,000 x 10) _200,000 2/32 125,000 3,200,000 2,000,000 4. Investment in Bee ordinary shares 300,000 Dividend income (200,000/4 = 50,000 x 6) 300,000 5. Cash (80,000 x 15) 1,200,000 Investment in Aye ordinary shares (80,000/200,000 x 1,875,000) 750,000 Gain on sale of investment 450,000 Problem 23-5 1, Investment in ANA ordinary shares 300,000 Cash 300,000 2. Investment in Benguet ordinary shares 120,000 lend income (2,000 x 60) 120,000 3. Investment in ANA ordinary shares 420,000 Cash 420,000 4, Cash 60,000 Dividend income (12% x P200 = 24 x 5,000 x 1/2) 60,000 5. Memo - Received 20,000 new ANA ordinary shares as a result of a2 for 1 split of 10,000 original shares. 6. Cash (680,000 - 34,000) 646,000 Investment in ANA ordinary shares (8,000/20,000 x 720,000) 288,000 Gain on sale of investment 358,000Shares Cost SMC preference share 5,000 1,200,000 Benguet ordinary share 10,000 1,000,000 Benguet ordinary share 2,000 120,000 ANA ordinary share 12,000 432,000 29,000 2,752,000 Problem 23-6 1, Investment in Zee ordinary shares 720,000 Cash 720,000 2. Memo - Received 2,000 shares as 20% stock dividend on 10,000 original shares. Shares now held, 12,000. 3. Cash (2,000 x 70) 140,000 Investment in Zee ordinary shares (2,000/12,000 x 720,000) 120,000 Gain on sale of investment 20,000 4, Investment in Zee preference shares (5,000 x 70) 350,000 Investment in Zee ordinary shares (5,000/10,000 x 600,000) 300,000 Gain on exchange 50,0005. Investment in Zee ordinary shares Cash (5,000 x 20) Problem 23-7 a. 2012 2013 2014 150,000 2015 200,000 2016 250,000 Cash Investment in equity securities Cash Dividend income 100,000 Investment in equity securities Cash Dividend income Investment in equity securities Cash Dividend income Investment in equity securities (1,000,000 - 950,000) Gain on investment Cash Dividend income Gain on investment 100,000 400,000 400,000 400,000 400,000 400,000 100,000 400,000 300,000 250,000 50,000 150,000 150,000b. The investment account has been totally eliminated as of December 31, 2015 because the liquidating dividends received exceed the cost of investment. Hence, there is no more investment account to be reported in the December 31, 2016 statement of financial position, but such fact shall be disclosed in the notes to financial statements to the effect that the investor is still the ‘owner of 10,000 shares with a zero cost. Problem 23-8 1, Investment in equity securities 1,800,000 Cash 1,800,000 2, 10,000 rights 159 3. Initial measurement of rights (10,000 x 10) 100,000 4. Stock rights 100,000 Investment in equity securities 100,000 5. Investment in equity securities 400,000 Cash (10,000 / 5 = 2,000 x 150) 300,000 Stock rights 100,000 6. Cash (10,000 x 15) 150,000 Stock rights 100,000Gain on sale of rights 50,000 7. Loss on stock rights Stock rights Problem 23-9 Requirement 1 125-100 Theoretical value = = 5.00 per right 4+ a. Stock rights (25,000 x 5) Investment in equity securities b, Investment in equity securities Stock rights Cash (25,000 / 4 = 6,250 x 100) Requirement 2 125 - 100 Theoretical value = = 625 per right 4 a. Stock rights (25,000 x 6.25) Investment in equity securities b. Investment in equity securities Stock rights Cash Problem 23-10 1, Stock rights (40,000 x 10) Investment in equity securities 2. Investment in equity securities Stock rights (30,000 x 10) Cash (15,000 shares x 80) 3. Cash (6,000 x 12) Stock rights (6,000 x 10) Gain on sale of rights 12,000 4. Loss on stock rights (4,000 x 10) Stock rights First acquisition (3,000,000 - 400,000) New acquisition 100,000 125,000 750,000 156,250 781,250 400,000 1,500,000 72,000 40,000 Shares 40,000 15,000 55,000 100,000 125,000 125,000 625,000 156,250 156,250 625,000 400,000 300,000 1,200,000 60,000 40,000 Cost 2,600,000 1,500,000 4,100,000Problem 23-11 1, Investment in equity securities Cash 3,200,000 2. Memo - Received 20,000 shares as stock dividend on 80,000 original shares. Shares now held, 100,000. 3. Cash (100,000 x 5) Dividend income 4. Stock rights (100,000 x 5) Investment in equity securities 5. Cash (40,000 x 7) Stock rights (40,000 x 5) Gain on sale of rights 80,000 6. Investment in equity securities Stock rights (60,000 x 5) Cash (60,000/5 = 12,000 x 30) 7. Cash (80,000 x 35) Investment in equity securities (80,000/100,000 x 2,700,000) Gain on sale of investment New acquisition Problem 23-12 2016 Aug. 1 Investment in equity securities Cash Oct. 1 Investment in equity securities Cash 2017 July 1 Investment in equity securities Cash ‘Aug.1 Cash Investment in equity securities 340,000 Gain on sale of investment 160,000 Lot | (1,000 shares) 60,000 Lot 2 (4,000/8,000 x 560,000) 500,000 500,000 280,000 660,000 2,800,000 Shares 20,000 12,000 32,000 60,000 560,000 480,000 500,000 3,200,000 500,000 500,000 200,000 300,000 360,000 2,160,000 640,000 Cost 540,000 660,000 1,100,000 60,000 560,000 480,000 280,000Cost of investment sold 340,000 2018 Feb. 1 Received 5,000 shares representing 50% stock dividend on 10,000 remaining shares held. Shares now held, 15,000. Nov. 1 Stock rights Investment in equity securities 150,000 Lot 2 - 6,000 rights (6,000 x 10) Lot 3 - 9,000 rights (9,000 x 10) Cost of rights received 150,000 Dec.1 Cash (15,000 x 15) Stock rights Gain on sale of stock rights 75,000 Summary of investments Lot 2 (280,000 - 60,000) Lot 3 (480,000 - 90,000) Total Problem 23-13 Jan. 2 Investment in King Company Cash Mar. 1 Investment in Queen Company Cash 660,000 150,000 225,000 Shares 6,000 9,000 15,000 700,000 660,000 60,000 90,000 150,000 Cost 220,000 390,000 700,000Apr. 1 July 1 Aug. 1 Oct. 1 31 Nov. 15 120,000 Dec. 1 15 190,000 700,000 550,000 120,000 500,000 ‘Cash (10,000 x 5) 50,000 Dividend income 50,000 Received 2,000 shares as 20% stock dividend on 10,000 Queen Company shares originally held. Shares now held, 12,000. Investment in Princess Company 500,000 Cash 500,000 Received 60,000 new shares of Queen Company as a result of a 5 for | split of 12,000 original shares. Cash (10,000 x 5) 50,000 Dividend income 50,000 Memo - Received 60,000 stock rights from Queen Company to subscribe for one new share at P20 for every 10 rights held. Investment in Queen Company 120,000 Cash (6,000 shares x 20) Cash (66,000 shares x 5) 330,000 Dividend income 330,000 Cash (10,000 shares x 30) 300,000 Investment in Queen Company (10,000/60,000 x 660,000) 110,000 Gain on sale of investment Summary of investments Shares Cost King Company shares 10,000 Queen Company shares Block 1 50,000 Block 2 6,000 Princess Company shares 10,000 76,000 —_ 1,870,000 Of course, the investments will simply be described as “investments in equity securities” in the statement of financial position.Problem 23-14 Requirement 1 01/01/2014 (20,000 x 110) 04/01/2014 (5,000 x 100) 12/31/2014 (10% x 2,500,000) 12/31/2015 (10% x 2,500,000) 12/31/2016 (25,000 x 110) 06/30/2017 (25,000 x 92) (2,300,000) Investment account per book 2,650,000 Requirement 2 01/01/2014 (20,000 x 110) 2,200,000 04/01/2014 (5,000 x 100) 01/01/2016 (50% x 25,000) Balance 01/01/2016 (12,500/37,500 x 2,700,000) Balance 12/31/2016 (2 for | split) Balance 06/30/2017 (1/2 x 1,800,000) Balance - 12/31/2017 Requirement 3 - Adjusting entries 12/31/2017 1, Investment in Sun Company Retained earnings 250,000 2. Investment in Sun Company Retained earnings 250,000 Shares Cost 20,000 2,200,000 5,000 500,000 - (250,000) (_ 250,000) 25,000 2,750,000 (25,000) 25,000 Shares Cost 20,000 5,000 500,000 12,500 : 37,500 2,700,000 (12,500) —(__900,000) 25,000 ‘1,800,000 25,000 I 50,000 1,800,000 (25,000) —_(__900,000) 25,000 — ___900,000 250,000 250,0003. Retained earnings Investment in Sun Company Sale price (12,500 x 160) Cost of shares sold on 1/1/2016 Gain on sale 4. Retained earnings Investment in Sun Company 5. Investment in Sun Company Gain on sale of investment Sale Price (25,000 x 92) Cost of shares sold on 6/30/2015 Gain on sale Proof Investment account per book 2,650,000 Adjustments: #1 #2 #3 #4 #5 Adjusted balance - 12/31/2017 900,000 Problem 23-15 Answer A Purchase price (4,000 x P100) Brokerage Total Less: Dividend purchased (4,000 x 5) Problem 23-16 Answer D Fair value of asset given (land) Problem 23-17 Answer D Original shares acquired January 15 50,000 900,000 900,000 2,000,000 (900,000) 000 2,750,000 2,750,000 1,400,000 1,400,000 2,300,000 (__ 900,000) 1,400,000 250,000 250,000 (_ 900,000) (2,750,000) 1,400,000 400,000 12,000 412,000 20,000 3,000,000Stock dividend on March 31 (20% x 50,000) 10,000 Total shares Dividend income - cash dividend on December 15 (60,000 x 5) Problem 23-18 Answer C Dividend income - cash dividend on July 1 100,000 Original shares on March 1 Stock dividend on December 1 (10% x 20,000) Total shares Problem 23-19 Answer A Dividend income (2,000 x 60) Problem 23-20 Answer B Original shares on October 1 40,000 Stock dividend on November 30 (10%) Total shares Shares sold on December 31 4,000) Balance Sales price 1,000,000 Cost of shares sold (4,000 / 44,000 x 6,600,000) Gain on sale Problem 23-21 Answer D Cash dividend (10% x 500,000) Problem 23-22 Answer A Original shares Stock dividend - 20% Total shares Sales price (30,000 x 125) Cost of shares sold: From June 1 - 24,000 shares From December 1 - 6,000 shares (6,000 / 36,000 x 3,600,000) Gain on sale Problem 23-23 Answer D Cost of rights (100,000 x 6) 2,000,000 600,000 60,000 300,000 20,000 _2,000 120,000 4,000 44,000 ( 40,000 (600,000) 400,000 50,000 December | 30,000 6,000 36,000 3,750,000 2,600,000 1,150,000Problem 23-24 Answer B Sales price (50,000 x 15) Cost of rights sold (50,000 x 10) 500,000 Gain on sale of rights 250,000 Problem 23-25 Answer B Initial cost of rights (50,000 x 20) Cash paid for new shares (25,000 x 90) 2,250,000 Total cost of new shares 3,250,000 Problem 23-26 Answer A Theoretical value of right (125-100 /4 +1) Initial cost of rights (50,000 x 5) 250,000 Cash paid for new shares (50,000 / 4 = 12,500 x 100) 1,250,000 Cost of new investment 750,000 1,000,000 1,500,000Problem 23-27 Answer B Total cost of rights (60,000 x 5) 300,000 10,000 shares x 5 rights 50,000 rights Cash paid (10,000 x 80) 800,000 Cost of rights exercised (50,000 x 5) 250,000 Total cost of 900 shares 1,050,000 Problem 23-28 Answer A Shares Cost Original investment 50,000 3,800,000 New investment acquired through stock rights (50,000 x 80) _ 50,000 4,000,000 Total 100,000 7,800,000 FIFO approach Sales price (25,000 x 90) 2,250,000 Cost of shares sold (25,000 / 50,000 x 3,800,000) 1,900,000 Gain on sale 350,000 Average approach Sales price 2,250,000 Cost of shares sold (25,000 / 100,000 x 7,800,000) 1,950,000 Gain on sale — 300,000 Problem 23-29 SLenaV awn noronS> EanCHAPTER 24 Problem 24-1 Equity method 1. Investment in associate 2,400,000 Cash 2,400,000 Acquisition cost 2,400,000 Net assets acquired (20% x 8,000,000) 1,600,000 Goodwill 2, Investment in associate 300,000 Investment income (20% x 1,500,000) 300,000 3. Memo - Received 2,000 shares as 10% stock divi 20,000 original shares. Shares now held, 22,000. 4, Investment loss 60,000 Investment in associate (20% x 300,000) 60,000 5. Cash (20% x 500,000) 100,000 Investment in associate 100,000 6. Cash (5,500 x 200) 1,100,000 Investment in associate 635,000 Gain on sale of investment 465,000Sale price Less: Cost of investment sold (5,500/22,000 x 2,540,000) 635,000 Gain on sale 7. Investment in associate 1,065,000 Gain from remeasurement to fair value 1,065,000 Fair value (16,500 x 180) 2,970,000 Carrying amount of retained investment (2,540,000 - 635,000) Gain from remeasurement Investment in equity securities 2,970,000 Investment in associate Cost method 1, Investment in equity securities 2,400,000 Cash 2. Noentry 3. Memo - Received 2,000 shares as 10% stock dividend. Shares now held, 22,000. 4, No entry 5. Cash 100,000 Dividend income 6. Cash 1,100,000 Investment in equity securities (5,500/22,000 x 2,400,000) Gain on sale of investment 7, Noentry Problem 24-2 Requirement 1 1, Investment in associate 7,000,000 Cash 2. Investment in associate 1,250,000 Investment income (25% x 5,000,000) 3. Cash (25% x 3,000,000) 750,000 Investment in associate 4. Investment income 100,000 Investment in associate (500,000 / 5) Requirement 2 1,100,000 2,400,000 100,000 600,000 500,000 7,000,000 1,250,000 750,000 100,000Acquisition cost Carrying amount of net assets acquired (25% x 24,000,000) Excess of cost 1,000,000 Attributable to equipment (25% x 2,000,000) Attributable to land (25% x 1,000,000) Goodwill Requirement 3 Share in net income Amortization of excess attributable to equipment 100,000) Investment income Requirement 4 Acquisition cost Share net income Share in cash dividend Amortization of excess attributable to equipment (500,000 / 5) Carrying amount - at year-end Problem 24-3 2016 Investment in associate 5,000,000 Cash Investment in associate 300,000 Investment income (30% x 4,000,000 x 3/12) Cash (30% x 3,000,000) 900,000 Investment in associate 2016 Investment income 50,000 Investment in associate (200,000 x 3/12) 2017 Investment in associate 1,800,000 Investment income (30% x 6,000,000) Cash (30% x 5,000,000) 1,500,000 Investment in associate Investment income 200,000 Investment in associate 200,000 7,000,000 6,000,000 (500,000) (250,000) 230,000 1,250,000 ( 1,150,000 7,000,000 1,250,000 (750,000) (100,000) 7,400,000 5,000,000 300,000 900,000 168 50,000 1,800,000 1,500,000Problem 24-4 Requirement 1 Fair value of existing interest 4,500,000 Cost of additional interest Total cost Carrying amount of net assets acquired (25% x 36,000,000) Excess of cost 2,250,000 Excess attributable to equipment (25% x 4,000,000) Goodwill Requirement 2 2016 Jan. 1 Financial asset at FVOCI Cash Dec. 31 Financial asset at FVOCI Unrealized gain - OCI 2017 Dec. 31 Financial asset at FVOCI Unrealized gain - OCI 2018 Jan. 1 Unrealized gain - OCI Retained earnings 1 Investment in associate Cash 1 Investment in associate Financial asset at FVOCI 4,500,000 Dec. 31 Investment in associate Investment income (25% x 8,000,000) 2,000,000 3,000,000 500,000 1,000,000 1,500,000 6,750,000 4,500,000 2,000,000 6,750,000 11,250,000 _9,000,000 1,000,000 1,250,000 3,000,000 500,000 1,000,000 1,500,000 6,750,000Bl Cash (5% x 5,000,000) Investment in associate 31 Investment income Investment in associate (1,000,000 / 5) Problem 24-5 2016 Jan. 1 Investment in associate Cash Dec. 31 Investment in associate Investment income (30% x 5,000,000) 1,500,000 31 Cash (30% x 2,000,000) Investment in associate 2017 June 30 Investment in associate Investment income (30% x 6,000,000) 1,800,000 1,250,000 1,250,000 200,000 200,000 169 8,000,000 8,000,000 1,500,000 600,000 600,000 1,800,000July 1 Cash 6,000,000 Investment in associate (10,700,000 x 1/2) 5,350,000 Gain on sale of investment 650,000 1 Investment in associate 1,150,000 Gain from remeasurement to fair value 1,150,000 (6,500,000 - 5,350,000) 1 Financial asset at FVOCI 6,500,000 Investment in associate 6,500,000 Oct. 1 Cash (2,500,000 x 15%) 375,000 Dividend income 375,000 Dec. 31 Unrealized loss - other comprehensive income 600,000 Financial asset at FVOCI (6,500,000 - 5,900,000) 600,000 Problem 24-6 1. Investment in associate 3,500,000 Cash 3,500,000 2. Investment in associate 1,600,000 Investment income (40% x 4,000,000) 1,600,000 3. Cash (40% x 1,000,000) 400,000 Investment in associate 400,000 4. Investment income 150,000 Investment in associate (600,000 / 4) 150,000Cost Carrying amount of net assets acquired (40% x 7,000,000) 2,800,000 Excess of cost over carrying amount 700,000 Excess attributable to equipment (40% x 1,500,000) Excess attributable to inventory (40% x 500,000) Excess net fair value over cost 5. Investment income 200,000 Investment in associate 6. Investment in associate 100,000 Investment income Share in net income Amortization of excess attributable to equipment 150,000) Amortization of excess attributable to inventory 200,000) Excess net fair value over cost 3,500,000 (600,000) 200,000) (100,000) 200,000 170 100,000 1,600,000 ( ( 100,000Net investment income 1,350,000 Problem 24-7 Requirement 1 a. Investment in associate 1,700,000 Cash 1,700,000 b. Investment in associate 260,000 Investment income (40% x 650,000) 260,000 «Cash (40% x 150,000) 60,000 Investment in associate 60,000 d, Investment in associate 520,000 Revaluation surplus ~ investee (40% x 1,300,000) 520,000 Note a. Cost 1,700,000 Interest acquired (40% x 4,000,000) 1,600,000 Goodwill - not amortized 100,000 b. There is no need to adjust for the difference in depreciation method. If both entities as method that best reflects the flow of benefits as the assets are consumed, then there is no policy difference.Requirement 2 Acquisition cost Share in net income Share in cash dividend Share in revaluation surplus 520,000 Carrying amount - December 31, 2016 Problem 24-8 1. Journal entries a. Investment in associate Cash b. Investment in associate Investment income c. Cash Investment in associate d. Investment income Investment in associate 2. Share in net income 1,700,000 260,000 (60,000) 2,420,000 6,000,000 6,000,000 750,000 750,000 450,000 450,000 200,000 200,000 171 750,000Amortization of patent (2,000,000 / 10) (200,000) Investment income 3. Acquisition cost Share in net income (5,000,000 x 15%) Share in cash dividend (3,000,000 x 15%) Amortization of patent (2,000,000 / 10) 200,000) Carrying amount Interest acquired (30,000 / 200,000) 15% Acquisition cost Carrying amount of net assets acquired 4,000,000 Excess of cost applicable to patent Problem 24-9 1. Share in 2016 net income 900,000 Amortization of excess (400,000 / 20) Investment income for 2016 880,000 Acquisition cost (20,000 x 120) Net assets acquired (25% x 8,000,000) Excess of cost 400,000 550,000 6,000,000 750,000 ( 450,000) ( 6,100,000 6,000,000 2,000,000 (20,000) 2,400,000 2,000,0002. Share in 2017 net income 975,000 Amortization of excess Investment income for 2017 255,000 3. Acquisition cost Share in net income 2016 (25% x 3,600,000) 2017 (25% x 3,900,000) Share in cash dividend: 2016 (20,000 x 16) 2017 (20,000 x 20) Amortization of excess: 2016 (400,000 / 20) 2017 Carrying amount - 12/31/2017 Problem 24-10 1, Journal entries a. Investment in associate Cash b. Investment in associate Investment income « Cash Share in net income (25% x 700,000) 175,000 Amortization of excess: Inventory Equipment (125,000 / 5) Cash dividend (25,000 x 3) Carrying amount of investment 1,050,000 5,000,000 1,200,000 300,000 20,000) 2,400,000 900,000 975,000 ( 320,000) ( 400,000) (20,000) 20,000) C 3,515,000 5,000,000 1,200,000 (25,000) (25,000) (__75,000)Problem 24-12 Requirement a Fair value of 10% existing interest 2,400,000 Cost of 20% new interest 5,000,000 Total cost 7,400,000 Carrying amount of net assets acquired (30% x 20,000,000) 6,000,000 Goodwill 1,400,000 Requirement b 1. Memo - Received 500 shares as 10% stock dividend on 5,000 original Dale ordinary shares. Shares now held, 5,500. 2. Cash (5,500 x 20) 110,000 Dividend income 110,000 3. Investment in associate 5,000,000 Cash 5,000,000 Investment in associate 400,000 Gain on remeasurement to equity 400,000 Investment in associate 2,400,000 Investment in equity securities 2,400,000 (Reclassification) 4. Investment in associate 1,800,000 Investment income (30% x 6,000,000) 1,800,000 Cash (75,000 x 20) 1,500,000 Investment in associate 1,500,000 Requirement c Noncurrent assets: Investment in equity securities (Note) 2,850,000 Investment in associate - Fox Company 7,700,000 Note - Investment in equity securities Dale Corporation, 5,500 shares 1,250,000 Ever Corporation, 10,000 shares 1,600,000 Total cost 2,850,000 Problem 24-13 1. Net income for 2016 3,000,000 Unrealized profit in 12/31/2016 inventory of Heaven (900,000 - 600,000) 300,000) Adjusted net income Investor's share (20% x 2,700,000)2. Net income for 2017 4,000,000 Realized profit in 12/31/2016 inventory of Heaven Company 300,000 Unrealized profit in 12/31/2017 inventory of Heaven Company (750,000 - 500,000) (250,000) Adjusted net income 4,050,000 Investor's share (20% x 4,050,000) 810,000 Requirement 3 2016 Jan. 1 Investment in associate 6,000,000 Cash 6,000,000 Dec. 31 Investment in associate 540,000 Investment income 540,000 31 Cash (20% x 1,000,000) 200,000 Investment in associate 200,000 2017 Dec. 31 Investment in associate 810,000 Investment income 810,000 31 Cash (20% x 1,500,000) 300,000 Investment in associate 300,000 Requirement 4 Acquisition cost 6,000,000 profit of associate - 2016 540,000 cash dividend - 2016 (200,000) Share in profit of associate - 2017 810,000 Share in cash dividend - 2017 300,000) Carrying amount ~ 12/31/2017 6,850,000Problem 24-14 1. Net income for 2016 2,000,000 Unrealized profit on sale of equipment sold on 1/1/2016 (800,000 - 500,000) ( 300,000) Realized profit on equipment sold on 1/1/2016 (10% x 300,000) 30,000 Adjusted net income 1,730,000 Investor's share (40% x 1,730,000) 692,000 2. Net income for 2017 3,000,000 Realized profit on equipment sold on 1/1/2016 (10% x 300,000) 30,000 Unrealized profit on sale of equipment on 7/1/2017 (900,000 - 500,000) (400,000) Realized profit on equipment sold on 7/1/2017 (400,000 / 5 x 1/2) 40,000 Unrealized profit on ending inventory on 12/31/2017 (2,800,000 - 2,000,000) (__ 800,000) Adjusted net income 1,870,000 Investor's share (40% x 1,870,000) 748,000 Requirement 3 2016 Jan. 1 Investment in associate 5,000,000 Cash 5,000,000 Dec. 31 Investment in associate 692,000 Investment income 692,000 31 Cash (40% x 800,000) 320,000 Investment in associate 320,000 2017 Dec. 31 Investment in associate 748,000 Investment income 748,000 31 Cash (40% x 1,000,000) 400,000 Investment in associate 400,000 Requirement 4 Acquisition cost 5,000,000 Investment income - 2016 692,000 Cash dividend - 2016 « 320,000) Investment income - 2017 748,000 Cash dividend - 2017 ( 400,000) Carrying amount - 12/31/2017 5,720,000 Problem 24-151. Acquisition cost 3,200,000 Net assets acquired (30% x 6,000,000) (4,800,000) Excess of cost 1,400,000 Excess attributable to equipment (30% x 3,000,000) (900,000) Goodwill 500,000 2. Net income for 2016 4,000,000 Unrealized profit on 12/31/2016 inventory ( 600,000) Adjusted net income 3,400,000 Investor’s share (30% x 3,400,000) 1,020,000 Amortization of excess attributable to equipment (900,000 / 5) (180,000) Investment income 840,000 Requirement 3 1, Investment in associate 3,200,000 Cash 3,200,000 2. Investment in associate 840,000 Investment income 840,000 3. Cash (30% x 1,500,000) 450,000 Investment in associate 450,000 4. Investment in associate 600,000 Revaluation surplus (30% x 2,000,000) 600,000 Requirement 4 Acquisition cost 3,200,000 Investment income 840,000 Cash dividend 450,000) Revaluation surplus Carrying amount - 12/31/2016 Problem 24-16 Requirement 1 1. Investment in associate 6,500,000 Cash 2. Loss from investment 1,600,000 Investment in associate (40% x 4,000,000) 3. Cash (40% x 2,500,000) 1,000,000 Investment in associate 4, Loss from investment 150,000 Investment in associate Acquisition cost Carrying amount of net assets acquired (40% x 12,500,000) 6,500,000 1,600,000 1,000,000 150,000 6,500,000 5,000,000Excess attributable to equipment 1,500,01 Amortization (1,500,000 / 10) Requirement 2 Acquisition cost Share in net loss Share in cash dividend Amortization of excess Carrying amount - 12/31/2016 Problem 24-17 2013 Investment in associate Cash Loss from investment Investment in associate (40% x 5,000,000) 2014 Loss from investment Investment in associate (40% x 7,000,000) 2015 Advances to associate Cash Loss from investment Investment in associate Advances to associate 1,000,000 150,000 6,500,000 (1,600,000) (1,000,000) (150,000) 3,250,000 7,000,000 7,000,000 2,000,000 2,000,000 2,800,000 2,800,000 2,000,000 2,000,000 3,200,000 2,200,0002016 Loss from investment 1,000,000 Advances to associate 1,000,000 177 Acquisition cost 7,000,000 Cash advances 2,000,000 Total investment 9,000,000 Net loss from 2013 to 2015 (40% x 20,000,000) (8,000,000) Carrying amount of investment - 12/31/2015 1,000,000 Share in net loss of 2016 (40% x 4,000,000) 1,600,000 Loss to be reported in 2016 should be equal to the carrying amount of the investment only. 1,000,000 Problem 24-18 Answer C Sun Company (100,000 / 1,000,000) 10% Star Company (300,000 / 1,000,000) 30% Dividend income from Sun Company (10% x 2,000,000) 200,000Investment income from Star Company (30% x 4,000,000) Problem 24-19 Answer Problem 24-20 Answer Problem 24-21 Answer Problem 24-22 Answer B ooo Investment in Lax Company Problem 24-23 Answer A ‘Cash (10% x 3,000,000) 300,000 Dividend income Problem 24-24 Answer B Purchase price (SQUEEZE) Net income (25% x 4,200,000) Cash dividend (25% x 1,800,000) 450,000) Carrying amount - December 31 3,200,000 Problem 24-25 Answer B Investment income (20% x 1,600,000) 1,400,000 3,000,000 300,000 2,600,000 1,050,000 ( 320,000Problem 24-26 Answer A Investment income (20% x 6,000,000) 1,200,000 Problem 24-27 Answer C Cost 4,000,000 Less: Net assets acquired (40% x 8,000,000) 3,200,000 Excess of cost or goodwill 800,000 Share in net income from April 1 to December 31 (1,000,000 x 9/12 x 40%) 300,000 178 Problem 24-28 Answer B Acquisition cost 7,000,000 Share in net income (20% x 1,800,000) 360,000 Share in cash dividend (20% x 600,000) ( 120,000) Amortization of excess (1,000,000/10) (_100,000) Carrying amount 7,140,000 Problem 24-29 Answer CInterest (30,000/100,000) 30% Investment income (5,000,000 x 6/12 x 30%) 750,000 Problem 24-30 Answer A Acquisition cost 4,000,000 Share in net income (10% x 5,000,000) 500,000 Share in cash dividend (10% x 1,500,000) (150,000) Carrying amount 4,350,000 Problem 24-31 Answer D Acquisition cost (SQUEEZE) 1,720,000 Share in net income (25% x 1,200,000) 300,000 Share in cash dividend (25% x 480,000) ( 120,000) Carrying amount - December 31 1,900,000 Problem 24-32 Answer D Acquisition cost 2,500,000 Less: Carrying amount of net assets acquired (30% x 5,000,000) 41,500,000 Excess of cost over carrying amount 1,000,000 Less: Amount attributable to undervaluation of land (30% x 2,000,000) 600,000 Goodwill 400,000 Acquisition cost 2,500,000 Add: Share in net income (30% x 1,000,000) 300,000 Balance, December 31 2,800,000 The excess of cost attributable to the land is not amortized because the land is nondepreciable. The goodwill is not amortized. Problem 24-33 Answer C Fair value of 10% interest 1,400,000 Acquisition cost - December 31 3,000,000 Total cost 4,400,000 Problem 24-34 Answer C Only the dividend on preference share capital is recognized as dividend revenue. ‘The equity method is not applicable to investment in preference shares regardless of the interest. Problem 24-35 Answer A Investment income in 2017 (30% x 6,500,000) 1,950,000Problem 24-36 Answer A Acquisition cost Net assets acquired (30% x 11,800,000) 3,540,000 Excess of cost 1,620,000 utable to depreciable assets (30% x 2,600,000) Attributable to goodwill Acquisition cost Share in net income (30% x 3,600,000) Share in dividends (30% x 400,000) Amortization (780,000/4) 195,000) Investment balance - December 31 Problem 24-37 Answer B Acquisition cost Net assets acquired (40% x 5,000,000) Excess of cost 560,000 Attributable to equipment (40% x 800,000) 320,000 Attributable to building (40% x 600,000) 240,000 5,160,000 780,000 840,000 5,160,000 1,080,000 ( 120,000) ( 5,925,000 2,560,000 2,000,000560,000 2,560,000 Net income (40% x 1,600,000) 640,000 Cash dividend (40% x 1,000,000) (400,000) Amortization of excess: Equipment (320,000 / 4) (80,000) Building (240,000 / 12) (20,000) Carrying amount of investment - December 31 2 Problem 24-38 Answer A Net income 5,000,000 Less: Preference dividend (10% x 2,000,000) 200,000 Net income to ordinary shares 4,800,000 Investment income (50% x 4,800,000) 2,400,000 Problem 24-39 Answer A Acquisition cost 1,000,000 Post acquisition profits (3,000,000 - 2,000,000 x 30%) 300,000 Excess net fair value —500,000 Investment in associate 1,800,000 Investment in associate (30% x 6,000,000) 1,800,000 i 1,000,000 Net assets acquired (30% x 5,000,000) 1,500,000 Excess net fair value - included in investment income 500,000 The investment in associate is not impaired because the carrying amount of 1,800,000 is lower than the recoverable amount of P2,100,000 (30% x 7,000,000).Problem 24-40 Answer A Acquisition cost 11,200,000 Net assets acquired (35% x 32,400,000) 11,340,000 Excess of carrying amount over cost (140,000) Equipment - carrying amount higher than market value (1,400,000 x 35%) ( 490,000) Building ~ market value higher than carrying amount (1,000,000 x 35%) 350,000 (140,000) Share in net income (35% x 3,200,000) 1,120,000 Amortization of excess: Overdepreciation of equipment (490,000 / 5) Underdepreciation of building (350,000 / 10) Investment income The amortization of the equipment is added because the equipment is overvalued. The amortiz: undervalued. ion of the building is deducted because the building is Problem 24-41 Question 1 Answer C (5,000,000 - 4,500,000) 500,000 Question 2 Answer B Question 3 Answer C Question 4 Answer B Acquisition cost 5,000,000 Investment income for 2016 (30% x 2,100,000) 630,000 Cash dividend for 2016 (30% x 2,500,000) (750,000) Investment income for 2017 (30% x 2,800,000) 840,000 Cash dividend for 2017 (30% x 2,000,000) (_600,000) Carrying amount ~ 12/31/2017 5,120,000 Problem 24-42 Question 1 - Answer B Share in 2016 net income (30% x 800,000) 240,000 Question 2 - Answer B Acquisition cost 2,000,000 Share in net income - 2016 240,000Cash di 150,000) Carrying amount - December 31, 2016 idends - 2016 (30% x 500,000) Question 3 - Answer A Carrying amount - December 31, 2016 Share in net income up to June 30, 2017 (30% x 1,000,000) Carrying amount - June 30,2017 2,390,000 Sales price 1,500,000 Carrying amount sold (2,390,000 x 1/2) 1,195,000 Gain on sale Fair value of retained investment 1,600,000 Carrying amount of retained investment 1,195,000 Gain from remeasurement to fair value 405,000 Total profit and loss (305,000 + 405,000) Problem 24-43 Problem 24-44 Problem 24-45 Seengvawna eESnecoen> Suna Paro Seenayaywn> aAZNON>>O00 305,000 710,000 Problem 24-46 vawne e>oeeCHAPTER 25, Problem 25-1 Jan. 1 Trading securities 3,761,000 Cash 3,761,000 July 1 Cash 240,000 Interest income (4,000,000 x 12% x 6/12) 240,000 Dec. 31 Accrued interest receivable 240,000 Interest income 240,000 31 Trading securities 439,000 Unrealized gain - TS (4,200,000 - 3,761,000) 439,000 Problem 25-2 Aug. 1 Trading securities (5,000,000 x 104) 5,200,000 Interest income (5,000,000 x 12% x 3/12) 150,000 Cash 5,350,000 31 Trading securities (2,000,000 x 98) 1,960,000 Interest income (2,000,000 x 12% x 2/12) 40,000 Cash 2,000,000 Nov. 1 Cash (5,000,000 x 12% x 6/12) 300,000 Interest income 300,000 Dec. 1 Cash (1,880,000 + 20,000) 1,900,000 Loss on sale of trading securities 200,000 Trading securities 2,080,000 Interest income (2,000,000 x 12% x 1/12) 20,000 Selling price (2,040,000 - 160,000) 1,880,000Less: Cost of bonds sold (2,000/5,000 x 5,200,000) 2,080,000 Loss on sale 200,000) 31 Cash (2,000,000 x 12% x 6/12) 120,000 Interest income 120,000 31 Accrued interest receivable (3,000,000 x 12% x 2/12) 60,000 Interest income 60,000 31 Unrealized loss - TS 160,000 Trading securities 160,000 Carrying amount _ Market Acme bonds (3,000,000 x 98%) 3,120,000 2,940,000 Avco bonds (2,000,000 x 99%) 1,960,000 —_1,980,000 5,080,000 = 4,920,000 Current assets: Trading securities, at fair value 4,920,000 Problem 25-3 Requirement a March 1 Trading securities (2,000,000 x 93%) 1,860,000 Interest income (2,000,000 x 12% x 1/12) 20,000 Cash April 1 Trading securities (4,000,000 x 95%) 3,800,000 Interest income (4,000,000 x 12% x 1/12) 40,000 Cash Aug. 1 Cash (2,000,000 x 12% x 6/12) 120,000 Interest income Sept. 1 Cash (4,000,000 x 12% x 6/12) 240,000 Interest income Oct. 1 Cash (1,050,000 + 10,000) 1,060,000 Interest income (1,000,000 x 12% x 1/12) Trading securities Gain on sale of trading securities Sales price (1,000,000 x 105%) Less: Cost of bonds sold (1,000/4,000 x 3,800,000) Gain on sale Dec. 1 Cash (2,000,000 + 80,000) 2,080,000 Trading securities 1,880,000 3,840,000 120,000 240,000 10,000 950,000 100,000 1,050,000 950,000 100,000 1,860,000Interest income (2,000,000 x 12% x 4/12) 80,000 Gain on sale of trading securities 140,000 Sales price (2,000,000 x 100%) 2,000,000 Less: Cost of bonds sold 1,860,000 Gain on sale 149,000 31 Accrued interest receivable (3,000,000 x 12% x 4/12) 120,000 Interest income 120,000 31 Unrealized loss - TS (2,850,000 - 2,700,000) 150,000 Trading securities 150,000 Requirement b Current assets: Trading securities, at fair value (3,000,000 x 90) 2,700,000 Problem 25-4 2016 July 1 Trading securities 2,200,000 Commission expense 50,000 Interest income (2,000,000 x 4%) 80,000 Cash 2,330,000 Dec.31 Unrealized loss - TS 300,000 Trading securities 300,0002016 Market value (2,000,000 x 95) 1,900,000 Carrying amount Unrealized loss 300,000 Dec. 31 Cash (2,000,000) x 8%) 160,000 Interest income 2017 March 31 Cash 2,140,000 Trading securities 1,900,000 Gain on sale of TS 200,000 Interest income (2,000,000 x 8%) x 3/12) Problem 25-5 2016 April 1 Trading securities 5,500,000 Cash Oct. 1 Cash (5,000,000 x 12% x 6/12) 300,000 2,200,000 160,000 40,000 5,500,000300,000 Dec. 31 Interest income Accrued interest receivable Interest income (5,000,000 x 12% x 3/12) 31 Trading securities Unrealized gain - TS 2017 Jan. 1 Interest income Accrued interest receivable 150,000 April 1 Cash Interest income Oct. 1 Cash Interest income Dec. 31 Accrued interest receivable Interest income 31 Unrealized loss - TS Trading secu Problem 25-6 2016 Oct. 1 Investment in bonds Interest income Cash ies (5,750,000 - 4,900,000) 150,000 250,000 150,000 300,000 300,000 150,000 850,000 4,300,000 100,000 150,000 250,000 300,000 300,000 150,000 850,000 4,400,000Dec.31 Accrued interest receivable 200,000 Interest income 200,000 (4,000,000 x 10% x 6/12) 31 Interest income 12,000 Investment in bonds 12,000 185 October 1, 2016 to January 1, 2023 = 75 months Cost (4,400,000 - 100,000) 4,300,000 Face value 4,000,000 Premium 300,000 Monthly amortization (300,000 / 75) 4,000 Amortization from October | to December 31, 2016 (4,000 x 3) 12,000 2017 Jan. 1 Cash 200,000 Accrued interest receivable 200,000July 1 Cash (4,000,000 x 10% x 6/12) Interest income Dec. 31 Accrued interest receivable Interest income 31 Interest income (4,000 x 12) Investment in bonds Problem 25-7 Requirement a 2016 May 1 Investment in bonds Interest income Cash Cost (6,000,000 x 94%) Accrued interest (6,000,000 x 12% x 3/12) Total payment ‘Aug. 1 Cash Interest income (6,000,000 x 12% x 6/12) 360,000 Dec. 31 Accrued interest receivable Interest income (6,000,000 x 12% x 5/12) 300,000 31 May 1, 2016 to February 1, 2020 200,000 200,000 200,000 200,000 48,000 48,000 5,640,000 180,000 5,820,000 5,640,000 180,000 3,820,000 360,000 300,000 64,000 64,000 45 months8,000 2017 Jan. 1 300,000 Feb. 1 360,000 2017 Aug. 1 Dec. 31 31 Monthly amortization (360,000 / 45) May I to December 31, 2016 (8,000 x 8) Interest income Accrued interest receivable Cash (6,000,000 x 12% x 6/12) Interest income Cash Interest income Accrued interest receivable Interest income Investment in bonds Interest income (8,000 x 12) 64,000 300,000 360,000 186 360,000 360,000 300,000 300,000 96,000 96,0002018 Feb. 1 May 1 468,000 Interest income Accrued interest receivable Cash Interest income Investment in bonds Interest income (8,000 x 4) Cash Investment in bonds Interest income Gain on sale of bonds Sale price (6,000,000 x 105) Carrying amount Gain on sale Sale price 300,000 360,000 32,000 6,480,000 Accrued interest from February | to May 1, 2018 (6,000,000 x 12% x 3/12) Total cash received Cost Amortization of discount from May 1, 2016 to May 1, 2018 (8,000 x 24) Carrying amount - 5/1/2018 5,832,000 300,000 360,000 32,000 5,832,000 180,000 6,300,000 5,832,000 468,000 6,300,000 6,480,000 5,640,000 192,000Problem 25-8 Requirement a Year Bond outstanding Fraction 2016 1,000,000 10/30 2017 800,000 8/30 2018 600,000 6/30 2019 400,000 4/30 2020 _ 200,000 2/30 3,000,000 Requirement b 2016 Jan. 1 Investment in bonds 1,150,000 Cash June 30 Cash 60,000 Interest income (1,000,000 x 12% x 6/12) Dec.31 Cash 60,000 Interest income 60,000 Amortization 50,000 40,000 30,000 20,000 10,000 150,000 1,150,000 187 60,00031 Interest income 50,000 Investment in bonds 50,000 Problem 25-9 Bond Months Peso Discount Bond year outstanding outstanding months _—_ Fraction amortization 10/01/2016 - 02/01/2017 3,000,000 4 12,000,000 12/48 75,000 02/01/2017 - 02/01/2018 2,000,000 12 24,000,000 24/48 150,000 02/01/2018 - 02/01/2019 —_—1,000,000 12 12,000,000 12/48 75,000 48,000,000 300,000 2016 Oct. 1 Investment in bonds 2,700,000 Interest income (3,000,000 x 12% x 2/12) 60,000 Cash 2,760,000 Dec. 31 Accrued interest receivable 150,000 Interest income (3,000,000 x 12% x 5/12) 150,000 31 Investment in bonds 56,250 Interest income (75,000 x 3/4) 56,250 2017 Jan. 1 Interest income 150,000 Accrued interest receivable 150,000 Feb. 1 Cash (3,000,000 x 12% x 6/12) 180,000 Interest income 180,000 1 Cash 1,000,000 Investment in bonds 1,000,000 Aug. 1 Cash (2,000,000 x 12% x 6/12) 120,000 Interest income 120,000 Dec. 31 Accrued interest receivable 100,000 Interest income (2,000,000 x 12% x 5/12) 100,000 31 Investment in bonds 156,250 Interest income 156,250 From January | to February 1, 2017 (75,000 x 1/4) 18,750 From February | to December 31, 2017 (150,000 x 11/12) 137,500 Total amortization for 2017 156,250Problem 25-10 Answer D Purchase price 6,600,000 Less: Accrued interest purchased 150,000 Cost of bond investment 6,450,000 Less: Amortization of premium from October 1, 2016 to December 31, 2017 (6,000 x 15) 90,000 Investment balance, December 31, 2017 6,360,000 The life of the bonds is 75 months from October 1, 2016 to January 1, 2023. The monthly amortization of premium is P450,000 divided by 75 or P6,000. Problem 25-11 Answer B Purchase price 1,985,000 Less: Accrued interest 45,000 Cost of investment Add: Amortization of discount from April 1, 2016 to October 31, 2016 (60,000 x 7/15) 28,000 Investment balance, October 31, 2016 The term is 15 months from April 1, 2016 to July 1, 2017. Problem 25-12 Answer D Interest (5,000,000 x 12% x 6/12) Amortization of discount from July 1 to December 31, 2016 (240,000 / 4 years x 6/12) Interest income for 2016 330,000 Problem 25-13 Problem 25-14 yeene >onmon yaeyn> one 1,940,000 1,968,000 300,000 30,000Problem 26-1 Requirement 1 Discount Carrying Date Interest received Interest income amortization amount 01/01/2016 1,900,500 12/31/2016 160,000 190,050 30,050 1,930,550 12/31/2017 160,000 193,055 33,055 1,963,605 12/31/2018 160,000 196,395 36,395 2,000,000 Requirement 2 2016 Jan. 1 Investments in bonds 1,900,500 Cash 1,900,500 Dec. 31 Cash 160,000 Interest income 160,000 31 Investment in bonds 30,050 Interest income 30,050 2017 Dec. 31 Cash 160,000 Interest income 160,000 31 Investment in bonds 33,055 Interest income 33,0552018 Dec. 31 Cash Interest income 160,000 31 Investment in bonds Interest income 36,395 31 Cash Investment in bonds Problem 26-2 Requirement 1 Date Interest received 01/01/2016 12/31/2016 300,000 12/31/2017 300,000 12/31/2018 300,000 Requirement 2 2016 Jan. 1 Investment in bonds Cash Interest income 379,360 385,709 392,931 160,000 36,395 2,000,000 Discount amortization 79,360 85,709 92,931 4,742,000 2,000,000 Carrying amount 4,742,000 4,821,360 4,907,069 5,000,000 4,742,0002016 Dec.31 Cash Interest income 300,000 31 Investment in bonds Interest income 79,360 2017 Dec.31 Cash Interest income 300,000 31 Investment in bonds Interest income 85,709 31 Cash Investment in bonds Gain on sale of bond investment Sale price Carrying amount - 12/31/2017 Gain on sale Problem 26-3 Requirement a 300,000 79,360 300,000 85,709 5,500,000 4,907,069 592,931 5,500,000 4,907,069 592,9312016 Feb. 1 Investment in bonds 5,486,000 Cash 5,486,000 Dec. 31 Accrued interest receivable 660,000 Interest income (6,000,000 x 12% x 11/12) 660,000 31 Investment in bonds 94,235 Interest income (102,900 x 11/12) 94,235 12% 15% Interest Interest. Discount — Carrying Date received income amortization amount 2/1/2016 5,486,000 2/1/2017 720,000 822,900 102,900 5,588,900 2/1/2018 720,000 838,335 118,335 5,707,235 Requirement b 2017 May 1 Investment in bonds (118,335 x 3/12) 29,584 Interest income 29,584 1 Cash (6,300,000 + 180,000) 6,480,000 Investment in bonds 5,618,484 Interest income (6,000,000 x 12% x 3/12) 180,000 Gain on sale of bonds 681,516 Carrying amount - February 1, 2017 (see table) 5,588,900Add: Discount amortization from February 1, 2017 to May 1, 2017 (3/12 x 118,335) Carrying amount, May 1, 2017 191 Selling price (6,000,000 x 105%) 6,300,000 Less: Carrying amount 5,618,484 Gain on sale 681,516 Problem 26-4 2016 Jan. 1 Investmentin bonds 8,598,400 Cash 8,598,400 Dec. 31 Cash (12% x 8,000,000) 960,000 Interest income 960,000 31 Interest income 100,160 Investment in bonds 100,160 Interest received 960,000 Interest income (10% x 8,598,400) 859,840 Premium amortization 100,160 Problem 26-5 2016Jan. 1 Investment in bonds 5,241,500 Cash 5,241,500 Dec. 31 Cash (5,000,000 x 12%) 600,000 Interest income 600,000 Dec. 31 Interest income 75,850 Investment in bonds 75,850 Interest received 600,000 Interest income (10% x 5,241,500) 524,150 Premium amortization 75,850 Dec. 31 Cash 1,000,000 Investment in bonds 1,000,000 2017 Dec. 31 Cash (4,000,000 x 12%) 480,000 Interest income 480,000 31 Interest income 63,435 Investment in bonds 63,435 Interest received 480,000 Interest income (10% x 4,165,650) 416,565 Premium amortization 63,43531 Cash Investment in bonds Problem 26-6 2016 Jan. 1 Investment in bonds Cash 2016 Dec. 31 Cash (4,000,000 x 12%) Interest income 31 Investment in bonds Interest income 58,272 Interest income (14% x 3,844,800) Interest received Discount amortiz: 38.272 31 Cash Investment in bonds 2017 Dec. 31 Cash (12% x 3,000,000) 1,000,000 3,844,800 480,000 58,272 1,000,000 360,000 1,000,000 3,844,800 192 480,000 538,272 480,000 1,000,000Interest income 31 Investment in bonds Interest income 46,430 Interest income (14% x 2,903,072) Interest received Discount amortization 46,430 31 Cash Investment in bonds Problem 26-7 Date Interest received Interest income 01/01/2016 12/31/2016 400,000 450,842 12/31/2017 400,000 456,943 12/31/2018 400,000 463,776 12/31/2019 400,000 471,424 2016 Jan. 1 Investmentin bonds Cash Dec. 31 Cash Interest income 31 Investment in bonds Interest income 360,000 46,430 406,430 360,000 1,000,000 1,000,000 Discount Carrying amortization amount 3,757,015 50,842 3,807,857 56,943 3,864,800 63,776 3,928,576 71,424 4,000,000 3,757,015 3,757,015 400,000 400,000 50,842 50,842Problem 26-8 Date Interest received Interest income Jan. 01,2016 June 30, 2016 120,000 93,345 3,084,855 Dec. 31, 2016 120,000 92,546 June 30,2017 120,000 91,722 Dec. 31, 2017 120,000 90,877 2016 Investment in bonds Cash Jan. 1 June 30 Cash Interest income 30 Interest income Investment in bonds Cash Interest income Dec. 31 31 Interest income Investment in bonds Problem 26-9 1, Journal entries a. Investment in bonds Cash b. Cash (10% x 8,000,000) Interest income . Investment in bonds Interest income Interest income (7,679,000 x 12%) Interest received (8,000,000 x 10%) Discount amortization d, Cash Investment in bonds 2. Cost Discount amortization Annual installment Carrying amount - 12/31/2016 Premium Carrying amortization amount 3,111,510 26,655 27,454 3,057,401 28,278 3,029,123 29,123 3,000,000 193 3,111,510 3,111,510 120,000 120,000 26,655 26,655 120,000 120,000 27,454 27,454 7,679,000 7,679,000 800,000 800,000 121,480 121,480 921,480 800,000 121,480 2,000,000 2,000,000 7,769,000 121,480 (2,000,000) 5,800,480Problem 26-10 Discount — Carrying Date Interest received Interest income amortization _ amount 01/01/2016 4,742,000 12/31/2016 300,000 379,360 79,360 4,821,360 12/31/2017 300,000 385,709 85,709 4,907,069 12/31/2018 300,000 392,931 92,931 5,000,000 The interest received is equal to 6% multiplied by the face value, The interest income is equal to 8% multiplied by the carrying amount. 2016 Jan. 1 Financial asset - FVOCI 4,742,000 Cash 4,742,000 2016 Dec. 31 Cash 300,000 Interest income 300,000 31. Financial asset - FVOCI 79,360 Interest income 79,360 31. Financial asset - FVOCI 428,640 Unrealized gain - OCI 428,640 Market value - 12/31/2016 (5,000,000 x 105) 5,250,000 Carrying amount - 12/31/2016 (4,821,360)Unrealized gain - December 31,2016 428,640 2017 Dec. 31 Cash 300,000 Interest income 300,000 31. Financial asset - FVOCI 85,709 Interest income 85,709 31 Financial asset - FVOCI 164,291 Unrealized gain - OCI 164,291 Market value - 12/31/2017 (5,000,000 x 110) 5,500,000 Carrying amount per table - 12/31/2017 (4,907,069) ‘Cumulative unrealized gain 592,931 Unrealized gain - 12/31/2016 428,640 Increase in unrealized gain 164,291 Another approach Market value - 12/31/2017 5,500,000 Carrying amount per book - 12/31/2017 (5,250,000 + 85,709) 5,335,709 Increased in unrealized gain - 2017 164,291 2018 Dec. 31 Cash 300,000 Interest income 300,000 31 Financial asset ~ FVOC! 92,931 Interest income 92,931 31 Cash 5,000,000 Unrealized gain - OCI 592,931 Financial asset ~ FVOCI 5,592,931 Problem 26-11 2016 Jan. 1 Financial asset - FVPL 5,380,000 Cash 5,380,000 Dec. 31 Cash (12% x 5,000,000) 600,000 Interest income 600,000 31. Financial asset - FVPL 620,000 Gain from change in fair value 620,000 (6,000,000 ~ 5,380,000)2017 Dec. 31 Cash 600,000 Interest income 600,000 31 Loss from change in fair value 250,000 Financial asset - FVPL 250,000 (6,000,000 - 5,750,000) Problem 26-12 Semiannual nominal interest (5,000,000 x 4%) 200,000 Semiannual effective interest (5,000,000 x 5%) 250,000 Difference 50,000 Multiply by present value of annuity of | for 20 periods at 5% 12.462 Discount 623,100 Face value 5,000,000 Discount (623,100) Purchase price 4,376,900 Date Interest received Interest income Amortization Carrying amount January 1 4,376,900 June 30 200,000 18,845 4,395,745 December 31 200,000 4,415,532 Jan. 1 Investment in bonds 4,376,900 Cash 4,376,900 June 30 Cash 200,000 Interest income 200,00030 Investment in bonds Interest income 18,845, Dec.31 Cash Interest income 200,000 31 Investment in bonds Interest income 19,787 Problem 26-13 1. Annual nominal interest (4,000,000 x 16%), 640,000 Annual effective interest (4,000,000 x 12%) 480,000 Difference Multiply by present value factor 3.605 Premium Face value Purchase price 4,576,800 Date Interest received Interest income Jan. 01,2016 Dec. 31,2016 640,000 549,216 Dec. 31,2017 640,000 538,322 18,845 200,000 19,787 Premium amortization 90,784 101,678 160,000 576,800 4,000,000 Carrying amount 4,576,800 4,486,016 4,384,338Dec. 31, 2018 640,000 526,121 113,879 4,270,459 Dec. 31, 2019 640,000 512,455 127,545 4,142,914 Dec. 31. 2020 640,000 497,086 142,914 4,000,000 196 3. Investment in bonds 4,576,800 Cash 4,576,800 Cash 640,000 Interest income 640,000 Interest income 90,784 Investment in bonds 90,784 Problem 26-14 Semiannual nominal interest (8,000,000 x 5%) 400,000 Semiannual effective interest (8,000,000 x 4%) 320,000 ference 80,000 Multiply by PV of annuity of | for 10 periods at 4% 8.1 Premium 648,800 Face value 8,000,000 Purchase price 8,648,800 The amount of P648,800 is a premium because the effective rate is lower than nominal rate.Another approach PV of principal (8,000,000 x .6756) 5,404,800 PV of semiannual interest payments (400,000 x 8.11) 3,244,000 Purchase price or present value of bonds 8,648,800 Journal entries Jan. 1 July 1 345,952 54,048 Dec. 31 400,000 31 Investment in bonds 8,648,800 Cash 8,648,800 Cash 400,000 Interest income 400,000 Interest income 54,048 Investment in bonds 54,048 Interest received 400,000 Interest income (8,648,800 x 8% x 6/12) Premium amortization Accrued interest receivable 400,000 Interest income Interest income 56,210 Investment in bonds 56,210 Interest accrued 400,000 Interest income (8,594,752 x 8% x 6/12) 343,790 Premium amortization 56,210 54,048) 56,210) Acquisition cost - January 1 8,648,800 Premium amortization from January 1 to June 30 ( Carrying amount - June 30 8,594,752 Premium amortization from July 1 to December 31 ( Carrying amount - December 31 8,538,542Problem 26-15 1. Principal payment 1,000,000 Interest payment (3,000,000 x 12%) 360,000 Total payment on December 31, 2016 1,360,000 Principal payment 1,000,000 Interest payment (2,000,000 x 12%) 240,000 Total payment on December 31, 2017 1,240,000 Principal payment 1,000,000 Interest payment (1,000,000 x 12%) 120,000 Total payment on December 31, 2018 1,120,000 December 31, 2016 payment (1,360,000 x 91) 1,237,600 December 31, 2017 payment (1,240,000 x .83) 1,029,200 December 31, 2018 payment (1,120,000 x .75) 840,000 Total present value on January 1, 2016 3,106,800 2. Journal entries 2016 Jan. 1 Investment in bonds 3,106,800 Cash 3,106,800 Dec. 31 Cash 360,000 Interest income 360,000 Dec. 31 Interest income 49,320 Investment in bonds 49,320 Interest received 360,000Interest income (3,106,800 x 10%) 310,680 Premium amortization 49,320 31 Cash 1,000,000 Investment in bonds 1,000,000 3. Acquisition cost - 1/1/2016 3,106,800 Premium amortization for 2016 (49,320) Annual installment 1,000,000) Carrying amount of investment - 12/31/2016 2,057,480 Problem 26-16 1. The present value of the bonds using the interest rate of 11% is as follows: PV of principal (5,000,000 x .6587) PV of interest (500,000 x 3.1024) Total present value of cash flows 4,844,700 2. The present value of the bonds using the interest rate of 12% is as follows: PV of principal (5,000,000 x .6355) 3,177,500 PV of interest (500,000 x 3.0373) 1,518,650 Total present value of cash flows 4,696,1503. 144,700. = 97 148,550 Effective rate = 11% +.97 = 11.97% 4. 562,590 5. Journal entries for 2016 X= 11%. 12% - 119% Interest income for 2016 (4,700,000 x 11.97%) Investment in bonds Cash Cash (10% x 5,000,000) Interest income Investment in bonds Interest income Interest income Interest received 4,700,000 500,000 62,590 4,700,000 500,000 62,590 562,590 500,000Discount amortization 62,590 Problem 26-17 Answer B Purchase price (2,000,000 x 98) 1,960,000 Transaction cost 50,000 Total acquisition cost 2,010,000 The accrued interest from July 1 to October 1, or P60,000 (2,000,000 x 12% x 3/12) is not part of the cost of investment. Although, this amount is part of the payment for the bond investment. Problem 26-18 Answer C Carrying amount - 1/1/2016 7,800,000 Amortization from 1/1/2016 to 3/1/2016: Interest income (7,800,000 x 10% x 2/12) 130,000 Interest received (8,000,000 x 9% x 2/12) 120,000 =—__10,000 Carrying amount - 3/1/2016 7,810,000 Sale price 3,920,000 Carrying amount of bonds sold (7,810,000 x 1/2) 3,905,000 Gain on sale 15,000 Problem 26-19 Answer B Premium on sale of bonds 140,000 Unamortized discount (100,000 - 20,000) 80,000 Gain on sale of bonds 220,000 Problem 26-20 Answer A Acquisition cost - 1/1/2016 3,767,000 Discount amortization for 2016: Interest income (14% x 3,767,000) 527,380 Interest received (12% x 4,000,000) 480,000 47,380 Carrying amount - 12/31/2016 3,814,380 Problem 26-21 Answer D Interest income for 2016 (3,756,000 x 10%) 375,600 Problem 26-22 Answer D Interest accrued from July 1 to December 31, 2016 (5,000,000 x 8% x 6/12) 200,000 Problem 26-23 Answer C Interest received (1,000,000 x 10% x 6/12) 50,000 Interest income (1,198,000 x 8% x 6/12) 47,920Premium amortization 2,080 Acquisition cost - July 1, 2016 1,198,000 Premium amortization (___2,080) Carrying amount - December 31, 2016 1,195,921 Problem 26-24 Answer A Interest accrued (1,000,000 x 8% x 6/12) 40,000 Interest income (906,000 x 10% x 6/12) 45,300 Discount amortization 5,300 Acquisition cost - July 1, 2016 (946,000 - 40,000) 906,000 Discount amortization 5,300 Carrying amount - December 31, 2016 911,300 Problem 26-25 Answer B Acquisition cost - July 1, 2016 4,614,000 Discount amortization from July 1 to December 31, 2016: Interest accrued (5,000,000 x 8% x 6/12) 200,000 Interest income (4,614,000 x 10% x 6/12) 230,700 30,700 Carrying amount - December 31, 2016 4,644,700 Problem 26-26 Answer A Investment balance, January 1, 2016 4,562,000 Amortization of discount for 2016: Interest income (4,562,000 x 10%) 456,200 Interest received (5,000,000 x 8%) 400,000 56,200 Investment balance, December 31, 2016 4,618,200 Amortization of discount for 2017: Interest income (4,618,200 x 10%) 461,820 Interest received (5,000,000 x 8%) 400,000 61,820 Investment balance, December 31,2017 4,680,020 Problem 26-27 Answer D Interest received from July 1 to December 31, 2016 (5,000,000 x 8% x 6/12) 200,000 Bond discount amortization for six months 18,000 Interest income 218,000 Problem 26-28 Answer D Acquisition cost 4,766,000 Discount amortization: Interest income (4,766,000 x 12%) 571,920 Interest received (5,000,000 x 10%) 500,000 71,920Total 4,837,920 Annual installment on December 31, 2016 (1,000,000) Carrying amount - December 31, 2016 3,837,920 Problem 26-29 Answer A The term of the bonds is 4 years and the interest is payable semiannually. Therefore, there are 8 interest periods. PV of principal (2,000,000 x .63) 1,260,000 PV of semiannual interest payments (100,000 x 6.21) 621,000 Present value or market price of bonds 1,881,000 Problem 26-30 Answer A 12/31/2016 (1,250,000 + 600,000 x .9091) 1,681,835 12/31/2017 (1,250,000 + 450,000 x .8264) 1,404,880 12/31/2018 (1,250,000 + 300,000 x .7513) 1,164,515, 12/31/2019 (1,250,000 + 150,000 x .6830) 956.200 5,207,430 Problem 26-31 Premium — Carrying Date Interest received Interest income amortization amount 01/01/2016 4,206,000 12/31/2016 400,000 336,480 63,520 4,142,480 12/31/2017 400,000 331,398 68,602 4,073,878 12/31/2018 400,000 326,122 73,878 4,000,000 Question 1 Answer A Market value ~ 12/31/2016 3,800,000 Carrying amount - 12/31/2016 4,142,480 Unrealized loss - 2016 (342,480) Question 2 Answer B Market value - 12/31/2017 3,600,000 Carrying amount per table 4,073,878 Cumulative unrealized loss - 12/31/2017 (473,878) Unrealized loss - 12/31/2016 (342,480) Increase in unrealized loss - 2017 (131,398) Another approach Market value ~ 12/31/2016 3,600,000 Carrying amount per book - 12/31/2017 (3,800,000 - 68,602) 3,731,398 Increase in unrealized loss - 2017 131,398) Question 3 Answer C (473,878) Question 4 Answer B 3,600,000Problem 26-32 Problem 26-33 1.D tn€ 2.0 2A 3 3.D 4.8 aA 5.€ 5.0 6A 7.8 8. 9.8 10. D CHAPTER 27 Problem 27-1 1. Land held by parent for undetermined use 5,000,000 Vacant building 3,000,000 Building owned by a subsi 1,500,000 jary occupied by lessees Property under construction for use as investment property 6,000,000 Total investment property 15,500,000 2. a. The property held by a subsidiary in the ordinary course of business is included in inventory. b. The property held by parent for use in production is owner-occupied property and therefore part of property, plant and equipment. c. The land leased by parent to a subsidiary under an operating lease is owner-occupied property for purposes of consolidated finan statements. However, from the perspective of separate financial statements of the parent, the land is an investment property. d. The land held for future factory site is owner-occupied property and therefore part of property, plant and equipment. e. The machinery leased out to an unrelated party is part of property, plant and equipment because investment property includes only land and building, and not movable property like machinery.Problem 27-2 Cost model 2016 Investment property Cash Depreciation Accumulated depreciation (50,000,000 - 5,000,000 / 25) 2017 Depreciation Accumulated depreciation 2018 Depreciation Accumulated depreciation Fair value model 2016 Investment property Cash Investment property Gain from change in fair value (55 - 50) 5,000,000 2017 Loss from change in fair value Investment property (55 - 53) 2018 Investment property Gain from change in fair value (60 - 53) 7,000,000 Problem 27-3 Answer A Cost - 1/1/2014 50,000,000 1,800,000 1,800,000 1,800,000 50,000,000 5,000,000 2,000,000 7,000,000 50,000,000 1,800,000 1,800,000 1,800,000 50,000,000 2,000,000 2,200,000Accumulated depreciation (2,200,000 / 40 x 3) ing amount ~ December 31, 2016 Sale price Carrying amount Gain on disposal Problem 27-4 Answer B Fair value 12/31/2016 Property 1 3,200,000 Property 2 3,050,000 Property 3 3,850,000 Net loss from change in fair value Problem 27-5 Answer A Cost Accumulated depreci 600,000 Carrying amount - 12/31/2016 fion (9,000,000 / 30 x 2) Depreciation expense (9,000,000 / 30) Problem 27-6 Answer B Fair value model Loss (6,000,000 - 5,900,000) 100,000 Fair value 12/31/2017 3,500,000 2,850,000 3,600,000 2,035, 2,900,000 2,035,0 865,000 Gain (loss) 300,000 (200,000) (250,000) (150,000) 9,000,000 8,400,000 300,000Cost model Depreciation expense (5,800,000 / 40) Problem 27-7 Answer A Fair value Acquisition cost Gain from change in fair value Problem 27-8 Answer D Cost of the investment property 5,000,000 Accumulated depreciation (5,000,000 / 50) 100,000) Carrying amount - December 31, 2016 Problem 27-9 Question 1 Answer A Purchase price (200,000,000 x 9/10) 180,000,000 Nonrefundable transfer taxes (20,000,000 x 9/10) 18,000,000 Legal cost (1,000,000 x 9/10) Initial cost of investment property 145,000 8,000,000 7,600,000 400,000 4,900,000 900,000 198,900,000Question 2 Answer B Purchase price (200,000,000 x 1/10 x 20%) 4,000,000 Nonrefundable transfer taxes (20,000,000 x 1/10 x 20%) 400,000 Legal cost (1,000,000 x 1/10 x 20%) 20,000 Initial cost of land 4,420,000 Question 3 Answer C Purchase price (200,000,000 x 1/10 x 80%) 16,000,000 Nonrefundable transfer taxes (20,000,000 x 1/10 x 80%) 1,600,000 Legal cost (1,000,000 x 1/10 x 80%) 80,000 Initial cost of building 12,680,000 Question 4 Answer D Fair value - December 31, 2016 (25,000,000 x 9 units) 225,000,000 Carrying amount 198,900,000 Gain from increase in fair value _26,100,000 Question 5 Answer A Deprecation for 2016 (17,680,000 / 50 years) 353,600 Note that the property taxes, advertising, cost of open function, and repairs and maintenance are expensed immediately when incurred. Problem 27-10 Problem 27-11 Problem 27-12 Lc 1A 1A 2.0 2.8 2.8 3B 3. ¢ 3A 4.8 4.0 4.0 5. 5.B SC 6B 6A 6. D 7A 7D 7A B.A B.A 8. D 9A 9A 9.8 10. A 10. a 10. €CHAPTER 28 Problem 28-1 2016 Jan. 1 Sinking fund cash 400,000 Cash 400,000 April 1 Sinking fund securities 384,000 Sinking fund cash 384,000 Oct. 1 Sinking fund cash 24,000 Sinking fund income (400,000 x 12% x 6/12) 24,000 Dec. 31 Sinking fund cash 400,000 Cash 400,000 31 Accrued interest receivable 12,000 Sinking fund income (400,000 x 12% x 3/12) 12,000 Sinking fund securities 3,000 Sinking fund income 3,000 Amortization of discount on sinking fund securities for 9 months. (16,000/4 years = 4,000 x 9/12 = 3,000) 31 Retained earnings 439,000 Retained earnings appropriated for sinking fund 439,000 Sinking fund cash 440,000 Sinking fund securities 387,000 Accrued interest receivable 12,000 Total 839,000 Less: Appropriated retained earnings balance 400.000 Additional appropriation 439,000 2017 Jan. 1 Sinking fund income 12,000 Accrued interest receivable 12,000 April 1 Sinking fund cash 24,000 Sinking fund income 24,0001 Sinking fund expenses 12,000 Sinking fund cash 12,000 Oct. 1 Sinking fund cash 24,000 Sinking fund income 24,000 1 Sinking fund securities (4,000 x 9/12) 3,000 Sinking fund income 3,000 1 Sinking fund cash (400,000 x 106%) 424,000 Sinking fund securities 390,000 Gain on sale of securities 34,000 2017 Dec. 31 Sinking fund cash 400,000 Cash 400,000 31 Retained earnings 461,000 Retained earnings appropriated for sinking fund 461,000 Sinking fund cash 1,300,000 Less: Appropriated retained earnings balance 839,000 Additional appropriation 461,000 2018 July 1 Bonds payable 1,000,000 Interest expense 100,000 Sinking fund cash 1,100,000 1 Cash 200,000 Sinking fund cash 200,000 1 Retained earnings appropriated for sinking fund 1,300,000 Retained earnings 1,300,000 Problem 28-2 2016 Jan. 1 Sinking fund cash 2,700,000 Cash 2,700,000 18 Sinking fund securities 2,500,000 Sinking fund cash 2,500,000July 5 Sept.9 Dec. 20 150,000 2017 Feb. 12 Dec. 31 Dec. 31 Sinking fund expenses Sinking fund cash Sinking fund cash Loss on sale of securities Sinking fund securities Sinking fund cash Sinking fund income No entry Sinking fund cash Sinking fund income Sinking fund cash Sinking fund securities 1,900,000 31 31 Gain on sale of securities Bonds payable Sinking fund cash Cash Sinking fund cash 100,000 530,000 70,000 150,000 270,000 2,250,000 3,000,000 300,000 100,000 600,000 270,000 350,000 3,000,000 300,000Problem 28-3 1. Sinking fund cash 2,000,000 Cash 2,000,000 450,000 2. Sinking fund securi Sinking fund cas 450,000 3. Sinking fund securities 400,000 Sinking fund cash 400,000 4. Sinking fund cash 60,000 Sinking fund income (500,000 x 12%) 60,000 Sinking fund securities 10,000 Sinking fund income 10,000 Amortization of bond discount (50,000/5 years = 10,000 per year) 5. Sinking fund expenses 20,000 Sinking fund cash 20,000 6. Sinking fund securities 400,000 Sinking fund income 10,000 Sinking fund cash 410,000 7. Sinking fund cash 50,000 king fund income (500,000 x 10%) 50,000 8. Sinking fund cash 20,000 Sinking fund income 20,000 9. Sinking fund cash 450,000 Sinking fund securities 400,000Gain on sale of securities 50,000 10. Retained earnings Retained earnings appropriated for sinking fund 2,160,000 Composition of fund: Sinking fund cash 1,300,000 Sinking fund securities Problem 28-4 1. Sinking fund - trustee Cash No entry 2. 3. No entry 4, No entry 5, No entry 6. Sinking fund - trustee Sinking fund expense Sinking fund income (60,000 + 10,000) Gain on sale of securities 100,000 7. Bonds payable Interest expense Sinking fund - trustee 1,100,000 8. Cash Sinking fund - trustee 40,000 Problem 28-5 Annual contribution (5,000,000 / 6.051) 818,987 2,160,000 860,000 2,160,000 1,000,000 1,000,000 140,000 30,000 70,000 1,000,000 100,000 40,000 Date Interest income Annual contribution Fund balance 12/31/2016 818,987 12/31/2017 81,899 818,987 12/31/2018 171,987 818,987 12/31/2019 271,085 818,987 12/31/2020 380,094 818,987 Problem 28-6 Annual contribution (2,000,000 / 5.1051) 818,987 1,719,873 2,710,847 3,800,919 5,000,000 391,765Date Interest income Annual contribution 07/01/2016 391,765 07/01/2017 39,176 391,765 07/01/2018 82,271 391,765 07/01/2019 129,674 391,765 07/01/2020 181,819 * Problem 28-7 2016 Jan. 1 Life insurance 60,000 Cash 2017 Jan. 1 Life insurance 60,000 Cash 2018 Jan. 1 Life insurance 60,000 Cash Dec.31 Cash surrender value 60,000 Life insurance Retained earnings 40,000 2019 Jan. 1 Life insurance 60,000 Cash 2019 Dec. 31 Cash surrender value 24,000 Life insurance Balance - December 31, 2019 84,000 Balance - December 31, 2018 60,000 Increase in cash surrender value 24,000 2020 Jan. 1 Life insurance 60,000 Cash June 30 Cash surrender value 16,000 Life insurance Balance - December 31, 2020 116,000 Balance - December 31, 2019 Increase in cash surrender value for 2020 Fund balance 391,765 822,706 1,296,742 1,818,181 2,000,000 60,000 60,000 60,000 20,000 60,000 24,000 60,000 16,000Increase from January 1 to June 30, 2020 (1/2 x 32,000) 16,000 July 31 Cash 2,000,000 Cash surrender value 100,000 Life insurance (60,000 x 6/12) 30,000 Gain on sale of life insurance settlement 1,870,000 Problem 28-8 2016 April 1 Life insurance 60,000 Cash 60,000 Dec. 31 Prepaid insurance (60,000 x 3/12) 15,000 Life insurance 15,000 2017 Jan. 1 Life insurance 15,000 Prepaid life insurance 15,000 April 1 insurance 60,000 60,000 Dec. 31 Prepaid life insurance 15,000 Life insurance 15,000 2018 Jan. 1 Life insurance 15,000 Prepaid life insurance 15,000 April 1 Life insurance 60,000 Cash 60,000 Dec. 31 Prepaid life insurance 15,000 Life insurance 15,000 2019 Jan. 1 Life insurance 15,000 Prepaid life insurance 15,000 April 1 Cash surrender value 60,000 Life insurance 5,000 Retained earnings 55,000 April 1, 2016 - December 31, 2018 (33/36 x 60,000) prior years 55,000 January 1, 2019 - April 1, 2019 (3/36 x 60,000) current period 5,000 Total 60,000 1 Life insurance 60,000 Cash 60,000 Dec. 31 Prepaid life insurance 15,000Life insurance 15,000 31 Cash surrender value 18,000 Life insurance 18,000 Balance - April 1, 2020 84,000 Balance - April 1, 2019 Increase from April 1, 2019 to April 1, 2020 Increase from April 1, 2019 to December 31, 2019 (24,000 x 9/12) 18,000 2020 Jan. 1 Life insurance 15,000 Prepaid life insurance 15,000 April 1 Cash surrender value (18,000 x 3/12) 6,000 Life insurance 6,000 1 Life insurance 60,000 Cash 60,000 July 1 Cash surrender value 8,000 Life insurance 8,000 Balance - April 1, 2021 116,000 Balance - April 1, 2020 84,000 Increase from April 1, 2020 to April 1, 2021 32,000 July 31 Cash 2,000,000 Cash surrender value 92,000 Life insurance (60,000 x 9/12) 45,000 Gain on life insurance settlement 1,863,000 Problem 28-9 2017 Jan. 1 Life insurance 80,000 Cash 80,000 2018 Jan. 1 Life insurance 80,000 Cash 80,000 Dec.31 Cash 5,000 Life insurance 5,000 31 Cash surrender value 42,000Life insurance (42,000 x 1/3) 14,000 Retained earnings 2019 Jan. 1 Life insurance 80,000 Cash Dec.31 Cash 6,000 Life insurance 31 Cash surrender value 5,000 Life insurance Balance - December 31, 2019 47,000 Balance - December 31, 2018 42,000 Increase in cash surrender value 5,000 Problem 28-10 a. Life insurance (10,000 x 6/12) 5,000 Cash surrender value 5,000 b. Prepaid life insurance (28,000 x 1/2) 14,000 Life insurance 14,000 28,000 80,000 6,000 5,000Interest expense Accrued interest payable (50,000 x 12% x 9/12) 4,500 d. Dividend income Dividend receivable Current assets: Prepaid life insurance 14,000 Investment: Cash surrender value 85,000 Current liabilities: Loan payable Accrued interest payable 4,500 Problem 28-11 Answer D Annual deposit (8,000,000 / 4.78) Problem 28-12 Answer B Annual deposit (9,000,000 / 6.34) 4,500 2,000 2,000 50,000 1,673,640 1,419,560Problem 28-13 Answer C Annual deposit (5,000,000 / 5.11) rounded 978,500 Problem 28-14 Answer A Principal amount Multiply by future value of 1 for 6 periods at 10% 1,72 Future amount at maturity Problem 28-15 Answer A Future amount of maturity Divide by future value of 1 for 10 periods at 6% 1.79 Initial investment 4,000,000 5,000,000 8,850,000 7,160,000 The annual interest of 12% is compounded semiannually for 5 years. Therefore, there are 10 interest periods at 6%. Problem 28-16 Answer A Sinking fund balance - January 1 4,500,000 Add: Additional investment during the year Dividends on investment Interest revenue 1,350,000 Total 900,000 150,000 300,000 5,850,000Less: Administration costs Sinking fund balance - December 31 5,750,000 Problem 28-17 Answer C Premium paid - January 1 100,000 Less: Dividend received 15,000 Increase in cash surrender value (270,000 - 245,000) 25,000 40,000 Life insurance expense Problem 28-18 Answer D Premium paid 200,000 Less: Increase in cash surrender value (540,000 - 435,000) 105,000 ife insurance expense _95,000 The dividend of P30,000 is not deducted anymore because it is already part of the increase in cash surrender value. Problem 28-19 Answer A Sinking fund cash 500,000 Sinking fund securities 1,000,000 Accrued interest receivable 50,000 Plant expansion fund 600,000 Cash surrender value 150,000 Investment property 3,000,000 Advances to subsidiary 200,000 Investment in associate 2,000,000 7,500,000, 213 Problem 28-20 ae ei w>BO0CHAPTER 29 Problem 29-1 Requirement 1 2016 Jan. 1 Cash 4,000,000 Loan payable Dec. 31 Interest expense 480,000 Cash (12% x 4,000,000) 31 Interest rate swap receivable 70,160 Unrealized gain - interest rate swap (80,000 x 877) 2017 Dec. 31 Interest expense 560,000 Cash (14% x 4,000,000) 31 Cash 80,000 Interest rate swap receivable Unrealized gain - interest rate swap 31 Loan payable 4,000,000 Cash 31 Unrealized gain - interest rate swap 80,000 Interest expense 80,000 Requirement 2 2016 Jan. 1 Cash 4,000,000 Loan payable Dec. 31 Interest expense 480,000 Cash 31 Unrealized loss - interest rate swap 36,040 Interest rate swap payable (40,000 x .901) 36,040 2017 Dec. 31 Interest expense 440,000 4,000,000 480,000 70,160 560,000 70,160 9,840 4,000,000 4,000,000 480,000Cash (11% x 4,000,000) 440,000 31 Interest rate swap payable 36,040 Unrealized loss - Interest rate swap 3,960 Cash 40,000 31 Loan payable 4,000,000 Cash 4,000,000 31 Interest expense 40,000 Unrealized loss - interest rate swap 40,000 Problem 29-2 2016 Jan. 1 Cash 6,000,000 Loan payable 6,000,000 Dec. 31 Interest expense 600,000 Cash (10% x 6,000,000) 600,000 31 Interest rate swap receivable 159,300 Unrealized gain - interest rate swap 159,300 (180,000 x .885) 2017 Dec. 31 Interest expense 780,000 Cash (13% x 6,000,000) 780,000 31 Cash 180,000 Interest rate swap receivable 159,300 Unrealized gain - interest rate swap 20,700 31 Loan payable 6,000,000 Cash 6,000,000 31 Unrealized gain - interest rate swap 180,000 Interest expense 180,000 Problem 29-3 2016 Jan. 1 Cash 3,000,000 Loan payable 3,000,000 Dec. 31 Interest expense 240,000 Cash (8% x 3,000,000) 240,000 31 Interest rate swap receivable 97,200 Unrealized gain - interest rate swap 97,200 (30,000 x 3.24) The entity will receive P30,000 at the end of 2017 and can expect to receive P30,000 at the end of2018, 2019 and 2020. Thus, the present value of the four annual payments of P30,000 is recognized on December 31, 2016 as interest rate swap receivable. 31 Interest expense 270,000 Cash (9% x 3,000,000) 270,000 31 Cash 30,000 Interest rate swap receivable 30,000 2017 Dec. 31 Unrealized gain - interest rate swap 30,000 Interest expense 30,000 31 Unrealized gain - interest rate swap 67,200 Interest rate swap receivable (97,200 - 30,000) 67,200 2017 Dec. 31 Unrealized loss - interest rate swap 160,200 Interest rate swap payable (60,000 x 2.67) 160,200 The entity will make a payment of P60,000 at the end of 2018 by reason of the reduced interest rate and can expect to make payment of P60,000 at the end of 2019 and 2020. Thus, the present value of the three annual payments of P60,000 is recognized on December 31, 2017 as the interest rate swap payable. Problem 29-4 2016 Jan. 1 Cash 5,000,000 Loan payable 5,000,000 Dec. 31 Interest expense (10% x 5,000,000) 500,000 Cash 500,000 31. Interest swap receivable 464,000 Unrealized gain - interest swap 464,000 (5,000,000 x 4% x 2.32)2017 Dec. 31 31 200,000 31 31 169,000 2018 Dec. 31 31 31 31 Interest expense (14% x 5,000,000) 700,000 Cash Cash 200,000 Interest rate swap receivable Unrealized gain - interest rate swap 200,000 Interest expense Unrealized gain - interest swap 95,000 Interest rate swap receivable Unrealized gain - 12/31/2017 (5,000,000 x 2% x 1.69) Unrealized gain per book (464,000 - 200,000) Decrease in unrealized gain Interest expense (12% x 5,000,000) 600,000 Cash Cash 100,000 Interest rate swap receivable Unrealized gain - interest rate swap 100,000 Interest expense Unrealized gain terest swap 24,000 Interest rate swap receivable Unrealized gain - 12/31/2018 (5,000,000 x 1% x .90) Unrealized gain per book (169,000 - 100,000) Decrease in unrealized gain 700,000 200,000 95,000 264,000 (95,000) 600,000 100,000 100,000 24,000 45,000 69,000 (24,000)2019 Dec. 31 Interest expense (11% x 5,000,000) Cash 31 Cash Interest rate swap receivable Unrealized gain - interest rate swap 5,000 31 Unrealized gain - interest rate swap Interest expense 31 Loan payable Cash Problem 29-5 2016 Jan. 1 Cash Loan payable Dec. 31 Interest expense (5,000,000 x 8%) Cash 400,000 31 Interest swap receivable Unrealized gain - interest rate swap 249,000 (5,000,000 x 2% x 2.49) 2017 Dec. 31 Interest expense (5,000,000 x 10%) Cash 31 Cash Interest rate swap receivable 31 Unrealized gain - interest rate swap 550,000 550,000 50,000 45,000 50,000 50,000 5,000,000 5,000,000 5,000,000 5,000,000 400,000 249,000 500,000 500,000 100,000 100,000 100,000Interest expense 100,000 31. Interest rate swap receivable 107,500 Unrealized gain - interest rate swap 107,500 Unrealized gain - 12/31/2017 (5,000,000 x 3% x 1.71) 256,500 Unrealized gain per book (249,000 - 100,000) 149,000 Increase in unrealized gain 107,500 2018 Dec. 31 Interest expense (5,000,000 x 11%) 550,000 Cash 550,000 31 Cash 150,000 Interest swap receivable 150,000 31 Unrealized gain - interest rate swap 150,000 Interest expense 150,000 2018 Dec. 31 Interest rate swap receivable 71,500 Unrealized gain - interest rate swap 71,500 Unrealized gain - 12/31/2018 (5,000,000 x 4% x .89) 178,000 Unrealized gain per book (256,300 - 150,000) 106,500 Increase in unrealized gain 71,500 2019 Dec. 31 Interest expense (5,000,000 x 12%) 600,000 Cash 600,000 31 Cash 200,000 Interest rate swap receivable 178,000 Unrealized gain - interest swap 22,000 31. Unrealized gain - interest swap 200,000 Interest expense 200,000 31 Loan payable 5,000,000 Cash 5,000,000Problem 29-6 2016 Jan. 31 Cash Note payable Dec. 31 Interest expense (1,000,000 x 8%) Cash 31. Note payable Gain on note payable 1,000,000 1,000,000 80,000 80,000 34,760 34,760 At every year-end the note payable is measured at fair value. The fair value is equal to the present value of the principal plus the present value of future interest payments. PV of principal (1,000,000 x .8264) PV of interest (80,000 x 1.7355) Fair value of note payable - 12/31/2016 965,240 Carrying value of note payable 1,000,000 Decrease in carrying amount - gain 31. Loss on interest rate swap Interest rate swap payable 34,760 826,400 138,840 34,760 34,760 The derivative which is the interest rate swap is also measured at fair value. The fair value is equal to the present value of the net cash settlement with the speculator.Variable interest (1,000,000 x 10%) 100,000 Fixed interest (1,000,000 x 8%) 80,000 Net cash payment to speculator 20,000 Multiply by PV of an ordinary annuity of 1 at 10% for two periods 1.7355 Fair value of interest swap payable - 12/31/2016 34,760* *20,000 times 1.7355 equals P34,760. There is a difference of P50 due to rounding. The gain on note payable and the loss on interest rate swap are recognized immediately in profit or loss because the interest rate swap is designated as fair value hedge. 2017 Dec. 31 Interest expense 96,524 Cash 80,000 Note payable 16,624 Actually, on December 31, 2016, there is a discount on note able because the fair value is P965,240 and the face value P1,000,000. This discount is amortized using the effective ferest method. Interest expense (965,240 x 10%) 96,524Interest paid (1,000,000 x 8%) 80,000 Amortization of discount - increase in note payable 16,524 31 Note payable 8,792 Gain on note payable 8,792 PV of principal (1,000,000 x .9009) PV of interest payment (80,000 x .9009) Fair value of note payable ~ 12/31/2017 972,972 Carrying amount of note payable (965,240 - 16,524) 981,764 Decrease in carrying amount - gain 8,792 31 Interest rate swap payable 20,000 Cash 20,000 This is the cash payment to the speculator as a result of the increase in market rate of interest on January 1, 2017. 31 Loss on interest rate swap 12,267 Interest rate swap payable 12,267 Variable interest (1,000,000 x 11%) 110,000 Fixed interest (1,000,000 x 8%) _80,000 Net cash payment to speculator 30,000 Multiply by PV of 1 at 11% for one period +2009 27,027 Fair value of interest rate swap payable - 12/31/2017Carrying amount of interest rate swap payable (34,760 - 20,000) 14,760 Increase in interest rate swap payable 12,267 2018 Dec. 31 Interest expense 107,028 Cash 80,000 Note payable 27,028 220 2018 Interest expense (972,972 x 11%) 107,028" Interest paid 80,000 Amortization of discount 27,028 *972,972 x 11% equals P107,027 or a difference of P1 due to rounding to bring the carrying value of the note payable to P1,000,000 on maturity date. Dec. 31 Loss on interest rate swap 2,973 Interest rate swap payable 2,973 Final cash payment to speculator 30,000 Carrying amount of interest rate swap payable 27,027 Loss on interest rate swap 2,973 31 Interest rate swap payable 30,000 Cash 30,000 Final settlement with the speculator, 31. Note payable 1,000,000 Cash 1,000,000 Repayment of the loan to the bank. Problem 29-7 Question 1 Answer A Question 2 Answer C (5,000,000 x 4% = 200,000 x 2.49) 498,000 Question 3 Answer C (5,000,000 x 2% = 100,000 x 1.78) 178,000Problem 29-8 Question | Answer D (4% x 5,000,000 = 200,000 x 2.67) Question 2 Answer B (3% x 5,000,000 = 150,000 x 1.81) Question 3 Answer A (10% x 5,000,000) Problem 29-9 Question | Answer A Camry’s payment to Corolla (5,000,000 x 2%) Question 2 Answer C Fair value of interest rate swap (100,000 x .926) Problem 29-10 Problem 29-11 LA 1B 2A 2.D 3.D 3.D aA 4.8 5. B 5A CHAPTER 30 Problem 30-1 2016 Dec. 31 Forward contract receivable 1,500,000 Unrealized gain - forward contract 1,500,000 (5,000 x 300) 534,000 271,500 500,000 100,0002017 Mar. 1 Unrealized gain - forward contract 500,000 Forward contract receivable (5,000 x 100) 500,000 1 Tree inventory (5,000 x 1,700) 8,500,000 Cash 8,500,000 1 Cash 1,000,000 Forward contract receivable 1,000,000 1 Unrealized gain - forward contract 1,000,000 Tree inventory 1,000,000 Problem 30-2 2016 Dec. 31 Unrealized loss - forward contract 200,000 Forward contract payable (100,000 x 2) 200,000 2017 Jan. 31 Unrealized loss - forward contract 300,000 Forward contract payable (100,000 x 3) 300,000 31 Purchases (100,000 x 75) 7,500,000 Cash 7,500,000 31 Forward contract payable 500,000 Cash 500,000 31 Purchases 500,000 Unrealized loss - forward contract 500,000 Problem 30-3 Requirement 1 2016 Dec. 31 Futures contract receivable 500,000 Unrealized gain - futures contract (50,000 x 10) 500,000 2017 Feb. 1 Futures contract receivable 250,000 Unrealized gain - future contract (50,000 x 5) 250,000 1 Purchases 8,250,000 Cash (50,000 x 165) 8,250,000 2017 Feb. 1 Cash 750,000 Futures contract receivable 750,000 1 Unrealized gain - futures contract 750,000Purchases Requirement 2 2016 Dec. 31 Unrealized loss - futures contract Futures contract payable (50,000 x 5) 250,000 2017 Feb. 1 Purchases Cash (50,000 x 145) 1 Futures contract payable Cash 1 Purchases Unrealized loss - futures contract 250,000 Problem 30-4 2016 Dec. 31 Futures contract receivable Unrealized gain - futures contract 1,500,000 (100,000 x 15) 750,000 250,000 7,250,000 7,250,000 250,000 250,000 250,000 1,500,0002017 Mar. 1 Unrealized gain - futures contract 500,000 Futures contract receivable (100,000 x 5) 500,000 1 Purchases 6,000,000 Cash (100,000 x 60) 6,000,000 1 Cash 1,000,000 Futures contract receivable 1,000,000 1 Unrealized gain - futures contract 1,000,000 Purchases 1,000,000 Problem 30-5 2016 Dec. 31 Unrealized loss ~ futures contract 125,000 Futures contract payable (25,000 x 5) 125,000 2017 June 1 Unrealized loss - futures contract 75,000 Futures contract payable 75,000 Futures contract payable - 6/1/2017 (25,000 x P8) 200,000 Futures contract payal Increase in derivative 12/31/2016 125,000 75,0002017 June 1 Futures contract payable Cash 1 Purchases (25,000 x 42) Cash 1 Purchases Unrealized loss - futures contract Problem 30-6 Requirement 1 2016 Dec. 1 Call option Cash 31 Call option Unrealized gain - call option (150,000 x 2 = 300,000 - 50,000) 2017 July 1 Call option Unrealized gain - call option (150,000 x 5 = 750,000 - 300,000) 1 Cash Call option 1 Purchases Cash (150,000 x 35) 1 Unrealized gain - call option Purchases Requirement 2 2016 Dec. 1 Call option Cash 31 Call option Unrealized gain - call option 2017 July 1 Purchases Cash (150,000 x 28) 1 Loss on call option Unrealized gain - call option Call option 200,000 200,000 1,050,000 1,050,000 200,000 200,000 50,000 50,000 250,000 250,000 450,000 450,000 750,000 750,000 5,250,000 5,250,000 700,000 700,000 50,000 50,000 250,000 250,000 4,200,000 4,200,000 50,000 250,000 300,000Problem 30-7 2016 Dec. 1 Call option Cash 31 Call option Unrealized gain - call option Fair value (200,000 x 2) Payment for call option 20,000 Increase 380,000 2017 June 1 Call option Unrealized gain - call option Call option - 6/1/2017 (200,000 x P3) Call option - 12/31/2016 400,000 Increase in derivative asset 1 Cash Call option 1 Purchases (200,000 x P28) Cash 1 Unrealized gain - call option Purchases Problem 30-8 2016 Dec. 1 Put option Cash 2017 Feb. 1 Cash (50,000 x 180) Sales 1 Loss on put option Put option 20,000 20,000 380,000 380,000 400,000 200,000 200,000 600,000 200,000 600,000 600,000 5,600,000 5,600,000 580,000 580,000 100,000 100,000 9,000,000 9,000,000 100,000 100,000 With the price above the put option price, on the part of the seller, there is no reason to exercise the option. It is better to sell the product on the open market. Thus, the put option is not exercised on February 1, 2017 and has no value. Problem 30-9 2016 Oct. 1 Call option Cash 20,000 20,000Dec.31 Call option Gain on call option 400,000 2016 (100,000 x 4) Dec. 31 Loss on call option Call option 2017 (20,000 - 15,000) Jan. 31 Call option Gain on call option 200,000 (100,000 x 2) Dec.31 Cash Loss on call option Call option Problem 30-10 2016 Nov. 1 Call option Cash Dec. 31 Call option Gain on call option 400,000 (40,000 x 10) 31 Loss on call option 2017 Call option (35,000 - 20,000) Mar. 1 Loss on call option Call option (40,000 x 3) 1 Loss on call option Call option (20,000 - 3,000) 1 Cash Loss on call option 283,000 Problem 30-11 2016 Call option Sept. 1 Equipment 2,200,000 ‘Accounts payable 400,000 5,000 5,000 200,000 600,000 15,000 615,000 35,000 35,000 400,000 15,000 15,000 120,000 120,000 17,000 17,000 280,000 3,000 2,200,000Dec. 31 Loss on foreign exchange Accounts payable 50,000 Peso equivalent - 12/31/2016 Peso equivalent - 09/01/2016 2,200,000 Loss on foreign exchange 31 Forward contract receivable Gain on forward contract 50,000 2017 March 1 Loss on foreign exchange Accounts payable 50,000 Peso equivalent - 3/1/2017 Peso equivalent - 12/31/2016 Loss on foreign exchange 50,000 1 Forward contract receivable Gain on forward contract 50,000 1 Cash Forward contract receivable 1 Accounts payable — (50,000 x 49) Cash Problem 30-12 2016 Dec. 31 Forward contract receivable Unrealized gain - forward contract 50,000 ($50,000 x P1) 2017 March 31 Unrealized gain - forward contract Forward contract receivable 50,000 50,000 2,250,000 50,000 50,000 50,000 2,300,000 2,250,000 50,000 100,000 100,000 2,300,000 2,300,000 50,000 50,00031 Unrealized loss - forward contract 100,000 Forward contract payable ($50,000 x P2) 100,000 31 Forward contract payable 100,000 Cash 100,000 31 Purchases ($50,000 x P43) 2,150,000 Cash 2,150,000 31 Purchases 100,000 Unrealized loss - forward contract 100,000 Problem 30-13 Question 1 Answer B The notional figure is 8,000 kilos and the notional value is 8,000 kilos times the underlying fixed price of P1,200 per kilo or P9,600,000. Question 2 Answer C Market price - 12/31/2016 1,500 9 fixed price Derivative asset 300 Forward contract receivable (8,000 x 300) 2,400,000Present value of derivative asset (2,400,000 x .91) 2,184,000 The present value of P2,184,000 is recognized as forward contract receivable on December 31, 2016 because the amount is collectible on January 1, 2018, one year from December 31, 2016. Question 3 Answer B Market price - 12/31/2017 1,000 Underlying fixed price 1,200 Derivative liability 200 Forward contract payable - 12/31/2017 (8,000 x 200) 1,600,000 Problem 30-14 Question 1 Answer A (50,000 x 10) 500,000 Question 2 Answer A (50,000 x 15) 750,000 Question 3 Answer C Option payment 50,000 Question 4 Answer D There is no derivative liability if the market price is lower than the option price. A call option is a right and not an obligation Problem 30-15 Answer BCall option: December 1, 2016 100,000 Fair value of call option - December 31, 2016 40,000 Unrealized loss on call option in 2016 60,000 Fair value of call option - 3/1/2017 (500,000 x 4) 2,000,000 Fair value of call option - December 31, 2016 40,000) Gain on call option in 2017 1,960,000 Unrealized loss on call option in 2016 (__60,000) Net gain on call option in 2017 1,900,000 Another computation Fair value of call option - 3/1/2017 2,000,000 Payment for call option 100,000) Net gain on call option in 2017 1,900,000 Problem 30-16 Answer B Exchange rate on July 31 (80,000,000 / 92) 869,565 Strike price (80,000,000 / 100) 800,000 Derivative asset 69,565 Call option payment 10,000 Saving 59,565 Problem 30-17 Answer C Dollar equivalent - 11/1/2016 435,000 Dollar equivalent on December 31, 2016 (47,850,000 / 120) 398,750 Fair value of forward contract receivable 36,250 Problem 30-18 Answer C Fair value of call option (120 - 100 = 20 x 10,000) 200,000 Problem 30-19 Answer B Sugar (20,000 x 15) 300,000 Milk (50,000 x 9) (450,000) Ice cream (30,000 x 25) 750,000 Futures contract receivable - 12/31/2016 600,000 Problem 30-20 Answer A Problem 30-21 Problem 30-22 Problem 30-23 1D 1D 1B 28 20 2A 3.€ 3A aC 4.0 4.8 48 5.D 5. D 5. DCHAPTER 31 Problem 31-1 Net method Gross method 2. Within the discount period: 4. Within the discount period: |, Machinery 490,000 1. Machinery 500,000 ‘Accounts payable 490,000 ‘Accounts payable 300.000 500,000 x 98%) 2. Accounts payable 490900 2. Accounts payable 500,000 Cash 490,000 cash 490000 Machinery 10,900 b, Beyond the discount period: b. Beyond the discount period: 1. Machinery 490,000 1. Machinery 500,000 Accounts payable 490,000 Accounts payable 500,000 2. Accounts payable 490000 2. Accounts payable 500,000 Purchase discount lost 10,000 Purchase discount los 10,000 ‘cash 500,000 ‘cash 500,000 Machinery 10,000 Problem 31-2 1. Land 2,000,000 Building 3,500,000 Share capital 5,000,000 Share premium 500,000 2. Land 1,000,000 Donated capital 1,000,000 Donated capital 50,000 Cash 50,000 3. Machinery 3,000,000 Accounts payable 3,000,000 Accounts payable 3,000,000 Purchase discount lost 300,000 Cash 3,000,000 Machinery 300,000 Loss on retirement of old machine 50,000 Spare parts inventory 150,000 Cash 200,000 Problem 31-3 1. Machinery 500,000 Cash 500,000 2. Land (2/5 x 5,500,000) 2,200,000 Building (3/5 x 5,500,000) 3,300,000 Cash 5,500,0003. Investment in equity security Cash Delivery equipment (5,000 x 120) Investment in equity security 500,000 Gain on exchange 100,000 Taxes and licenses Cash 4. Equipment Donated capital Donated capital Cash 5. Land (7,200,000 x 1/4) Building (7,200,000 x 3/4) Share capital (60,000 x 100) Share premium Problem 31-4 2016 Jan. 1 Equipment Discount on note payable Cash Note payable 300,000". : Dec. 31 Note payable Cash 31 Interest expense Discount on note payable Note payable 2016 500,000 2017 400,000 2018 300,000 2019 200,000 2020 100,000 1,500,000 2017 Dec. 31 Note payable Cash 31 Interest expense Discount on note payable Problem 31-5 Down payment 500,000 500,000 600,000 3,000 3,000 1,000,000 1,000,000 25,000 25,000 1,800,000 5,400,000 6,000,000 1,200,000 580,000 120,000 200,000 100,000 100,000 40,000 Fraction Amortization S/S 40,000 4/15 32,000 3/15 24,000 2/15 16,000 1/15 _8,000 120,000 100,000 100,000 32,000 32,000 100,000Present value of note (200,000 x 3.17) Total cost 2016 Jan. 1 Machinery Discount on note payable Cash Note payable 800,000 Dec. 31 Note payable Cash Dec. 31 Interest expense Discount on note payable Date Payment 01/01/2016 12/31/2016 200,000 497,400 12/31/2017 200,000 12/31/2018 200,000 12/31/2019 200,000 181,854 634,000 734,000 232 734,000 166,000 100,000 200,000 200,000 63,400 63,400 Principal Present value 634,000 136,600 150,260 347,140 165,286 181,8542017 Dec. 31 Note payable 200,000 Cash 31 Interest expense 49,740 Discount on note payable Problem 31-6 2016 Jan. 1 Machinery 4,700,000 Interest expense 800,000 Cash Note payable Dec. 31 Machinery (50,000 x 5.65) 2,825,000 Discount on note payable 2,175,000 Note payable 31 Machinery (3,000,000 x .80) 2,400,000 Discount on note payable 600,000 Note payable 2017 Dec. 31 Note payable 500,000 Cash 31° Interest expense 339,000 Discount on note payable (12% x 2,825,000) 31 Interest expense 288,000 Discount on note payable (12% x 2,400,000) 200,000 49,740 500,000 5,000,000 5,000,000 3,000,000 500,000 339,000 288,0002018 Dec. 31 Note payable 500,000 Cash 2018 Dec. 31 Interest expense 319,680 Discount on note payable (12% x 2,664,000) 31 Note payable 3,000,000 Cash 31. Interest expense 312,000 Discount on note payable (600,000 - 288,000) 312,000 Problem 31-7 2016 Dec. 31 Machinery (200,000 x 5.712) 1,142,400 Discount on note payable 457,600 Note payable Dec. 31 Note payable 200,000 Cash 500,000 233 319,680 3,000,000 1,600,000 200,0002017 Dec. 31 Note payable Cash 31 Interest expense Discount on note payable (11% x 942,400) 103,664 2018 Dec. 31 Note payable Cash 31 Interest expense Discount on note payable (11% x 846,064) 93,067 Problem 31-8 1. Land Accumulated depreciation Equipment - old Gain on exchange 200,000 Fair value of equipment given 1,500,000 Less: Carrying amount Gain on exchange 200,000 2. Equipment - new Accumulated depreciation Equipment - old 3. Equipment - new Accumulated depreciation Equipment - old Cash Gain on exchange 200,000 200,000 103,664 200,000 93,067 1,500,000 700,000 1,300,000 700,000 2,000,000 700,000 200,000 200,000 2,000,000 1,300,000 2,000,000 2,000,000 500,000Fair value Cash payment 500,000 Cost of new asset 2,000,000 Fair value Less: Carrying amount Gain on exchange 200,000 Problem 31-9 1, Land (1/4 x 6,000,000) Building (3/4 x 6,000,000) Machinery (8/12 x 1,800,000) Office equipment (4/12 x 1,800,000) Delivery equipment Cash 2. Land Building Machinery Share capital Share premium 3. Land Income from donation 1,500,000 4, Machinery (900,000 x 98%) Cash Machinery Cash 5. Furniture and fixtures (400,000 x .797) Discount on note payable Note payable Problem 31-10 1. Computer 1,500,000 4,500,000 1,200,000 600,000 500,000 1,000,000 5,000,000 2,000,000 1,500,000 882,000 35,000 318,800 81,200 430,000 1,500,000 1,500,000 1,300,000 8,300,000 6,000,000 2,000,000 882,000 35,000 400,000Inventory (car) 300,000 Cash Gain on exchange 80,000 2. Machinery - new (110,000 + 30,000) Accumulated depreciation Loss on exchange Machinery - old Cash Fair value of asset given Carrying amount Loss on exchange 10,000) 3. Equipment - new Loss on exchange Accumulated depreciation Equipment - old 50,000 140,000 120,000 10,000 240,000 30,000 110,000 120,000 ¢ 1,000,000 200,000 1,800,000 3,000,000Problem 31-11 Smile Equipment - new 500,000 Accumulated depreciation 2,000,000 Equipment - old Gain on exchange Problem 31-12 Cash price without trade in Cash payment 980,000 Trade in value 420,000 Less: Carrying amount Gain on exchange 20,000 Equipment - new Accumulated depreciation Equipment - old Cash Gain on exchange Problem 31-13 Delivery equipment - new Accumulated depreciation Loss on exchange Input tax Insurance Taxes and licenses Delivery equipment - old 1,500,000 2,400,000 100000 Frown Equipment - new 500,000 Accumulated depreciation 1,750,000 Equipment - old Gain on exchange 1,400,000 600,000 2,300,000 1,300,000 150,000 300,000 120,000 10,000 2,200,000 50,000 1,400,000 1,000,000 980,000 20,000Cash 2,680,000 Fair value of asset given 50,000 Cash paid 2,680,000 Total 2,730,000 Less: VAT 300,000 Insurance 120,000 Registration fee 10,000 430,000 Cost of new asset 2, 10. Fair value 50,000 Carrying amount 200,000 Loss on exchange (150,000) Problem 31-14 Total Finished goods Building 1. Direct tabor 6,000,000 4,200,000 1,800,000 Materials 7,000,000 3,000,000 4,000,000 Overhead 2,000,000 2,000,000 - 15,000,000 9,200,000 5,800,000 Total Finished goods Building 2. Direct labor 6,000,000 4,200,000 1,800,000 Materials 7,000,000 3,000,000 4,000,000 Overhead 2,000,000 135 / 180 x 2,000,000 1,500,000 45 / 180 x 2,000,000 - - 500,000 15,000,000 8,200,000 6,300,000 3. Direct labor 6,000,000 4,200,000 1,800,000 Materials 7,000,000 3,000,000 4,000,000 Overhead 2,000,000 42 / 60 x 2,000,000 1,400,000 18 / 60 x 2,000,000 ss 600,000 15,000,000 8,600,000 6,400,000 Problem 31-15 a. Materials 500,000 Direct labor 1,000,000 Overhead —600,000 Cost of machinery 2,100,000 Overhead 3,600,000 Charged to finished goods (75% x 4,000,000) 3,000,000 Charged to machinery 600,000b. Materials 500,000 Direct labor 1,000,000 Overhead (1/5 x 3,600,000) 720,000 Cost of machinery 2:220,000 Direct labor: Finished goods 4,000,000 4/5 Machinery 1,000,000 Ws 5,000,000 Problem 31-16 Answer D Cost of land (5,400,000 x 2/5) 2,160,000 Problem 31-17 Answer B Cash price 950,000 Installation cost 30,000 Total cost 980,000 Problem 31-18 Answer C (1,160,000 + 20,000) 1,180,000 Problem 31-19 Answer C Cash price 2,000,000 Installation cost 50,000 Total cost 2,050,000 Problem 31-20 Answer C Downpayment 400,000 PV of future payments (600,000 x 2.58) 1,548,000 Shipping charges 200,000 Installation charges 350,000 Total cost 2,498,000 Problem 31-21 Answer C (3,000,000 - 450,000 - 51,000 + 40,000 + 30,000) 2,569,000 Problem 31-22 Question | Answer A Question 2 Answer C Problem 31-23 Answer B (2,300,000 + 80,000) 2,380,000 Problem 31-24 Answer A (300,000 + 275,000) 575,000 Problem 31-25 Answer AInvoice price Discount (2% x 700,000) Freight and insurance 3,000 Cost of assembling and installation 5,000 Total cost Problem 31-26 Answer B (4,000,000 - 50,000) Problem 31-27 Question | Answer B Question 2 Answer A Question 3 Answer A Equipment: Invoice price Discount (5% x 600,000) Land (at fair value) Machinery: Acquisition cost Installation cost Trial run and testing cost Construction of base 310,000 Total 700,000 ( 14,000) 694,000 3,950,000 600,000 (30,000) 570,000 1,100,000 275,000 7,000 18,000 10,000 1,980,000Problem 31-28 Answer B Fair value of asset given 700,000 Cash payment 160,000 Total cost 860,000 Problem 31-29 Answer A (350,000 + 100,000) 450,000 238 Problem 31-30 Answer B (2,050,000 - 600,000 = 1,450,000 - 1,680,000) 230,000 Problem 31-31 Answer B Fair value of asset given 2,100,000 Cash payment 400,000 Cost of new inventory 2,500,000 Problem 31-32 Answer C Cost of asset given 1,000,000 Cash payment 300,000 Cost of new asset 1,300,000 Problem 31-33 Answer ASince the old machine has no available fair value, the new machine received in exchange is recorded at the cash price without trade in of P900,000. The average published retail value of the old machine is not necessarily its fair value. Problem 31-34 Answer D Fair value of land given 4,500,000 Cash payment 500,000 Total cost 5,000,000 Problem 31-35 Answer B (260,000 + 910,000) 1,120,000 Problem 31-36 Answer A (1,800,000 - 1,200,000) 600,000 Problem 31-37 Answer A (400,000 + 1,000,000) 1,400,000 Problem 31-38 Problem 31-39 Problem 31-40 Problem 31-41 A apne B B c yeese O>>aw PNIMVAYNo vo>o>o00 PPenNP PS eho GOU>ON>>>ENn Problem 31-42 PYEPNOVPawN> oozonenc00CHAPTER 32 Problem 32-1 1. Cash Deferred grant income Environmental expenses Cash Deferred grant income Grant income (2/20 x 30,000,000) 2. Cash Deferred grant income Building Cash Depreciation Accumulated depreciation (50,000,000 / 20) Deferred grant income Grant income (40,000,000 / 20) 3. Land Deferred grant income Building Cash Depreciation ‘Accumulated depreciation (80,000,000 / 25) Deferred grant income Grant income (50,000,000 / 25) 4, Cash Grant income 30,000,000 2,000,000 3,000,000 40,000,000 50,000,000 2,500,000 2,000,000 50,000,000 80,000,000 3,200,000 2,000,000 10,000,000 30,000,000 2,000,000 3,000,000 40,000,000 50,000,000 2,500,000 2,000,000 50,000,000 80,000,000 3,200,000 2,000,000 10,000,000Problem 32-2 1. Land Deferred grant income 2. Land improvement Cash 3. Deferred grant income Grant income (2/10 x 12,000,000) Problem 32-3 1. Cash Deferred grant income 2. Building Cash 3. Depreciation Accumulated depreciation 4. Tuition expense Cash 5. Deferred grant income Grant income Building (9,000,000 / 10) 900,000 Tuition (3,000,000 / 4) 12,000,000 2,000,000 2,400,000 12,000,000 9,000,000 900,000 600,000 1,650,000 12,000,000 2,000,000 2,400,000 12,000,000 9,000,000 900,000 600,000 1,650,000 750,000 1,650,000Problem 32-4 Deferred income approach 1. Machinery 7,000,000 Cash 2. Cash 1,000,000 Deferred grant income 3. Depreciation Accumulated depreciation (7,000,000 - 500,000 / 5) 1,300,000 4. Deferred grant income Grant income (1,000,000 / 5) 200,000 Deduction from asset approach 1,300,000 200,000 1. Machinery 7,000,000 Cash 2. Cash 1,000,000 Machinery 3. Depreciation 1,100,000 Accumulated depreciation (6,000,000 - 500,000 / 5) 1,100,000 Problem 32-5 Deferred income approach 1. Machinery 5,400,000 Cash 2. Cash Deferred grant income 400,000 3. Depreciation 1,080,000 Accumulated depreciation (20% x 5,400,000) 4. Deferred grant income Grant income (20% x 400,000) Deduction from asset approach 80,000 1. Machinery 5,400,000 Cash 2. Cash Machinery 400,000 3. Depreciation 1,000,000 Accumulated depreciation (20% x 5,000,000) 7,000,000 1,000,000 7,000,000 1,000,000 5,400,000 400,000 1,080,000 80,000 5,400,000 400,000 1,000,000Problem 32-6 Carrying amount - 1/1/2016 (8,000,000 x .7473) 5,978,400 Interest for 2016 (6% x 5,978,400) 358,704 Carrying amount - 12/31/2016 6,337,104 Interest for 2017 (6% x 6,337,104) — 380,226 Carrying amount - 12/31/2017 6,717,330 Journal entries 2016 Jan. 1 Cash 8,000,000 Discount on note payable 2,021,600 Loan payable 8,000,000 Deferred grant income 2,021,600 Dec. 31 Interest expense 358,704 Discount on note payable 358,704 31 Deferred grant income 358,704 Grant income 358,704 2017 Dec. 31 Interest expense 380,226 Discount on note payable 380,226 31 Deferred grant income 380,226 Grant income 380,226 Problem 32-7 2016 Jan. 1 Machinery 3,000,000 Cash 3,000,000 1 Cash 500,000 Deferred grant income 500,000 Dec. 31 Depreciation 600,000 Accumulated depreciation 600,000 31 Deferred grant income 100,000 Grant income (500,000 / 5) 100,000 2017 Dec. 31 Depreciation 600,000 Accumulated depreciation 600,000 31 Deferred grant income 100,000 Grant income 100,0002018 Jan. 1 Deferred grant income 300,000 Loss on repayment of grant 200,000 Cash 500,000 Dec. 31 Depreciation 600,000 Accumulated depreciation 600,000 Problem 32-8 Deferred income approach 2016 Jan. 1 Building 12,000,000 Cash 12,000,000 1 Cash 2,000,000 Deferred grant income 2,000,000 Dec. 31 Depreciation 2,400,000 Accumulated depreciation (12,000,000 / 5) 2,400,000 31 Deferred grant income 400,000 Grant income (2,000,000 / 5) 400,000 2017 Jan. 1 Deferred grant income 1,600,000 Loss on government grant 400,000 Cash 2,000,000 Dec. 31 Depreciation 2,400,000 Accumulated depreciation 2,400,000 Deduction from asset approach 2016 Jan. 1 Building 12,000,000 Cash 12,000,000 1 Cash 2,000,000 Building 2,000,000 Dec. 31 Depreciation 2,000,000 Accumulated depreciation (10,000,000 / 5) 2,000,000 2017 Jan. 1 Building 2,000,000 Cash 2,000,000Dec. 31 Depreciation 2,800,000 Accumulated depreciation 2,800,000 Original carrying amount Increased carrying amount (2,000,000 / 5 x 2) Total depreciation Problem 32-9 Answer D Income (2/30 x 60,000,000) Problem 32-10 Answer A Income (15,000,000 / 10) 1,500,000 Problem 32-11 Answer A Cost Accumulated depreciation (6,000,000/4 x 2) Carrying amount - 12/31/2017 Deferred income Income earned (540,000/4 x 2) Deferred income - 12/31/2017 Problem 32-12 Question 1 Answer B Cost Accumulated depreciation (3,000,000 / 4) Carrying amount ~ 12/31/2016 Question 2 Answer B Income (500,000 / 4) Problem 32-13 Answer D Cost Government grant 500,000) Net cost Residual value 50,000) Depreciable amount Annual depreciation (3,050,000 / 8) 381,250 Problem 32-14 Question 1 Answer D Depreciation for 2016 (6,000,000 - 500,000 / 10) 2,000,000 800,000 2,800,000 4,000,000 6,000,000 3,000,000 3,000,000 540,000 270,000 270,000 3,000,000 750,000 2,250,000 125,000 3,600,000 ( 3,100,000 ( 050,000Question 2 Answer D Original depreciation 550,000 Additional depreciation (600,000 / 10 x 3) Total depreciation for 2018 Problem 32-15 Answer B Original carrying amount (5,000,000 / 10) Increased carrying amount (1,000,000 / 10 x 6 years) 600,000 Total depreciation for 2016 Problem 32-16 Answer D Total grant received Income recognized in 2016 and 2017 (1,500,000 / 5 x 2) Deferred income - December 31, 2017 Repayment 1,200,000 Deferred income balance 900,000 Loss on repayment Problem 32-17 Answer D Acquisition cost net of grant (5,400,000 - 400,000) 5,000,000 Accumulated depreciation: 2016 (20% x 5,000,000) 1,000,000 2017 (20% x 4,000,000) 800,000 Carrying amount - December 31, 2017 Problem 32-18 Question 1 Answer D Note payable Present value (5,000,000 x .7513) Discount on note payable 1,243,500 Cash 5,000,000 Discount on note payable 1,243,500 Note payable Deferred grant income Question 2 Answer B Interest expense (10% x 3,756,500) 375,650 Discount on note payable 375,650 Question 3 Answer B Deferred grant income - 1/1/2016 180,000 730,000 500,000 1,100,000 1,500,000 (600,000) 900,000 300,000 1,800,000 3,200,000 5,000,000 3,256,500 5,000,000 1,243,500 1,243,500Grant income in 2016 375,650) Deferred grant income ~ 12/31/2016 Question 4 Answer D Present value ~ 1/1/2016 3,756,500 Interest for 2016 Present value - 12/31/2016 Interest for 2017 (10% x 4,132,150) Present value ~ 12/31/2017 Another computation Note payable Discount on note payable (1,243,500 ~ 375,650 - 413,215) Carrying amount - 12/31/2017 Problem 32-19 Problem 32-20 Problem 32-21 ¥een = >>ooR SPSMS oBnen PUNO EONS CO>mOO>>ND 867,850 375,650 4,132,150 413,215 4,545,365 5,000,000 (454,635) 4,545,365 Problem 32-22 av00 1 2. 3. 4.CHAPTER 33 Problem 33-1 Date Expenditure Months Amount January 1 2,000,000 12 24,000,000 June 30 2,000,000 6 12,000,000 December 31 1,000,000 ° 5,000,000 Average expenditures (36,000,000 x 12) 3,000,000 Average capitalization rate (1,060,000 / 8,000,000) 13.25% Expenditures on building 5,000,000 Interest (3,000,000 x 13.25%) Total cost of building 5,397,500 Problem 33-2 Average capitalization rate (900,000 / 8,000,000) 11.25% Date Expenditure Months Amount January 1 2,000,000 12 24,000,000 March 31 1,000,000 9 9,000,000 September 30 3,000,000 3 9,000,000 6,000,000 42,000,000 Average expenditures (42,000,000 / 12) 3,500,000 Expenditures on construction 6,000,000 Specific interest cost: Actual interest 240,000 Interest income (10,000) 230,000 General interest cost: Average expenditures 3,500,000 Specific borrowing (2,000,000) General borrowing 1,500,000 Capitalization rate 11.25% 168,750 Total cost of building 6,398,750 397,500Problem 33-3 Date Expenditure January | 1,000,000 July 1 2,000,000 November 1 3,000,000 6,000,000 Average expenditures (30,000,000 / 12) 2,500,000 Average expenditures 2,500,000 Applicable to specific loan Applicable to general loan Actual expenditures Capitalizable interest: Specific (1,000,000 x 10%) General (1,500,000 x 12%) Total cost of buil 6,280,000 Problem 33-4 Requirement 1 Date Expenditure January 1, 2016 4,000,000 April 1, 2016 5,000,000 December 1, 2016 3,000,000 12,000,000 Average expenditures in 2016 (96,000,000 / 12) Applicable to specific loan Applicable to general loan Actual expenditures in 2016 12,000,000 Capitalizable interest in 2016 Specific (3,000,000 x 10%) General (5,000,000 x 12%) Total cost of building 12,900,000 Date Expenditure January 1,2017 12,900,000 March 1, 2017 6,000,000 18,900,000 Average expenditures in 2017 (101,400,000 / 6) Applicable to specific loan Applicable to general loan Months 12 Months 12 Amount 12,000,000 12,000,000 30,000,000 (1,000,000) 1,500,000 6,000,000 100,000 180,000 Amount 48,000,000 45,000,000 _3,000,000 96,000,000 8,000,000 (3,000,000) 5,000,000 300,000 600,000 Amount 77,400,000 24,000,000 101,400,000 16,900,000 (_3,000,000) 13,900,000Note that the construction period in 2017 is only 6 months because the building was completed on June 30, 2017, Thus, the average expenditures should be for 6 months only. Actual expenditures in 2017 18,900,000 Capitalizable interest in 2017 Specific (3,000,000 x 10% x 6/12) 150,000 General (13,900,000 x 12% x 6/12) 834,000 Total cost of new building - 6/30/2017 19,884,000 Requirement 2 Actual interest incurred on general borrowing - 2016 (12% x 25,000,000) 3,000,000 Interest on general borrowing capitalized in 2016 ( 600,000) Interest expense for 2016 2,400,000 Actual interest incurred on general borrowing - 2017 (12% x 25,000,000 x 6/12) 1,500,000 Interest on general borrowing capitalized in 2017 ( 834,000) Interest expense for 2017 Problem 33-5 1. Date Expenditure Fraction Average January 1 2,000,000 12/2 2,000,000 March = 31 9/2 3,000,000 June 30 6/12 3,050,000 September 30 3/12 1,100,000 December 31 o/12 oO 20,000,000 9,150,000 Average expenditures 9,150,000 Applicable to specific borrowing (8,500,000) Applicable to general borrowing 650,000 2. Principal Interest 10% 10-year note 6,000,000 600,000 12% S-year note 7,000, -840,000 General borrowing 13,000,000 1,440,000 Average capitalization rate (1,440,000 / 13,000,000) 11.08% Specific borrowing 8,500,000Multiply by future value of 1 at 3% for 4 periods 1.1255 Principal and interest due 12/31/2016 9,566,750 Principal amount (8,500,000) Interest on specific borrowing 1,066,750 Interest on general borrowing (650,000 x 11.08%) __72,020 Total capitalizable interest 1,138,770 Since the 12% interest on the specific borrowing is compounded quarterly, the future value of the principal and interest due on December 31, 2016 is determined by multiplying the principal amount of P8,500,000 by the factor for the future value of | at 3% for 4 periods. 3. Actual expenditures on building 1,138,770 Total cost of buil 21,138,770 4, Actual interest incurred on general borrowing 1,440,000 Capitalized interest on general borrowing (72,020) Interest expense for 2016 1,367,980 Problem 33-6 Answer A Average expenditures (20,000,000 / 2) 10,000,000 Multiply by capitalization rate 12% Interest on average expenditures 1,200,000 The capitalizable borrowing cost is limited to the actual borrowing cost incurred. In this case, the computed amount of P1,200,000 is more than the actual borrowing cost of P1,020,000, Accordingly, the capitalizable interest is P1,020,000. Note that in computing the average expenditures, the amount of 20,000,000 is simply divided by 2 because the said amount is incurred evenly during the year ended 2016. Problem 33-7 ing Question 1 Answer C Question 2 Answer B Average expenditures (10,000,000 / 2) 5,000,000 Interest capitalized on average expenditures (5,000,000 x 12%) 600,000 Interest expense (1,800,000 - 600,000) 1,200,000 Problem 33-8 Answer BAccumulated expenditures at the end of two years 3,000,000 Average expenditures in the third year (8,000,000 / 2) 4,000,000 Total 7,000,000 Capitalizable interest (7,000,000 x 9%) 630,000 Problem 33-9 Answer B Average accumulated expenditures 2,500,000 Specific borrowing (1,500,000) Applicable to general borrowing 1,000,000 Specific (6% x 1,500,000) General (9% x 1,000,000) Capitalizable interest 180,000 Problem 33-10 Answer B Construction cost 6,000,000 Interest (6,000,000 x 12% x 11/12) 550,000 Interest income (__80,000) Total cost 6,470,000 Problem 33-11 Question 1 Answer D Interest incurred (24,000,000 x 10% x 10/12) 2,000,000 Interest income (200,000) Question 2 Answer A Interest expense 11/1/2016 TO 12/31/2016 (24,000,000 X 10% X 2/12) 400,000 Problem 33-12 Answer B Annual interest: Bank A (6% x 8,000,000) 480,000 Bank B (6.6% x 10,000,000) 660,000 Bank C (7% x 30,000,000) 2.100,000 Total 3,240,000 Average interest rate (3,240,000 / 48,000,000) 6.75% Capitalizable borrowing costs (18,000,000 x 6.75% x 8/12) 810,000Problem 33-13 Answer D Interest incurred (7,000,000 x 12%) 840,000 Issuance cost (7,000,000 x 1.5% / 3.5 years) 30,000 870,000 Problem 33-14 Answer B Annual interest: 7% x 5,000,000 8% x 10,000,000 9% x 10,000,000 Total Average interest rate (2,050,000 / 25,000,000) 8.2% lizable total borrowing costs (20,000,000 x 8.2% x 2 years) 3,280,00 The investment income of P500,000 is ignored because the construction is financed by general borrowings. Problem 33-15 Answer C Average expenditures 4,750,000 Specific borrowing (4,000,000) General borrowing 750,000Specific borrowing (4,000,000 x 10%) General borrowing (750,000 x 12%) 90,000 Capitalizable interest 490,000 Problem 33-16 Question 1 Answer B Question 2 Answer C Average expenditures (30,000,000 / 2) 15,000,000 Applicable to specific borrowing (10,000,000) Applicable to general borrowing 3,000,000 Principal 12% 20-year bonds payable 30,000,000 8% S-year note payable 10,000,000 Total general borrowing 40,000,000 Average capitalization rate (4,400,000 / 40,000,000) Interest on specific borrowing (10% x 10,000,000) 1,000,000 Interest income Interest on general borrowing (11% x 5,000,000) Total capitalizable interest Interest expense for 2016 (4,400,000 - 550,000) 400,000 Interest 3,600,000 800,000 4,400,000 11% ( 100,000) 550,000 1,450,000 3,850,000Problem 33-17 Answer C Specific (2,200,000 x 10%) Interest revenue General (800,000 x 9%) Capitalizable interest 247,000 Problem 33-18 Answer D General borrowings: 1,500,000 x 10% 1,000,000 x 8% 2,500,000 Average rate (230,000 / 2,500,000) Specific (2,000,000 x 7.5%) Interest revenue General (1,900,000 x 9.2%) Capitalizable interest 265,800 Problem 33-19 Answer B Materials Labor Overhead (500,000 / 3,000,000 x 6,000,000) Interest incurred Total cost Problem 33-20 Answer A Problem 33-21 Problem 33-22 Problem 33-23 1D 1D 1A 2.€ 2.8 25 3. 3..C 3. A 4.D 4.0 4A 5. 5. B 6A 7.8 8.0 220,000 (45,000) 22,000 150,000 80,000 9.2% 150,000 (59,000) 175,800 300,000 500,000 1,000,000 200,000 2,000,000 7,000,000 Problem 33-24 aune NFO>(CHAPTER 34 Problem 34-1 Answer A (950,000 + 8,000,000 + 300,000) 9,250,000 Problem 34-2 Answer A Purchase price 4,000,000 Legal fees 50,000 Title insurance 30,000 Total cost of land 4,080,000 Problem 34-3 Answer B Land Building Purchase price of land 600,000 Legal fees for contract 20,000 Architect fee 80,000 Demolition of old building 50,000 Construction cost 3,500,000 Total cost 620,000 3,630,000 Problem 34-4 Answer A Land Building Purchase price of land 1,000,000 Demolition 100,000 Architect fee 175,000 Legal fee 25,000 Construction cost 5,450,000 Salvaged materials (__50,000) Total cost 1,025,000 5,675,000 Problem 34-5 Question | Answer A Question 2 Answer A Land Building Purchase price of land 2,400,000 Cost of tearing down 240,000Salvage value (20,000) Legal fee 15,000 Title insurance 10,000 Architect fee 125,000 Liability insurance during construction 25,000 Excavation cost 40,000 Payment to contractor 8,800,000 Special assessment 30,000 Interest cost during construction _ 300,000 Total 2,455,000 9,510,000 Problem 34-6 Answer D 4,300,000 Problem 34-7 Question | Answer A Allocated cost of land (2,400,000 / 6,000,000 x 5,500,000) 2,200,000 Allocated cost (2,400 / 6,000 x 550,000) _220,000 Total cost of land 2,420,000 Property taxes 250,000 Escrow fee 100,000 Real estate commission 200,00 Total cost to be allocated 550,000 Question 2 Answer A Allocated cost (3,600 / 6,000 x 5,500,000) 3,300,000 Allocated cost (3,600 / 6,000 x 550,000) 330,000 Renovation 500,000 Total cost of building 4,130,000 Problem 34-8 Question 1 Answer A 4,550,000 Question 2 Answer A 9,700,000 Question 3 Answer A 950,000 Problem 34:9 Question 1 Answer D > Question 2 AnswerLand Building Cash paid for land and old building 1,000,000 Removal of old building 50,000 Payment to tenants of old building to vacate premises 15,000 Architect fee 200,000 Building permit 30,000 Fee for title search 10,000 Survey before construction 20,000 Excavation 100,000 Cost of new building constructed 6,000,000 Assessment fee 5,000 Cost of grading, leveling and landfill 45,000 Driveways and walks 40,000 Temporary quarters for construction crew 80,000 Temporary building to house tools and materials 60,000 Cost of construction changes 50,000 1,080,000 6,625,000 Note: The cost of replacing windows is treated as expense. Problem 34-10 Question 1 Answer C Question 2 Answer A Question 3 Answer C Land Land Building improvement Cost of land (2,000,000 - 200,000) 1,800,000 Legal fees 10,000 Payment of mortgage 50,000 Payment of taxes 20,000 Cost of razing building 30,000 Grading and drainage 15,000 Architect fee 200,000 Payment to contractor 8,000,000 Interest cost 300,000 Driveway and parking lot 40,000 Cost of trees, shrubs and other landscaping 55,000 Cost of installing lights in parking lot 5,000Premium for insurance 25,000 1,895,000 8,555,000 100,000 The payment for medical bills and the cost of open house party are outright expenses because they are not a necessary cost of acquiring the land and building. Problem 34-11 Question | Answer A Question 2 Answer B Question 3 Answer B Office Factory Land building building Purchase price 1,300,000 700,000 Materials 3,200,000 Excavation 100,000 Labor 2,500,000 Remodeling 200,000 Cash discounts (60,000) Supervision 30,000 Compensation insurance 50,000 Clerical and other expenses 30,000 Plans and specifications 150,000 Legal cost - land 10,000 1,310,000 900,000 ~—6,000,0001. The imputed interest on corporation’s own money is not capitalizable. 2. The payment of claim for injuries not covered by insurance and the legal cost of injury claim are treated as expense. 3. Saving on construction is not recognized. 255 Problem 34-12 Question 1 Answer D Payment for land 1,000,000 Taxes in arrears 50,000 Total cost of land 1,050,000 Question 2 Answer C Architect fee 230,000 Payment to city hall 120,000 Contract price 5,000,000 Safety fence around construction site 35,000 Safety inspection on building 30,000 Removal of safety fence 20,000Total cost of factory building 5,435,000 Question 3 Answer C (80,000 + 550,000) Problem 34-13 Question 1 Answer B Purchase price (3,000,000 - 500,000) Title clearance fee 50,000 Total cost of land 2,550,000 Question 2 Answer B Construction cost of new building (8,000,000 + 100,000) 8,100,000 Problem 34-14 Question 1 Answer A Question 2 Answer B Land Fair value 3,000,000 Repairs 200,000 Special tax assessment 30,000 Remodeling 3,030,000 2,500,000 Building 4,000,000 400,000 4,600,000Problem 34-15, Question 1 Answer A Cash paid for land 2,500,000 Mortgage assumed Commission Legal fees, taxes and documentary expenses Amount paid to relocate persons 100,000 Total cost of land 3,950,000 Question 2 Answer C Amount paid to contractor Building permit Excavation 50,000 Architect fee 1,000,000 300,000 50,000 256 5,000,000 50,000 200,000Net cost of tearing down 150,000 Total cost of building 5,450,000 The cost of fencing the property is classified as land improvement while interest that would have been earned is an opportunity cost which is not recorded. Problem 34-16 Question 1 Answer A Acquisition cost ‘Cash 800,000 Shares (8,000 x 150) 1,200,000 Examination of title 10,000 Special assessment 60,000 Total cost of land 2,070,000 Question 2 Answer A Cost of removal of old building 90,000 Partial payment 700,000 Second payment 400,000 Final payment 900,000 Legal work in connection with construction contract 25,000 Insurance premium from May 1 to July 1, 2016 (480,000 x 2/24) 40,000 Total cost of building 2,155,000Problem 34-17 Question 1 Answer Question 2 Answer Question 3 Answer o> m@ > Question 4 Answer Balances, January 1 900,000 Land acquired Issuance of share capital: 12/36 x 4,500,000 24/36 x 4,500,000 New parking lot, street and sidewalk Balances, December 31 1,650,000 Balance of equipment - January 1 Equipment purchased Freight and unloading charge Installation cost 350,000 Equipment sold 500,000) Total cost Problem 34-18 Balances, January 1 500,000 Acquisition of land - #621: Purchase price Commission Clearing cost Sale of timber and gravel Acquisition of land - #622: Purchase price Cost of demolition New building: Construction cost Excavation fee Architectural design Building permit Improvements: Electrical work Construction extension (800,000 x 1/2) Improvements on office space Balances, December 31 1,900,000 Land Land Building Improvement 3,500,000 6,000,000 1,250,000 1,500,000 1,500,000 3,000,000 50,000 ( 4,400,000 Leasehold Land Building improvements 1,500,000 4,000,000 3,000,000 60,000 15,000 (5,000) 2,500,000 300,000 5,000,000 50,000 150,000 40,000 350,000 400,000 650,000 7,070,000 9,540,000 The third tract of land should be presented as current asset because it was “classified as held for sale”.Problem 34-19 yayno pangs Problem 34-20 Problem 34-21 yeyne peA>EN yawno =a>an CHAPTER 35 Problem 35-1 Answer A List price Cash discount 20,000) Freight 40,000 Installation cost Testing cost Total cost Problem 35-2 Answer Purchase price 250,000 Shipping 5,000 Installation 10,000 Testing Total cost Problem 35-3 Answer Problem 35-4 Answer Problem 35-5 Answer 1,400,000 ( 50,000 30,000 1,500,000 The cost of removing the old machinery is treated as outright expense. D 35,000 300,000 A P4,300,000 B P9,050,000 A P1,610,000 A Problem 35-6 AnswerAll expenditures are capitalized. Problem 35-7 Answer A All costs are capitalized. Problem 35-8 Answer B Painting partitions 50,000 Major replacement of motor Cost of grading land Dust filters 800,000 Total capital expenditures Problem 35-9 Answer B (350,000 + 50,000) Problem 35-10 Answer A Initial design fee Purchase of executive chairs and desks 200,000 Storm windows Installation of automatic door 200,000 Overhead crane Total capital expenditures 500,000 600,000 1,950,000 400,000 150,000 500,000 350,000 1,400,000Problem 35-11 Answer A Invoice cost 1,600,000 Discount (5% x 1,600,000) (80,000) Transportation 50,000 Installation (35,000 + 15,000) 50,000 Salary of engineer (2/3 x 60,000) 40,000 Cost allowance (_100,000) Total cost 1,560,000 Problem 35-12 Answer C (400,000 + 100,000 + 150,000) 650,000 Problem 35-13 Answer C Cost paid (896,000 - 96,000) 800,000 Cost of transporting machine 30,000 Installation cost 50,000 Testing cost 40,000 Safety rails and platform 60,000 Water device 80,000 Cost of adjustment 75,000 Estimated dismantling cost 65,000 Total cost of machine 1,200,000 Note that the estimated dismantling cost is capitalized because the company has a present obligation as required by contract. In the absence of a present obligation, the estimated dismantling cost is not capitalized. Problem 35-14 Answer C Carrying amount, July 1 500,000 Add: Cost of new engine Adjusted carrying amount 640,000 Proceeds of insurance policy 700,000 Less: Adjusted carrying amount 640,000 Gain on disposal 60,000The various repairs of P100,000 are treated as outright expense. Problem 35-15 Answer A Second hand market value Overhaul and repairs 150,000 Installation 80,000 Testing Hauling Safety device Problem 35-16 1. Materials Labor Installation 60,000 Trial run Discount Overhead 2. Adjusting entries: 1. Loss on retirement of old machinery Machinery (20,000 - 14,000) 6,000 2. Purchase discount Machinery 3. Machinery Factory overhead 4. Profit on construction Machinery 5. Tools Machinery 6. Depreciation - tools Tools (90,000 / 3 x 4/12) 10,000 7, Machinery Accumulated depreciation Depreciation ~ machinery 88,600 2,400,000 110,000 10,000 — 250,000 3,000,000 600,000 400,000 30,000 (40,000) 150,000 1,200,000 6,000 40,000 40,000 150,000 150,000 100,000 100,000 90,000 90,000 10,000 128,600 40,000Depreciation recorded 128,600 Correct depreciation (1,200,000 / 10 x 4/12) Overdepreciation Problem 35-17 1, Accumulated depreciation Loss on retirement of building Buil Building Cash Depreciation (8,100,000 / 20) Accumulated depreciation Building (9,000,000 + 2,500,000 - 2,000,000) Accumulated depreciation (1,800,000 - 400,000) Carrying amount 2. Accumulated depreciation (1,960,000 x 20%) Loss on retirement of building Building (2,500,000 x .784) 400,000 1,600,000 2,500,000 405,000 392,000 1,568,000 2,000,000 2,500,000 405,000 9,500,000 1,400,000 8,100,000 1,960,000Building Cash Depreciation (8,132,000 / 20) Accumulated depreciation Building (9,000,000 ~ 1,960,000 + 2,500,000) Accumulated depreciation (1,800,000 - 392,000) Carrying amount Problem 35-18 1, Machinery Cash 2. Depreciation ‘Accumulated depreciation 3. Depreciation (3,600,000 / 6) ‘Accumulated depreciation Cost Accumulated depreciation: 2016 2017 Carrying amount Residual value 500,000 Remaining depreciable cost - 1/1/2018 3,600,000 4, Machinery 2,500,000 406,600 5,000,000 450,000 600,000 450,000 450,000 300,000 2,500,000 406,600 9,540,000 1,408,000 8,132,000 5,000,000 450,000 600,000 5,000,000 _ 900,000 4,100,000Cash 5. Depreciation (3,300,000 / 5) Accumulated depreciation Cost Accumulated depreciation (900,000 + 600,000) 1,500,000 Carrying amount - 1/1/2019 3,800,000 Residual value 500,000 Remaining depreciable amount - 1/1/2019 3,300,000 Problem 35-19 a. Annual depreciation (8,400,000 / 30) Age of building (7,000,000 / 280,000) b. Building Cash © Building (8,400,000 + 2,500,000) Less: Accumulated depreciation 7,000,000 Carrying amount d, Depreciation (3,900,000 / 15) Accumulated depreciation Original life Less: Expired life Remaining useful life, beginning of current year Add: Extension in life Revised useful life Problem 35-20 1, Building Cash 2. Depreciation Accumulated depreciation 3. Building Cash Accumulated depreciation (2,500,000 / 50 x 2) Loss on retirement of building Cash 4. Depreciation (10,700,000 - 500,000 / 48) 300,000 660,000 660,000 5,300,000 280,000 25 years 2,500,000 2,500,000 10,900,000 -3,200,000 260,000 260,000 30 25 10,500,000 10,500,000 200,000 200,000 3,000,000 3,000,000 100,000 2,400,000 2,500,000 212,500Accumulated depreciation Building (10,500,000 + 3,000,000 - 2,500,000) Accumulated depreciation (400,000 - 100,000) 300,000 Carrying amount - 1/1/2018 10,700,000 Problem 35-21 1. Discount on bonds payable Machinery Interest expense (500,000 / 10 x 9/12) Discount on bonds payable Accumulated depreciation Depreciation Depreciation for 9 months Depreciation for 12 months (600,000 / 9/12) Depreciable cost (800,000 x 5 years) 4,000,000 Cost Less: Residual value Depreciable amount 212,500 11,000,000 500,000 500,000 37,500 37,500 75,000 75,000 600,000 800,000 Per book Adjusted 5,000,000 4,500,000 1,000,000 1,000,000 4,000,000 3,500,000 Correct depreciation for 9 months (3,500,000 / 5 x 9/12) 525,000 Less: Depreciation recorded Overstatement 75,000 600,0002. Interest expense Machinery (3,500,000 - 3,200,000) Machinery Freight in Accumulated depreciation Depreciation Depreciation per book Correct depreciation (3,350,000 / 5) 670,000 ‘Overstatement 30,000 3. Loss on exchange Machinery Cost per book 3,000,000 300,000 150,000 30,000 390,000 300,000 263 150,000 30,000 700,000 390,000Correct cost Trade in value 150,000 Add: Cash paid 2,460,000 Overstatement 2,610,000 390,000 Trade in value 150,000 Less: Carrying amount 540,000 Loss on exchange (390,000) 4. Allowance for doubtful accounts 840,000 Loss on exchange - accounts receivable 60,000 Treasury share 900,000 Per book Machinery 4,200,000 Accounts receivable 4,200,000 Treasury shares 4,200,000 Machinery 4,200,000 Should be Machinery 3,300,000 Allowance for doubtful accounts (20% x 4,200,000) 840,000 Loss on accounts receivable 60,000 Accounts receivable 4,200,000 Treasury shares 3,300,000 Machinery 3,300,000 The cost of treasury shares acquired for moncash consideration is usually measured by the recorded amount of the noncash asset surrendered. Problem 35-22 PYPONP VP RN = onaEn>ro>on CHAPTER 36 Problem 36-1Depreciation Table - Straight Line Year 2016 2017 2018 2019 2020 Particular Acquisition cost Depreciation 120,000 120,000 120,000 120,000 120,000 600,000 Depreciation Table - Service Hours Method Year 2016 2017 2018 2019 2020 Particular Acquisition cost 14,000 x 10 13,000 x 10 10,000 x 10 11,000 x 10 12,000 x 10 Depreciation 140,000 130,000 100,000 110,000 120,000 600,000 Accumulated depreciation 120,000 240,000 360,000 480,000 600,000 Accumulated depreciation 140,000 270,000 370,000 480,000 600,000 Carrying amount 635,000 515,000 395,000 275,000 155,000 —35,000 Carrying amount 635,000 495,000 365,000 265,000 155,000 35,000 Depreciation rate per hour = 600,000 / 60,000 = 10 Depreciation Table ~ Production Method Year 2016 2017 2018 2019 2020 Particular Acquisition cost 34,000 x 4 32,000 x 4 25,000 x 4 29,000 x 4 30,000 x 4 136,000 128,000 100,000 116,000 120,000 600,000 Depreciation Table - Sum of Years’ Digits Year 2016 2017 2018 2019 2020 Particular Acquisition cost 5/15 x 600,000 4/15 x 600,000 3/15 x 600,000 2/15 x 600,000 1/15 x 600,000 200,000 160,000 120,000 80,000 40,000 600,000 Accumulated Depreciation depreciation 136,000 264,000 364,000 480,000 600,000 Accumulated Depreciation depreciation 200,000 360,000 480,000 560,000 600,000 SYD=1+2+3+4+5=15 Carrying amount 635,000 499,000 371,000 271,000 155,000 35,000 Depreciation rate per unit of output = 600,000 / 150,000 = 4 Carrying amount 635,000 435,000 275,000 155,000 75,000 —35,000Depreciation Table - Double Declining Balance Accumulated Year Parti Depreciation depreciation Carrying amount Acquisition cost 635,000 2016 40% x 635,000 254,000 254,000 381,000 2017 40% x 381,000 152,400 406,400 228,600 2018 40% x 228,600 91,440 497,840 137,160 2019 40% x 137,160 54,864 552,704 82,296 2020 82,296 - 35,000 47,296 600,000 35,000 600,000 Fixed rate = 100% / 5 = 20% x2 = 40% Problem 36-2 a, Straight line method: 2016 27,500 2017 55,000 b. Working hours method: Rate per hour = =u 50,000 hours 2016 (3,000 hours x 11) 33,0002017 (5,000 hours x 11) 55,000 c. Output method: 550,000 Rate per unit = 200,000 units 2016 (18,000 units x 2.75) 49,500 2017 (22,000 units x 2.75) 60,500 d, Sum of years’ digits: SYD = 10(¢ 2016 (10/55 x 550,000 x 6/12) 50,000 2017 Jan. 1 - June 30 000 ° July 1 - December 31 (9/55 x 550,000 x 6/12) 45,000 95,000 . Double declining balance: 2016 (570,000 x 20% x 6/12) 57,000 2017 (570,000 - 57,000 x 20%) 102,600Problem 36-3 a, Sum of years’ digit April 1, 2016 ~ March 31, 2017 (1,080,000 x 8/36) 240,000 April 1, 2017 - March 31, 2018 (1,080,000 x 7/36) 210,000 Depreciation from April 1 to December 31, 2016 (240,000 x 9/12) 180,000 Depreciation for 2017: January 1 - March 31 (240,000 x 3/12) April 1 - December 31 (210,000 x 9/12) 157,500 b. Double declining balance Fixed rate = 100 / 8 = 12.5 x 2 = 25% 2016 (1,200,000 x 25% x 9/12) 2017 (1,200,000 - 225,000 x 25%) Problem 36-4 a. Service hours method: 960,000 - 60,000 Depreciation rate per hour = 8,000 hours, 60,000 500 225,000 243,7502016 (1,000 hours x 112.50) 2017 (2,000 hours x 112.50) b. Sum of years’ digits: Sum of half years = 45 2016 (9/45 x 900,000 x 3/6) 2017 January 1 - March 31 (9/45 x 900,000 x 3/6) April 1 - September 30 (8/45 x 900,000) 160,000 October | - December 31 (7/45 x 900,000 x 3/6) 320,000 Problem 36-5 Fixed rate = 1.00 - 5623 or 4377 2016 (500,000 x 4377) 2017 (500,000 - 218,850 x .4377) 2 (500,000 - 341,909 x .4377) 69,196 2019 (500,000 - 411,105 - 50,000) Problem 36-6 a. Rate per unit (900,000 / 180,000) 2016 (5,000 x 5) 2017 (20,000 x 5) b. Double declining balance: Fixed rate (100% / 8 x 2) 2016 (920,000 x 25% x 6/12) 2017 (920,000 - 115,000 x 25%) c. Sum of years’ digits: July 1 - December 31, 2016 (900,000 x 8/36 x 6/12) January 1 - June 30, 2017 (900,000 x 8/36 x 6/12) 100,000 July 1 - December 31, 2017 (900,000 x 7/36 x 6/12) Depreciation for 2017 112,500 225,000 20,000 90,000 70,000Problem 36-7 Depreciable Life in Annual Asset Cost Salvage cost years Machinery 310,000 10,000 300,000 5 Office equipment 110,000 10,000 100,000 10 Building 1,600,000 100,000 —_1,500,000 15 Delivery equipment _ 430,000 30,000 _400,000 4 2,450,000 2,300,000 a, Composite rate = 270,000 / 2,450,000 = 11.02% b. Composite life = 2,300,000 / 270,000 = 8.52 years Depreciation 270,000 Accumulated depreciation Problem 36-8 Depreciable Life in Annual Asset Cost Salvage cost years Building 6,100,000 100,000 6,000,000 20 Machinery, 2,550,000 50,000 2,500,000 5 Equipment 1,030,000 30,000 1,000,000 100,000 9,680,000 9,500,000 a. Composite depreciation rate = 900,000 / 9,680,000 = 9.3% b. Average life = 9,500,000 / 900,000 = 10.56 years Depreciation Accumulated depreciation 900,000 depreciation 60,000 10,000 100,000 100,000 270,000 270,000 depreciation 300,000 500,000 900,000 900,000d. Cash Accumulated depreciation Machinery e, Depreciation Accumulated depreciation (9,680,000 - 2,550,000 x 9.3%) Problem 36-9 2016 Jan. 1 Machinery Cash Dec. 31 Depreciation (20% x 900,000) Accumulated depreciation 180,000 2017 Dec. 31 Depreciation Accumulated depreciation 180,000 2018 Dec. 31 Depreciation Accumulated depreci 180,000 2019 Dec. 31 Depreciation Accumulated depreciation 180,000 Cash Accumulated depreciation Machinery (4 x 45,000) 180,000 2020 Dec. 31 Depreciation (720,000 x 20%) Accumulated depreciation 144,000 Cash Accumulated depreciation Machinery (14 x 45,000) 2021 40,000 2,510,000 2,550,000 663,090 663,090 900,000 900,000 180,000 180,000 180,000 180,000 10,000 170,000 144,000 15,000 615,000 630,000Dec. 31 Depreciation 9,000 ‘Accumulated depreciation 9,000 Remaining cost 90,000 Less: Balance of accumulated depreciation 79,000 Carrying amount 11,000 Less: Salvage proceeds 2,000 Maximum depreciation 9,000 Cash 2,000 Accumulated depreciation 88,000 Machinery (4 x 45,000) 90,000 Problem 36-10 1, Old machinery overhauled (240,000 + 60,000) 300,000 Accumulated depreciation 2013 (240,000 / 8) 30,000 2014 30,000 2015 30,000 Total 90,000 Carrying amount - January 1, 2016 210,000 Old machinery overhauled (210,000 / 7 years) 30,000 Remaining cost of old machinery (1,152,000 - 240,000 / 8) 114,000 New machinery (460,800 / 8 x 5/12) 24,000 Total depreciation 168,000 2. Old machinery 1,152,000 New machinery 460,800 Cost of overhaul 60,000 Total cost 672,800 Accumulated depreciation: Balance - January | 432,000 Depreciation for 2016 168,000 600,000 Carrying amount - December 31, 2016 1,072,800 Problem 36-11 Main machine (7,500,000 / 10) 750,000 First component ~ from January 1 to April 1, 2016 (1,200,000 / 6 x 3/12) 50,000 Second component - from April 1 to December 31, 2016 (2,000,000 - 400,000 / 4 x 9/12) 300,000 Total depreciation for 2016 1,100,000The second component is depreciated over the remaining life of the main machine. The original life is 10 years and 6 years already expired. Thus, the remaining life is 4 years. Problem 36-12 1. Tools 40,000 Cash 40,000 2. Tools 20,000 Cash 20,000 3. Cash 4,000 Tools 4,000 4. Depreciation 46,000 Tools 46,000 Balance of tools account 196,000 Less: Estimated cost on December 31 150,000 Depreciation 46,000 Problem 36-13 March 1 Electric meters 250,000 Cash 250,000 1 Cash 20,000 Depreciation 160,000 Electric meters 180,000 July 1 Electric meters 400,000 Cash 400,000 December 1 Electric meters 200,000 Cash 200,000 1 Cash 15,000 Depreciation 135,000 Electric meters 150,000 Replacement method March —1_ Depreciation (250,000 - 20,000) 230,000 Cash 230,000 July 1 Electric meters 400,000 Cash 400,000 December 1 Depreciation (200,000 - 15,000) 185,000 Cash 185,000Problem 36-14 Retirement method 2016 Tools Cash Cash (300 x 50) Depreciation Tools (300 x 200) 2017 Tools Cash Cash (700 x 70) Depreciation Tools 500 x 200 200 x 300 Cost of tools retired Replacement method 2016 Tools (100 x 300) Depreciation (300 x 30) Cash 2016 Cash Depreciation 2017 Tools (200 x 400) Depreciation (700 x 400) Cash Cash Depreciation Inventory method 2016 Tools Cash Cash Tools Depreciation (265,000 - 200,000) Tools 2017 Tools Cash Cash Tools Depreciation (511,000 - 350,000) Tools 120,000 15,000 45,000 360,000 49,000 111,000 30,000 90,000 15,000 80,000 280,000 49,000 120,000 15,000 65,000 360,000 49,000 161,000 120,000 60,000 360,000 160,000 100,000 60,000 160,000 120,000 15,000 360,000 49,000 120,000 15,000 65,000 360,000 49,000 161,000Problem 36-15 1, Land (350,000 + 400,000) Land acquired (380,000 + 20,000) 2. Depreciation of land improvements (180,000 / 15) 12,000 3. Depreciation of building (4,500,000 - 1,050,000 x 7.5%) 4. Depreciation of machinery and equipment (1,160,000 - 60,000 / 10) (300,000 / 10) (60,000 / 10 x 6/12) 5. Fixed rate (100% / 3 x 1.5) (1,800,000 - 1,344,000 x 50%) Problem 36-16 1. Old (7,500,000 - 1,644,500 x 8%) New (600,000/750,000 x 1,250,000 = 1,000,000 x 8%) 80.000 Depreciation - bi 2. 2,250,000 / 10 400,000 / 10 x 6/12 Depreciation - machinery 3. Depreciation - land improvements (192,000 / 12 x 9/12) 12,000 Problem 36-17 1. Old building (4,672,200 x 10%) New building Direct cost 2,220,000 Fixed (15,000 x 25) 375,000 Variable (15,000 x 27) 405,000 Total cost 3,000,000 3,000,000 x 10% Total depreciation 767,220 Fixed rate (100 / 20 x 2) 2. Old machinery (1,380,000 / 10) New machinery Invoice cost 356,000 Concrete embedding 18,000 750,000 258,750 110,000 30,000 3,000 143,000 50% 228,000 468,440 548,440 467,220 300,000 10% 138,000Wall demolition 7,000 Rebuilding of wall 19,000 Total cost 400,000 400,000 / 10 x 6/12 20,000 Total depreciation 158,000 Problem 36-18 Answer A Cost of machinery (cash price) 1,100,000 Less: Residual value 50,000 Depreciable cost 1,050,000 Straight line depreciation (1,050,000 / 10) 105,000 Problem 36-19 Answer B Sale price 2,300,000 Carrying amount: Cost 4,200,000 Accumulated depreciation (3,600,000 / 5 x 3) 2,160,000 2,040,000 Gain 260,000 Problem 36-20 Answer B Accumulated depreciation - 12/31/2016 3,700,000 Add: Depreciation for 2017 550,000 Total 4,250,000 Less: Accumulated depreciation on property, plant and equipment retirements (SQUEEZE) 250,000 Accumulated depreciation - 12/31/2017 4,000,000 Problem 36-21 Answer B Depreciable Annual Cost Salvage amount —_Life depreciation A 550,000 50,000 500,000 20 25,000 B 200,000 20,000 180,000 15 12,000 c 40,000 40,000 5 8,000 790,000 720,000 45,000 Composite life = 720,000 / 45,000 16 years Problem 36-22 Question 1 Answer A Total cost - January 1,2016 5,000,000 Cost of new asset acquired 2,500,000 Cost of asset sold (1,000,000) Remaining cost - December 31, 2016 6,500,000Depreciation for 2016 (25% x 6,500,000) 1,625,000 Question 2 Answer D Under the composite method, no gain or loss is recognized on the derecognition of an asset. Problem 36-23 Answer A Accumulated depreciation - 2017 Accumulated depreciation - 2016 Annual depreciation Average life (25,000,000 - 2,500,000 / 1,125,000) 20 Problem 36-24 Answer A (6,500,000 - 700,000 / 10) 580,000 Problem 36-25 Answer B (7,000 x 300) 2,100,000 Problem 36-26 Answer B Cost 4,000,000 Accumulated depreciation: 2016 (8/36 x 3,600,000) 800,000 2017 (7/36 x 3,600,000) 700,000 1,500,000 Carrying amount, 12/31/2017 2,500,000Problem 36-27 Answer B The first three fractions are: 2014 10/55 2015 9/55 2016 8/55 Thus, the 2016 depreciation of P240,000 is equal to 8/55. 274 Depreciable cost (240,000 / 8/55) 1,650,000 Residual value 50,000 Total cost 1,700,000 Problem 36-28 Answer B April 1, 2016 to March 31, 2017 (5/15 x 3,000,000) 1,000,000 April 1, 2017 to March 31, 2018 (4/15 x 3,000,000) 800,000 Accumulated depreciation, March 31, 2018 1,800,000 Problem 36-29 Answer B Carrying amount (6,000,000 - 4,000,000) 2,000,000 Problem 36-30 Answer A The accumulated depreciation on December 31, 2015 is recomputed following a certain method. The same is arrived at following the SYD as follows:SYD = 14+2+3+44+5 = 15 2013 (5/15 x 900,000) 2014 (4/15 x 900,000) 2015 (3/15 x 900,000) Accumulated depreciation - 12/31/2015 Accordingly, the SYD is followed for 2016. 2016 depreciation (2/15 x 900,000) 120,000 Problem 36-31 Answer B Straight line rate (100% / 8 years) Fixed rate (12.5 x 2) 2016 depreciation (1,280,000 x 25%) 2017 depreciation (1,280,000 - 320,000 x 25%) 240,000 Problem 36-32 Answer C Carrying amount ~ 1/1/2017 (900,000 / 25%) Acquisition cost - 1/1/2016 (3,600,000 / 75%) 4,800,000 Problem 36-33 1. 4,000,000 - 2,560,000 x 40% (Answer D) 2. 1,800,000 x 2/15 (SYD) (Answer A) 3. Sale price Carrying amount (2,800,000 - 1,344,000) Gain (Answer A) Problem 36-43 Answer B Straight line rate (100% / 5 years) Fixed rate (20% x 2) 2016 depreciation (5,000,000 x 40%) 2017 depreciation (3,000,000 x 40%) Accumulated depreciation, December 31, 2017 3,200,000 Depreciation for 2018 - straight line (5,000,000 - 3,200,000 / 3) 600,000 Accumulated depreciation, December 31, 2018 3,800,000 300,000 240,000 180,000 720,000 12.5% 25% 320,000 3,600,000 576,000 240,000 1,700,000 456,000 —244,000 20% 40% 275 2,000,000 1,200,000Problem 36-35 Answer A Cost - 1/1/2013 7,200,000 Accumulated depreciation - 12/31/2015 (7,200,000 / 10 x 3) 2,160,000 Carrying amount ~ 12/31/2015 5,040,000 SYD for the remaining life of 7 years (1 +2+3+445+6+7) 28 Depreciation for 2016 (5,040,000 x 7/28) 1,260,000 Problem 36-36 Answer B Annual depreciation (1,536,000 / 8) 192,000 Problem 36-37 Answer B Fixed rate (100% / 4 x 2) 50% Cost 6,000,000 Depreciation for 2016 (50% x 6,000,000) 3,000,000 Carrying amount - 1/1/2017 3,000,000 Residual value ( 600,000) Maximum depreciation in 2017 2,400,000 Fixed rate in 2017 (100% / 2 x 2) 100% This means that the computers should be fully depreciated in 2017. Since there is a residual value of PG00,000, the maximum depreciation for 2017 is equal to the carrying amount of P3,000,000 minus the residual value of P600,000 or 2,400,000.Problem 36-38 Answer C Cost - 1/1/2014 6,000,000 Accumulated depreciation - 1/1/2016 (6,000,000 - 600,000 / 20 x 2) $40,000 Carrying amount - 1/1/2016 5,460,000 Depreciation for 2016 (5,460,000 ~ 800,000 / 10) 466,000 Problem 36-39 Answer D Original life (100% / 25%) 4 years Years expired on October 1, 2016 Zz Remaining life 2 Depreciation on original cost (2,500,000 x 25%) 625,000 Depreciation on improvement (500,000 / 2) 250,000 Total depreciation for year ended September 30, 2017 875,000 Problem 36-40 Answer B Cost - 1/1/2012 4,000,000 Accumulated depreciation - 1/1/2016 (4,000,000 - 400,000 / 10 x 4) 1,440,000 Carrying amount - 1/1/2016 2,560,000 Depreciation for 2016 (2,560,000 - 460,000 / 8) 262,500 Problem 36-41 Answer C SYD=1+2+3444+5=15 Accumulated fractions for 2013, 2014 and 2015 (5/15 + 4/5 + 3/15) 12/15 Cost - 1/1/2013 3,760,000 Accumulated depreciation - 12/31/2015 (3,760,000 - 240,000 x 12/15) 2,816,000 Carrying amount - 1/1/2016 944,000 Residual value 352,000 Remaining depreciable amount 592,000 Since the revised total useful life is 4 years and three years already expired, the remaining useful life is only one year. Accordingly, the remaining depreciable amount is charged to depreciation expense for 2016.Problem 36-42 Answer B SYD (1+2+3+44+5+6+7+8) 36 Cost - January 1, 2014 10,000,000 Accumulated depreciation - 1/1/2016 2014 (8/36 x 9,000,000) ( 2,000,000) 2015 (7/36 x 9,000,000) (1,750,000) Carrying amount - January 1, 2016 6,250,000 Accumulated depreciation - 1/1/2016 3,750,000 Depreciation for 2016 (4/10 x 6,250,000 ~ 400,000) 2,340,000 Accumulated depreciation - 12/31/2016 6,090,000 Remaining life (6 years - 2) 4years SYD (1+2+3+4) 10 Problem 36-43 Answer A Building Machinery Furniture Cost - 1/1/2013 15,000,000 10,500,000 3,500,000 Accumulated depreciation: (15,000,000 / 15 x 3) 3,000,000 (10,500,000 / 10 x 3) 3,150,000 (3,500,000 / 7x 3) 1,500,000 Carrying amount - 1/1/2016 12,000,000 7,350,000 2,000,000 Depreciation for 2016: Building (12,000,000 / 10) 1,200,000 Machinery (7,350,000 / 7) 1,050,000 Furniture (2,000,000 / 5) 400,000 2,650,000Problem 36-44 Answer A Straight line rate (100% / 5) 20% Fixed rate (20% x 150%) 30% Depreciation from July 1 to December 31, 2016 (6,000,000 x 30% x 6/12) 900,000 Depreciation for 2017 (6,000,000 - 900,000 x 30%) 1,330,000 Problem 36-45 Problem 36-46 Problem 36-47 Problem 36-48 LA LA 1B 1D 2D. 2A 28 2c 3.D 3. D 3. B 3. B 4D 4.8 4A 4c 5.D 5. A 5. B 6D 6. D 7.D 7.8 8.C 8.D 9D 9.C 10. ¢ 10. B Problem 36-49 Problem 36-50 1D 2.8 3.D 4.€ 5.D PPPNS PAWNS @BN>eZO>TOENCHAPTER 37 Problem 37-1 1. Ore property Cash 2. Ore property Cash 3. Machinery Cash 4. Depletion Accumulated depreciation 8,000,000 - 400,000 = 7,600,000 7,600,000 / 2,000,000 = 3.80 300,000 x 3.80 = 1,140,000 5. Depreciation Accumulated depreciation 4,000,000 / 2,000,000 = 2.00 300,000 x 2.00 = 600,000 Problem 37-2 Depletion rate —_ (5,000,000 / 1,000,000) Depreciation rate (8,000,000 / 1,000,000) First year Depletion (200,000 x 5) Depreciation (200,000 x 8) Second year Depletion (250,000 x 5) Depreciation (250,000 x 8) Third year Depletion Depreciation (Schedule A) 550,000 5,000,000 3,000,000 4,000,000 1,140,000 600,000 Schedule A - Computation of depreciation for third year Cost of equipment Less: Accumulated depreciation 3,600,000 Carrying amount - beginning of third year 4,400,000 5,000,000 3,000,000 4,000,000 1,140,000 600,000 5.00 8.00 1,000,000 1,600,000 1,250,000 2,000,000 none 8,000,000Divide by remaining useful life in years (10 - 2) 8 Depreciation for third year 550,000 Fourth year Depletion (100,000 x 5) 500,000 Depreciation (Schedule 8) 700,000 Schedule B - Computation of depreciation for fourth year Cost of equipment 8,000,000 Less: Accumulated depreciation 4,150,000 Carrying amount - beginning of fourth year 3,850,000 Original estimate of resource deposits 1,000,000 tons Less: Extracted in first and second years _450,000 Remaining output 550,000 tons Depreciation rate per unit (3,850,000 / 550,000) 7.00 Depreciation for third year (100,000 x 7) 700,000 Problem 37-3 2016 Rock and gravel property 960,000 Cash 960,000 Depletion (1,000,000 x .40) 400,000 Accumulated depletion 400,000 2017 Rock and gravel property 490,000 Cash 490,000 Depletion (600,000 x .75) 450,000 Accumulated depletion 450,000 Total cost (960,000 + 490,000) 1,450,000 Less: Accumulated depletion 400,000 Depletable amount 1,050,000 Divide by estimated remaining output (2,400,000 - 1,000,000) 1,400,000 Revised depletion rate per ton ZS 2018 Rock and gravel property 500,000 Cash 500,000 Depletion (700,000 x .44) 308,000 Accumulated depletion 308,000Total cost 1,450,000 Add: Additional development cost 500,000 Total 1,950,000 Less: Accumulated depletion (400,000 + 450,000) 850,000 Remaining depletable amount 1,100,000 Divide by new estimated remaining output 2,500,000 New depletion rate 44 Problem 37-4 2016 Resource property 3,960,000 Cash 3,960,000 Building 960,000 Equipment 1,240,000 Cash 2,200,000 Depletion (12,000 x 32) 384,000 Accumulated depletion 384,000 Cost of resource property 3,960,000 _Less: Residual value 120,000 _Depletable amount 3,840,000 Divide by estimated output 120,000 Depletion rate per unit 32 Depreciation (12,000 x 8) 96,000 ‘Accumulated depreciation - building 96,000 960,000 Depreciation rate per unit =38 2017 120,000 The output method is used in computing the depreciation of the building because the life of the resource property (5 years or 120,000 / 24,000) is shorter than the life of the building (8 years). Depreciation 310,000 Accumulated depreciation 310,000 (1,240,000 / 4 years = 310,000) The straight line method is used for the heavy equipment because the life of 4 years is shorter than the life of the resource property of 5 years. Depletion 800,000 Accumulated depletion (25,000 x 32) 800,000 Depreciation (25,000 x 8) 200,000 Accumulated depreciation - building 200,000Depreciation Accumulated depreciation - equipment 310,000 Problem 37-5 2016 Ore property Cash Ore property Estimated liability for restoration cost Mine improvements Cash 2017 Depletion (600,000 x 2.60) Accumulated depletion Depreciation (600,000 x 4) Accumulated depreciation 2018 Depletion (400,000 x 1.60) Accumulated depletion Depletable amount Less: 2017 depletion Balance (3,640,000 / 2,275,000 = 1.60) Mine improvements Cash Depreciation (400,000 x 2.80) ‘Accumulated depreciation Cost (8,000,000 + 770,000) Less: Accumulated depreciation 2,400,000 Carrying amount (6,370,000 / 2,275,000 = 2.80) Problem 37-6 1. Retained earnings 1,500,000 Accumulated depletion Total Less: Capital liquidated Depletion in ending inventory (5,000 x 20) 1,900,000 Maximum dividend 2. Retained earnings Capital liquidated Dividends payable 2,000,000 310,000 5,400,000 450,000 8,000,000 1,560,000 2,400,000 640,000 770,000 1,120,000 1,800,000 100,000 1,500,000 500,000 5,400,000 450,000 8,000,000 1,560,000 2,400,000 640,000 5,200,000 1,560,000 3,640,000 770,000 1,120,000 8,770,000 6,370,000 2,500,000 4,000,000 2,100,000Problem 37-7 1. Cash (50,000 x 110) 5,500,000 Share capital (50,000 x 100) 5,000,000 Share premium 00,000 2. Resource property 3,000,000 Cash 3,000,000 3. Mining equipment 800,000 Cash 00,000 4. Cash (85,000 x 50) 4,250,000 Sales 4,250,000 5. Mining and other direct cost 2,268,000 Administrative expenses 500,000 Cash 2,768,000 6. Depletion 270,000 Accumulated depletion (3,000,000 / 1,000,000 x 90,000) 270,000 7. Depreciation (90,000 x .80) 72,000 Accumulated depreciation - mining equipment 72,000 Depreciation rate (800,000 / 1,000,000) = .80 8. Inventory, December 31 (5,000 x 29) 145,000 Profit and loss 145,000 Mining labor and other direct costs 2,268,000 Depletion 270,000 Depreciation —72,000 Total production costs incurred 2,610,000 Divide by number of units extracted 90,000 Unit cost 29 Multinational Company Income Statement Year ended December 31, 2016 Sales 4,250,000 Cost of sales Mining labor and other direct costs 2,268,000 Depletion 270,000 Depreciation 72,000 Total production costLess: Inventory, December 31 145,000 2,465,000 Gross income 1,785,000 Administrative expenses 1,285,000 Multinational Company Statement of Financial Position December 31, 2016 Assets Current assets: Cash 3,182,000 Inventory 145,000 3,327,000 Noncurrent assets: Resource property 3,000,000 Less: Accumulated depletion 270,000 2,730,000 Mining equipment 800,000 Less: Accumulated depreciation 72,000 728,000 3,458,000 Total assets 6,785,000 Equity Share capital 5,000,000 Share premium 500,000 Retained earnings 1,285,000 Total equity 6,785,000 Retained earnings 1,285,000 Add: Accumulated depletion 270,000 Total 1,555,000 Less: Unrealized depletion in ending inventory (5,000 x 3) 15,000 Maximum dividend 1,540,000 Retained earnings 1,285,000 Capital liquidated 255,000 Dividends payable 1,540,000 Problem 37-10 1. Purchase price 50,000 Road construction 5,000,000 Improvements and development costs 750,000 Total cost 5,800,000 Residual value ( 600,000) Depletable amount 5,200,000 Depletion rate per unit (5,200,000 / 4,000,000) 130Depletion for 2016 (500,000 x 1.30) 650,000 Depletable amount 5,200,000 Depletion in 2016 ( 650,000) Remaining depletable amount 4,550,000 Development costs in 2017 1,300,000 Total depletable amount - 1/1/2017 5,850,000 Original estimated tons 4,000,000 Additional estimate 3,000,000 Total estimated tons 7,000,000 Extracted in 2016 ( 500,000) Remaining tons - 1/1/2017 6,500,000 New depletion rate per unit (5,850,000 / 6,500,000) 90 Depletion for 2017 (1,000,000 x .90) 900,000 2. Cost of buildings 2,000,000 Residual value ( 200,000) Depreciable amount 1,800,000 Depreciation rate per unit (1,800,000 / 4,000,000) AS Depreciation for 2016 (500,000 x .45) 225,000 In the absence of any statement to the contrary, the output method is used in computing depreciation of mining equipment. Depreciable amount 1,800,000 Depreciation for 2016 ( 225,000) Remaining depreciable amount 1,575,000 Additional building in 2017 375,000 Total depreciable amount - 1/1/2017 1,950,000 New depreciation rate per unit (1,950,000 / 6,500,000) 30 Depreciation for 2017 (1,000,000 x .30) 300,000 Problem 37-9 Answer 8 2016 No depletion because there is no production. 2017 Purchase price 28,000,000Estimated restoration cost Development cost - 2016 1,000,000 Development cost ~ 2017 1,000,000 Total cost Residual value 5,000,000) Depletable amount Rate in 2017 (27,000,000 / 10,000,000) 2.20 Depletion in 2017 (3,000,000 x 2.70) 2018 Tons extracted in 2018 Tons remaining in 12/31/2018 Total estimated output - 1/1/2018 New rate in 2018 (27,000,000 - 8,100,000/6,000,000) Depletion in 2018 (3,500,000 x 3.15) Problem 37-10 Answer B Acquisition cost Development cost 3,600,000 Estimated restoration cost Total cost Less: Residual value Depletable amount Rate per unit (28,800,000 / 1,200,000) Depletion for current year (60,000 x 24) 1,440,000 Problem 37-11 Answer C Acquisition cost Exploration cost Development cost related to drilling of wells 3,200,000 Estimated restoration cost Total Residual value 2,500,000) Depletable amount Rate per unit (14,000,000 / 1,000,000) 2,000,000 32,000,000 ( 27,000,000 8,100,000 3,500,000 2,500,000 6,000,000 315 11,025,000 26,400,000 1,800,000 31,800,000 3,000,000 28,800,000 24 9,000,000 3,500,000 800,000 16,500,000 ¢ 14,000,000 4Depletion for the current year (50,000 x 14) 700,000 The development cost related to production equipment is not part of the cost of the mineral property because it is subject to depreciation. Problem 37-12 Answer A Acquisition cost 10,000,000 Development cost 1,600,000 Total 11,600,000 Residual value of land ¢ 2,000,000) Depletable amount 9,600,000 Rate per ton (9,600,000 / 4,000,000) 240 Depletion for 2016 (500,000 x 2.40) 1,200,000 Production in 2017 800,000 Estimated output - December 31, 2017 4,200,000 Total estimate - January 1, 2017 5,000,000 New rate in 2017 (9,000,000 - 1,200,000 / 5,000,000) 168 Depletion expense in 2017 (800,000 x 1.68) 1,344,000 Problem 37-13 Answer C Depletion rate per unit (9,200,000 / 4,000,000) 2.30 Problem 37-14 Answer C Rate per unit (46,800,000 - 3,600,000 / 2,160,000) 20 Depletion in cost of goods sold (240,000 x 20) 4,800,000Problem 37-15 Answer D Acquisition cost Less: Residual value Depletable amount Less: Accumulated depletion - 12/31/2015 000,000 / 10,000,000 = .70 x 4,000,000) ing depletable cost - 1/1/2016 New depletion rate (4,200,000 / 7,500,000) 56 Rem: Depletion for 2016 (1,500,000 x .56) Problem 37-16 Answer B Depletable amount Depletion for 2016 (33,000,000 / 4,000,000 = 8.25 x 200,000) Balance - 1/1/2017 Production in 2017 New estimate - 12/31/2017 New estimate - 1/1/2017 5,225,000 Depletion for 2017 (31,350,000 / 5,225,000 = 6 x 225,000) Problem 37-17 Question 1 - Answer A Purchase price 14,000,000 Less: Residual value Depletable amount Depletion rate (12,000,000 / 1,500,000) 8.00 Depletion for 2016 (150,000 x 8) 1,200,000 Production (25,000 x 6) 10,000,000 7,000,000 2,800,000 4,200,000 840,000 33,000,000 (1,650,000) 31,350,000 225,000 5,000,000 1,350,000 2,000,000 12,000,000 150,000Question 2 - Answer C Production from July 1 to December 31, 2016 (25,000 x 6) tons Annual production (25,000 x 12) tons Estimated life of mine (1,500,000 / 300,000) 150,000 300,000 5 years Since the life of the mine is shorter than the life of the equipment, the output method is used in computing depreciation. Equipment 8,000,000 Less: Residual value Depreciable amount Rate per unit (7,500,000 / 1,500,000) Depreciation for 2016 (150,000 x 5) 750,000 Problem 37-18 Answer A Acquisition cost Estimated restoration cost Development cost 7,500,000 Total cost Residual value 3,150,000) Depletable amount Rate per ton (37,950,000 / 1,500,000) Total depletion for current year (450,000 x 25.30) Problem 37-19 Answer B Problem 37-20 Answer B Problem 37-21 Answer A 500,000 7,500,000 5.00 30,000,000 3,600,000 41,100,000 ( 37,950,000 25,30 11,385,000Cost Residual value 200,000) Depletable amount Depletion in 2016 (800,000 / 160,000 = 5 x 20,000) Remaining depletable amount - 1/1/2017 Original estimate Extracted in 2016 20,000) Remaining estimate Underestimate Adjusted estimate - 1/1/2017 Depletion rate in 2016 (700,000 / 165,000) Problem 37-22 Answer B Land cost Exploration and development cost Present value of expected restoration cost (1,500,000 x .62) Depletable amount Depletion rate per ton (10,930,000 / 2,500,000) 1,000,000 ¢ 800,000 (_100,000) 700,000 160,000 ¢ 140,000 _25,000 165,000 424 9,000,000 1,000,000 930,000 10,930,000 4.37 Since the entity is required by contract to restore the land to a condition suitable for recreational use, the estimated restoration cost shall be capitalized. If an appropriate rate is available, the amount should be discounted. Problem 37-23 Answer B Exploration and evaluation asset Cash Problem 37-24 Answer B Acquisition cost Intangible development cost 6,000,000 Estimated restoration cost Total cost Residual value 8,500,000) Depletable amount Rate per ton (25,500,000 / 500,000) 51,00 Depletion (90,000 x 51) 2,000,000 2,000,000 25,000,000 3,000,000 34,000,000 ( 25,500,000 4,590,000 The depletion cost is a cost of production and therefore may be directly debited to inventory under perpetual system. Problem 37-25 Answer AExploration assets are expenditures incurred by an entity after the entity has obtained legal rights for the exploration and evaluation of mineral resources but before the technical feasibility and commercial viability of extracting mineral resources. Only the exploratory drilling should be recognized as an exploration asset. Under PFRS 6, paragraph 9, exploratory drilling is an example of expenditure that can be related to the finding of specific mineral resources. Roads and infrastructure costs should not be recognized as exploration asset but as development cost. PFRS 6, paragraph 10, provides that development expenditures should not be recognized as exploration asset. Problem 37-26 Answer B Trenching and sampling expenditure 1,000,000 Depreciation of drilling rigs used for exploration 300,000 Total intangible exploration asset 1,300,000 Exploration asset is either classified as tangible asset or intangible asset. Under PFRS 6, paragraph 9, trenching and sampling expenditure is an example of intangible exploration asset. The depreciation of the drilling rigs used for exploration shou Id be charged to the intangible exploration asset. However, PFRS 6, paragraph 16, provides that the carrying amount of the drilling rigs is classified as tangible exploration asset. Problem 37-27 Problem 37-28 yayyo an>>o SSO hse on>onnaneCHAPTER 38 Problem 38-1 1, Appreciation (7,200,000 - 4,500,000) 2. Carrying amount (4,500,000 - 900,000) 3,600,000 3. Depreciated replacement cost (7,200,000 x 80%) 4, Revaluation surplus (5,760,000 - 3,600,000) 5. Annual depreciation on cost (900,000 / 3 years) 300,000 Original life (4,500,000 / 300,000) or (3 years / 20%) Machinery 2,700,000 Accumulated depreciation Revaluation surplus 7. Depreciation (5,760,000 / 12) 480,000 Accumulated depreciation Original cost (3,600,000 / 12) Appreciation (2,160,000 / 12) ca 2,700,000 5,760,000 2,160,000 1S years 540,000 2,160,000 480,000 300,000480,000 8, Revaluation surplus (2,160,000 / 12) 180,000 Retained earnings 180,000 Problem 38-2 1, Annual depreciation on cost (750,000 / 5) 150,000 Original life (3,000,000 / 150,000) or (5 years / 25%) 20 years 2. Equipment 1,800,000 Accumulated depreciation (25% x 1,800,000) 450,000 Revaluation surplus 1,350,000 3, Depreciation (3,600,000 / 15) 240,000 Accumulated depreciation 240,000 4, Revaluation surplus 90,000 Retained earnings (1,350,000 / 15) 90,000 Problem 38-3 1. Annual depreciation on cost (9,000,000 / 25) 360,000 Age of asset (3,600,000 / 360,000) or (25 years x 40%) 10 years Percentage of accumulated depreciation (3,600,000 / 9,000,000) 40% 2. Machinery 6,000,000 Accumulated depreciation (40% x 6,000,000) 2,400,000 Revaluation surplus 10 Depreciation (9,000,000 / 15) 600,000 Accumulated depreciation 600,000 Revaluation surplus 240,000 Retained earnings (3,600,000 / 15) 240,000 Problem 38-4 Proportional approach 1. Building (8,000,000 - 5,000,000) 3,000,000 Accumulated depreciation (25% x 3,000,000) 750,000 Revaluation surplus 2,250,000 2. Depreciation (8,000,000 / 40) or (6,000,000 / 30) 200,000 Accumulated depreciation 200,000 Gross replacement cost (6,000,000 / 75%) 8,000,000 3, Revaluation surplus 75,000 Retained earnings (2,250,000 / 30) 75,000 Elimination approach1, Accumulated depreciation 1,250,000 Building 1,250,000 Building (6,000,000 - 3,750,000) 2,250,000 Revaluation surplus 2,250,000 2. Depreciation (6,000,000 / 30) 200,000 Accumulated depreciation 200,000 3. Revaluation surplus 75,000 Retained earnings 75,000 Problem 38-5 1. Equipment 2,700,000 Accumulated depreciation 500,000 Revaluation surplus 2,200,000 Depreciation (7,500,000 / 10) 750,000 Accumulated depreciation 750,000 Revaluation surplus (2,200,000 / 10) 220,000 Retained earnings 220,000 2. Cash 8,000,000 Accumulated depreciation 2,250,000 Equipment 9,200,000 Gain on sale of equipment 1,050,000 Revaluation surplus (2,200,000 - 220,000) 1,980,000 Retained earnings 1,980,000 Problem 38-6 1. Building 10,000,000 Accumulated depreciation 4,000,000 Revaluation surplus 6,000,000 2. Depreciation (13,000,000 / 5) 2,600,000 Accumulated depreciation 2,600,000 3. Revaluation surplus 1,200,000 Retained earnings (6,000,000 / 5) 1,200,000 Problem 38-7 Replacement Cost cost Appreciation Building 3,000,000 5,000,000 _ 2,000,000 Accumulated depreciation - 20% 600,000 1,000,000 400,000 2,400,000 = 4,000,000 1,600,000Accumulated depreciation on cost (3,000,000 x 20%) 600,000 Life of asset (100% / divided by 4%) 25 years Percent of accumulated depreciation (5 years / 25) 20% Gross replacement cost (4,000,000 / 80%) 5,000,000 Accumulated depreciation on replacement cost (5,000,000 x 20%) 1,000,000 a. “Should be” entry: Building 2,000,000 Accumulated depreciation 400,000 Revaluation surplus 1,600,000 b. Correcting entry: Building 1,000,000 Retained earnings 1,000,000 Accumulated depreciation 400,000 Revaluation surplus 1,600,000 © Depreciation (4,000,000 / 20) 200,000 Accumulated depreciation 200,000 d. Revaluation surplus 80,000 Retained earnings (1,600,000 / 20) 80,000 Problem 38-8 1. Accumulated depreciation 800,000 Machinery 800,000 2, Retained earnings 400,000 Revaluation surplus 400,000Problem 38-9 Building Accumulated depreciation (5,000,000 / 20 x 5) (1,250,000) Carrying amount Depreciated replacement cost Carrying amount Revaluation surplus 1. Accumulated depreciation Building Building Revaluation surplus 2. Depreciation Accumulated depreciation (6,000,000 / 20 years remaining) 3. Revaluation surplus Retained earnings (2,250,000 / 20) 1,250,000 2,250,000 300,000 112,500 5,000,000 3,750,000 6,000,000 3,750,000 2,250,000 1,250,000 2,250,000 300,000 112,500Problem 38-10 Replacement Cost cost Appreciation Land 5,000,000 10,000,000 _ 5,000,000 Building 25,000,000 45,000,000 20,000,000 Accumulated depreciation (25,000,000 x 3/25) 3,000,000 (45,000,000 x 3/25) 5,400,000 2,400,000 22,000,000 39,600,000 00 Machinery 10,000,000 15,000,000 —_ 5,000,000 Accumulated depreciation (10,000,000 x 3/5) 6,000,000 (15,000,000 x 3/5) 9,000,000 —_ 3,000,000 4,000,000 6,000,000 2,000,000 Equipment 3,000,000 4,200,000 1,200,000 Accumulated depreciation (3,000,000 x 3/10) 900,000 (4,200,000 x 3/10) — 1,260,000 —_360,000 2,100,000 2,940,000 —_ 840,000 a. Land 5,000,000 Building 20,000,000 Machinery 5,000,000 Equipment 1,200,000 Accumulated depreciation - building 2,400,000 Accumulated depreciation - machinery 3,000,000 Accumulated depreciation - equipment 360,000 Revaluation surplus 25,440,000b. Depreciation 5,220,000 ‘Accumulated depreciation - building 1,800,000 Accumulated depreciation - machinery 3,000,000 ‘Accumulated depreciation - equipment 420,000 Building: Cost (22,000,000 / 22) 1,000,000 Appreciation (17,600,000 / 22) 800,000 —_1,800,000 Machinery: Cost (4,000,000 / 2) 2,000,000 Appreciation (2,000,000 / 2) 1,000,000 3,000,000 Equipment: Cost (2,100,000 / 7) 300,000 Appreciation (840,000 / 7) 120,000 420.000 Total depreciation ¢. Revaluation surplus 1,920,000 Retained earnings (800,000 + 1,000,000 + 120,000) 1,920,000 4. Property, plant and equipment (at revalued amounts): 10,000,000 45,000,000 15,000,000 Equipment 4,200,000 Total 74,200,000 Less: Accumulated depreciation 20,880,000 Carrying amount 53,320,000 The following disclosure should be made in the notes to financial statements: Replacement Cost cost Land 5,000,000 10,000,000 Building 25,000,000 45,000,000 Machinery 10,000,000 15,000,000 Equipment 3,000,000 _4,200,000 Total 43,000,000 74,200,000 Accumulated depreciation 13,200,000 20,880,000 Carrying amount 29,800,000 53,320,000Schedule of Accumulated Depreciation Building 7,200,000 Machinery Equipment Problem 38-11 Question 1 Answer D Depreciation (4,000,000 / 4) Accumulated depreciation Question 2 Answer D Plant asset 100% 1,000,000 Accumulated depreciation _25% CA/SV/RS 75% Plant asset Accumulated depreciation Revaluation surplus Question 3 Answer C Plant asset - 12/31/2016 5,000,000 Accumulated depreciation - 12/31/2016 Replacement Cost cost 4,000,000 8,000,000 12,000,000 1,200,000 — _1,680,000 13,200,000 20,880,000 1,000,000 1,000,000 Cost Fair value Appreciation 4,000,000 5,000,000 (1,000,000) (1,250,000) —(_250,000) 3,000,000 3,750,000 750,000 1,000,000 250,000 750,000 (1,250,000) Sound value or carrying amount after revaluation 3,250,000 Question 4 Answer B Depreciation (3,750,000 / 3) Accumulated depreciation Problem 38-12 Question 1 Answer B Percentage of accumulated depreciation Building (3,750,000 / 15,000,000) Machinery (1,500,000 / 3,000,000) Useful life 1,250,000 1,250,000 25% 50%Building (10 years expired / 25%) 40 years Machinery (10 years expired / 50%) 20 years Sound Carrying —_—Revaluation value amount surplus Land 5,000,000 2,000,000 _3,000,000 Building (75% x 25,000,000) 18,750,000 11,250,000 7,500,000 Machinery (50% x 5,000,000) 2,500,000 1,500,000 1,000,000 11,500,000 Question 2 Answer B Depreciation - building (18,750,000 / 30 years remaining) 625,000 Depreciation - machinery (2,500,000 / 10 years remaining) 250,000 Total 875,000 Question 3 Answer B Revaluation surplus - January 1, 2016 11,500,000 Piecemeal realization in 2016: Building (7,500,000 / 30) ( 250,000) Machinery (1,000,000 / 10) (_100,000 Revaluation surplus - December 31, 2016 11,150,000 Problem 38-13 Question | Answer A Question 2 Answer 8 Question 3 Answer B Problem 38-14 Question 1 Answer C Cost - 6/30/2016 5,000,000 Accumulated depreciation (1,500,000) Carrying amount - 6/30/2016 3,500,000 Depreciation from July | to December 31, 2016 (5,000,000 / 10 x 6/12) ( 250,000) Carrying amount - 12/31/2016 3,250,000 Fair value - 12/31/2016 4,550,000 Carrying amount - 12/31/2016 3,250,000 Revaluation surplus - 12/31/2016 1,300,000 Cost Replacement cost AppreciationEquipment (4,550,000 / 65%) 5,000,000 7,000,000 2,000,000 Accumulated depreciation - 35% (1,750,000) (2,450,000) ¢ 700,000) Depreciable amount 3,250,000 4,550,000 1,300,000 Equipment 2,000,000 Accumulated depreciation 700,000 Revaluation surplus 1,300,000 Question 2 Answer A Depreciation for 2016 (5,000,000 / 10) 500,000 Question 3 Answer A Depreciation for 2017 (4,550,000 / 5) 210,000 Question 4 Answer B Revaluation surplus - 12/31/2016 1,300,000 Annual realization (1,300,000 / 5) (260,000) Revaluation surplus - 12/31/2017 1,040,000 Problem 38-15 Question 1 Answer A Sound value Carrying amount Revaluation surplus Land 70,000,000 50,000,000 20,000,000 Building 315,000,000 210,000,000 105,000,000 Total 385,000.000 260,000,000 125,000,000 Question 2 Answer A Percentage of accumulated depreciation (90,000,000 / 300,000,000) 30% Remaining useful life (70% x 20 years) 14-years Annual depreciation (315,000,000 / 14) 22,500,000 Question 3 Answer A Revaluation surplus - 1/1/2016 125,000,000 Piecemeal realization in 2016 (105,000,000 / 14) 7,500,000) Revaluation surplus - 12/31/2016 117,500,000 Problem 38-16 Question 1 Answer ADepreciation on cost from January 1 to June 30, 2016: Building (300,000,000 / 20 x 6/12) Machinery (400,000,000 / 10 x 6/12) Sound value — Carrying amount Land 40,000,000 30,000,000 Building 425,000,000 255,000,000 Machinery 455,000,000 280,000,000 Total - 6/30/2016 920,000.000 565,000,000 Question 2 Answer A Percentage of accumulated depreciation - 6/30/2016: Building (37,500,000 + 7,500,000 / 300,000,000) Machinery (100,000,000 + 20,000,000 / 400,000,000) Remaining useful life: Building (20 years x 85%) years Machinery (10 years x 70%) Building: January to June 30, 2016 7,500,000 20,000,000 Revaluation surplus ),000,, 170,000,000 175,000,000 355,000,000 15% 30% 17 7 years 7,500,000 July to December 31, 2016 (425,000,000 / 17x 6/12) 12,500,000 20,000,000Machinery: January 1 to June 30, 2016 20,000,000 July 1 to December 31, 2016 (455,000,000 /7 x 6/12) 32,500,000 52,500,000 Total depreciation for 2016 Question 3 Answer A Revaluation surplus - 6/30/2016 355,000,000 Piecemeal realization from July 1 to December 31, 2016: Building (170,000,000 / 17 x 6/12) Machinery (175,000,000 / 7 x 6/12) 12,500,000) Revaluation surplus - 12/31/2016 Problem 38-17 Question 1 Answer A Cost - 1/1/2016 Accumulated depreciation - 12/31/2016 (40,000,000 / 40) Carrying amount - 1/1/2017 39,000,000 Fair value - 1/1/2017 46,800,000 297 (5,000,000) ¢ 337,500,000 40,000,000 (1,000,000)Carrying amount - 1/1/2017 39,000,000 Revaluation surplus - 1/1/2017 7,800,000 Question 2 Answer B Fair value - 1/1/2017 46,800,000 Accumulated depreciation - 12/31/2018: 2017 (46,800,000 / 39) 1,200,000 2018 1,200,000 (_2,400,000) Carrying amount - 1/1/2018 44,400,000 Fair value - 1/1/2019 55,500,000 Carrying amount - 1/1/2019 44,400,000 Increase in revaluation surplus 11,100,000 Question 3 Answer C Revaluation surplus - 1/1/2017 7,800,000 Increase in revaluation surplus on 1/1/2019 11,100,000 Total 18,900,000 Annual realization of revaluation surplus: 2017 (7,800,000 / 39) (200,000) 2018 (200,000) 2019 (200,000) 2019 (11,100,000 / 37) (__ 300,000) Revaluation surplus - 12/31/2019 18,000,000 Problem 38-18 Question | Answer A 3,500,000 Question 2 Answer B 2,500,000 Question 3 Answer A 1,000,000 Question 4 Answer B 1,500,000 Problem 38-19 Problem 38-20 >P>noeD -yNS anon> NEES YNerr ono CHAPTER 39 Problem 39-1 1, Impairment loss 900,000 Accumulated depreciation Cost Accumulated depreciation Carrying amount - January 1 2,400,000 Recoverable amount Impairment loss 2. Depreciation (1,500,000 / 3) 500,000 Accumulated depreciation 3. Cost Accumulated depreciation (2,100,000 + 900,000 + 500,000) Carrying amount ~ December 31 1,000,000 Problem 39-2 1, Impairment loss 1,125,000 Accumulated depreciation Cost - January 1 Accumulated depreciation (2,500,000 - 500,000 / 8 x 2) Carrying amount - January 1 2,000,000 Recoverable amount Impairment loss 2. Depreciation 375,000 ‘Accumulated depreciation (875,000 - 125,000 / 2) 375,000 3. Cost Accumulated depreciation (500,000 + 1,125,000 + 375,000) Carrying amount - December 31 500,000 900,000 4,500,000 2,100,000 1,500,000 }0,000 500,000 4,500,000 3,500,000 1,125,000 2,500,000 500,000 _ 875,000 1,125,000 2,500,000 2,000,000Problem 39-3 1 Net cash inflows PV factor Present value 2016 18,000,000 930 16,740,000 2017 15,000,000 857 12,855,000 2018 15,000,000 .794 11,910,000 2019 12,000,000 1735 _8,820,000 60,000,000 Total value in use 50,325,000 2. The recoverable amount is the value in use of P50,325,000 because this is higher than the fair value less cost to sell of P48,000,000. 3. Impairment loss 14,675,000 Accumulated depreciation (65,000,000 - 50,325,000) 14,675,000 4, Depreciation 12,581,250 Accumulated depreciation (50,325,000 / 4) 12,581,250 Problem 39-4 1. Depreciation 1,000,000 Accumulated depreciation (10,000,000 / 10) 1,000,000 2. Depreciation 1,000,000 Accumulated depreciation 1,000,000 3. Impairment loss 2,000,000 Accumulated depreciation 2,000,000 4. Depreciation 750,000 Accumulated depreciation (6,000,000 / 8) 750,000 5. Accumulated depreciation 1,750,000 Gain on reversal of impairment 1,750,000 Cost - 1/1/2015 10,000,000 Accumulated depreciation (10,000,000 / 10 x 2) _2,000,000 Carrying amount - 12/31/2016 8,000,000 Impairment loss - 2016 2,000,000 Adjusted carrying amount - 12/31/2016 6,000,000 Depreciation - 2017 (6,000,000 / 8) 750,000 Carrying amount - 12/31/2017 5,250,000 Cost - 1/1/2015 10,000,000 Accumulated depreciation (10,000,000 / 10 x 3) 3,000,000 Carrying amount - 12/31/2016 (assuming no impairment) 7,000,000 Recorded carrying amount 5,250,000 Gain on reversal of impairmentThe fair value of P7,500,000 cannot exceed the “carrying amount” that would have been determined assuming no impairment is recognized. Problem 39-5 1. Impairment loss 3,080,000 Accumulated depreciation (35,000,000 - 31,920,000) 3,080,000 Carrying amount 35,000,000 Value in use ~ higher than fair value less cost to sell (8,000,000 x 3.99) 31,920,000 Impairment loss 3,080,000 2. Depreciation 6,384,000 Accumulated depreciation (31,920,000 / 5) 6,384,000 Problem 39-6 1, Value in use (1,500,000 x 5.65) 8,475,000 2. Buildings 25,000,000 Accumulated depreciation (22,500,000 / 20 x 6) 6,750,000 Carrying amount - 1/1/2016 18,250,000 Fair value - higher than value in use 10,000,000 Impairment loss 8,250,000 3. Depreciation (10,000,000 / 10) 1,000,000 Problem 39-7 1, Value in use (800,000 x 4.21) 3,368,000 2. Machinery 5,000,000 Accumulated depreciation 1,500,000 Carrying amount ~ 1/1/2016 3,500,000 Present value of cash flows - higher than fair value 3,368,000 Impairment loss 132,000 3. Depreciation (3,368,000 / 5) 673,600 Problem 39-8 Answer B Problem 39-9 Answer C Cost, January 1, 2013 800,000 Accumulated depreciation, December 31, 2015 (100,000 x 3) 300,000 Carrying amount, December 31, 2015 Recoverable amount Impairment lossThe loss is recorded as follows: Impairment loss 300,000 Accumulated depreciation 300,000 Cost 800,000 Accumulated depreciation (300,000 + 300,000) 600,000 Recoverable amount, January 1, 2016 200,000 Depreciation for 2016 (200,000 / 5) 40,000 Carrying amount, December 31, 2016 160,000 Problem 39-10 Question 1 Answer B Question 2 Answer B Cost 3,200,000 Accumulated depreciation - aFsti2016 (3,200,000 - 500,000 x 33/60) eae Carrying amount - 5/31/20 1,715,000 Fair value less cost of deposal 1 Impairment loss 365,000 Question 3 Answer B ugust 31, 2013 to May 31, 2016 is a period of 33 months. Thus, the ing life of the machine is 27 months, 60 months original life minus 33. Depreciation for the month of June 2016 (1,350,000 / 27 months) 50,000 Problem 39-11 Answer B Cost - January 1,2012 1,000,000 Accumulated depreciation, December 31, 2015 (900,000 / 10 x 4) 360,000 Carrying amount, December 31, 2015S 640,000 Depreciation for 2016 (640,000 - 40,000 / 4) 150,000 Carrying amount, December 31, 2016 — 490,000 302 Problem 39-12 Answer C Carrying amount, 1/1/2016 2,400,000 Depreciation for 2015 (1,600,000 / 4) 400,000 Carrying amount, 12/31/2016 2,000,000 Sale price-recoverable amount 650,000 Impairment loss 1,350,000Problem 39-13 Answer C Depreciation for 2016 (10% x 2,000,000) Cost - 1/2/2012 Accumulated depreciation - 12/31/2016 (200,000 x 5) 1,000,000 Carrying amount-12/31/2016 Estimated cost of disposal Impairment loss Problem 39-14 Answer C Cost 200,000 2,000,000 1,000,000 50,000 1,050,000 2,000,000 Accumulated depreciation ~ 1/1/2016 (2,000,000 - 100,000 / 10 x 2.5)_475,000 Carrying amount - 1/1/2016 1,525,000 Fair value less cost of disposal Impairment loss Problem 39-15 Answer A Cost - 1/1/2016 Accumulated depreciation (5,000,000 / 10 x 2) ,000,000) Carrying amount - 12/31/2017 Recoverable amount equal to fair value with in-use premise Impairment loss Problem 39-16 Answer B Carrying amount Recoverable amount equal to fair value - higher than value in use 1,400,000 Impairment loss Problem 39-17 Question 1 Answer A Question 2 Answer B Question 3 Answer A Cost - 1/1/2016 Accumulated depreciation (11,000,000 / 10) Carrying amount - 12/31/2016 Value in use - higher than fair value ___ 8,550,000 Impairment loss for 2016 1,350,000 Carrying amount - 1/1/2016 8,550,000 Depreciation for 2017 (8,550,000 / 9) Carrying amount - 12/31/2017 with impairment 600,000 925,000 5,000,000 4,000,000 3,200,000 _300,00% 1,600,000 200,000 11,000,000 (4,100,000) 9,900,000 (__950,000) 7,600,000Cost - 1/1/2016 11,000,000 Accumulated depreciation - 12/31/2017 (11,000,000 / 10 x 2) (2,200,000) Maximum carrying amount - 12/31/2016 no impairment 8,800,000 Fair value less cost of disposal - 12/31/2017 higher than value in use 8,400,000 Carrying amount - 12/31/2017 with impairment 7,600,000 Gain on reversal of impairment for 2017 800,000 Depreciation for 2018 (8,400,000 / 8) 1,050,000 Problem 39-18 Question 1 Answer A Depreciation for 2016 (1,880,000 / 4) 470,000 Question 2 Answer D Cost 1/1/2016 1,880,000 Accumulated depreciation - 12/31/2016 470,000) Carrying amount - 12/31/2016 1,410,000 Recoverable amount 2016 1,450,000 Impairment loss 2 Question 3 Answer C Carrying amount - 12/31/2016 1,410,000 Depreciation for 2017 ( 470,000) Carrying amount - 12/31/2017 940,000 Recoverable amount 2017 890,000 Impairment loss 50,000 Question 4 Answer DDepreciation for 2018 (890,000 / 2) 445,000 Problem 39-19 Answer C Carrying amount - 12/31/2016 7,000,000 Depreciation for 2017 (20%) (1,400,000) Carrying amount - 12/31/2017 5,600,000 Carrying amount - 12/31/2017 (assuming no impairment) 7,200.0 Reversal of impairment loss 1,600,000 Problem 39-20 Answer A Carrying amount 3,300,000 Recoverable amount 2,700,000 Impairment loss - applied to goodwill only 600,000 Problem 39-21 Answer D Impairment loss (450,000 ~ 428,000) 22,000 Problem 39-22 Answer C Cost - 12/31/2012 2,800,000 Accumulated depreciation - 8/31/2016 (2,400,000 / 96 months x 44) 1,100,000 Carrying amount - 8/31/2016 1,700,000 Fair value less cost of disposal 1,500,000 Impairment loss 00,000 Problem 39-23 Answer C Cost of equipment 5,000,000 Accumulated depreciation 3,000,000 Carrying amount 2,000,000 Fair value of equipment 1,250,000 Impairment loss 750,000 The net future cash inflows are not used in determining impairment loss because the inflows are undiscounted. Problem 39-24 Question 1 Answer B 2016 Jan. 1 Machinery 1,500,000 Accumulated depreciation 750,000Revaluation surplus 750,000 Dec. 31 Depreciation 1,500,000 Accumulated depreciation 1,500,000 (4,500,000 SV / 3 years remai ing) Dec. 31 Revaluation surplus 250,000 Retained earnings (750,000 / 3 years) 750,000 Question 2 Answer B Machinery 9,000,000 Accumulated depreciation (4,500,000 + 1,500,000) 6,000,000 Carrying amount 3,000,000 Recoverable amount 1,200,000 Impairment loss 1,800,000 An impairment loss on a revalued asset is recognized directly against any revaluation surplus related to the asset and any excess is recognized in profit or loss. Journal entry - January 1, 2017 Accumulated depreciation 3,600,000 Revaluation surplus (750,000 - 250,000) 500,000 Impairment loss 1,300,000 Machinery 5,400,000 Per book Adjusted Decrease Replacement cost 9,000,000 3,600,000 5,400,000 AD - 66 2/3% 6,000,000 2,400,000 +—_3,600,000 Depreciated RC 3,000,000 1,200,000 —_1,800,000 It may be necessary to “gross up” the fair value of P1,200,000. Since the useful life is 6 years and 4 years already expired the ratio is 66 2/3%, and therefore the gross replacement cost is 1,200,000 divided by 33 1/3%, or P3,600,000. Problem 39-25 Problem 39-26 LA 1B 2G 2A 3A are 4A 4c 5.D S.A 6.8 6C 7D 7.8 aA 8. 8 s oCHAPTER 40 Problem 40-1 1. Total carrying amount 5,000,000 Value in use 3,600,000 Impairment loss 1,400,000 2. Impairment loss allocated to goodwill 500,000 Impairment loss allocated to the other assets 900,000 1,400,000 When an impairment loss is recognized for a cash generating unit, the loss is allocated to the assets of the unit in the following order: a. First, to the goodwi any. b. Then, to all other assets of the unit prorata based on their carrying amount. Carrying amount Fraction Loss Building 2,000,000 20/45 400,000 Inventory 1,500,000 15/45 300,000 Trademark 1,000,000 10/45 200,000 4,500,000 900,000 3. Impairment loss 1,400,000 Goodwill 500,000 Accumulated depreciation - building 400,000 Inventory 300,000 Trademark 200,000 Problem 40-2 1. Carrying amount 16,000,000 Value in use 11,000,000 Impairment loss 5,000,000 2. Allocation of impairment loss Building (8/16 x 5,000,000) 2,500,000 Equipment (4/16 x 5,000,000) 1,250,000 Inventory (4/16 x 5,000,000) 1,250,000 5,000,000 Observe that after allocating the P2,500,000 loss to the building, the carrying amount of the building would be P5,500,000 which is lower than its fair value of P6,500,000.Accordingly, only 1,500,000 loss is allocated to the building and the balance of P1,000,000 is reallocated to the equipment and inventory prorata. Building Equipment Inventory Allocated loss 2,500,000 1,250,000 1,250,000 Reallocated loss (1,000,000) (4/8 x 1,000,000) 500,000 (4/8 x 1,000,000) 500,000 Impairment loss 1,500,000 1,750,000 1,750,000 307 3. Impairment loss 5,000,000 Accumulated depreciation - building 1,500,000 Accumulated depreciation - equipment 1,750,000 Inventory 1,750,000 Problem 40-3 1. Carrying amount of CGU 115,000,000 Value in use 100,000,000 Impairment loss (15,000,000) 2. Impairment loss 15,000,000 Goodwill 5,000,000 Accounts receivable 2,000,000 Inventory 3,000,000 Accumulated depreciation 5,000,000 The remaining impairment loss of P10,000,000, after deducting the loss applicable to goodwill, is allocated to the other noncash assets on a prorata basis. Problem 40-4 1. Carrying amount of CGU 10,000,000 Value in use 7,200,000 Impairment loss 2,800,000 2. Impairment loss 2,800,000 Goodwill 1,000,000 Accumulated depreciation - machinery (5/9 x 1,800,000) 1,000,000 Accounts receivable (3/9 x 1,800,000) 600,000 Patent (1/9 x 1,800,000) 200,000Problem 40-5 1. Cash 4,000,000 Accounts receivable - net 5,000,000 Inventory 7,000,000 Property, plant and equipment - net 18,000,000 Goodwill 3,000,000 Carrying amount of CGU 37,000,000 2. Impairment loss 7,000,000 3. Impairment loss 7,000,000 Goodwill 3,000,000 Inventory (7/25 x 4,000,000) 1,120,000 Property, plant and equipment (18/25 x 4,000,000) 2,880,000 No impairment loss is allocated to the accounts receivable because the accounts are considered collectible except those doubtful. Problem 40-6 Inventory 200,000 Accounts receivable 300,000 Plant and equipment - net 3,400,000 Patent 850,000 Goodwill 100,000 Carrying amount of CGU 4,850,000 Value in use 4,050,000 Impairment loss 800,000 Impairment loss 800,000 Goodwill 100,000 Plant and equipment 600,000 Patent 100,000 Plant Patent Allocated loss: (3,400 / 4,250 x 700,000) 560,000 (850 / 4,250 x 700,000) 140,000 Reallocated loss 40,000 — (_40,000) 600,000 100,000 The patent shall not be reduced to an amount below its fair value less cost of disposal of P750,000. No impairment is allocated to accounts receivable and inventory because the accounts are considered collectible and the inventory’s fair value less cost of disposal is equal to the carrying amount.Problem 40-7 Cash 600,000 Inventory 1,400,000 Land 2,500,000 Plant and equipment - net 7,300,000 Goodwill 1,000,000 Carrying amount of CGU 13,000,000 Value in use 8,500,000 Impairment loss 4,500,000 Impairment loss 4,500,000 Goodwill 1,000,000 Land (25/100 x 3,500,000) 875,000 Accumulated depreciation (75/100 x 3,500,000) 2,625,000 No impairment loss is allocated to inventory because the inventory’s fair value less cost of disposal is higher than its carrying amount. Problem 40-8 All Unimart’s stores are in different locations and probably have different customer profile. So although Smart is managed at the corporate level, Smart generates cash inflows that are largely independent from those of the other Unimart's stores. Therefore, it is likely that Smart in itself is a cash generating unit. Problem 40-9 It is likely that the recoverable amount of an individual magazine title can be assessed. Even though the level of advertising income for a title is influenced to a certain extent by the other titles in the customer segment, cash inflows fromdirect sales and advertising are identifiable for each title. In addition, deci to abandon titles are made on an individual basis. Accordingly, the individual magazine titles generate cash inflows that are largely independent from one another and therefore, each magazine title is a separate cash generating unit. Problem 40-10 Case 1 1. Ais separate cash generating unit because there is an active market for A’s products. 2. Although there is an active market for the products of B and C, cash inflows from B and C depend on the allocation of production across two countries. It is unlikely that cash inflows from B and C can be determined individually. Therefore, B and C, together should be treated as a cash generating unit. Case2 a. A cannot be treated as a separate cash generating unit because its cash inflows depend on the sales of the final product by B and C, since there is no active market for A's product. b. As a consequence, A, B and C, together, and therefore, Maximus Company, as a whole, should be treated as the largest single cash generating unit. Problem 40-11 The primary purpose of the building is to serve as a corporate asset supporting Litmus Company's manufacturing operations. Therefore, the building in itself cannot be considered to generate cash inflows that are largely independent of the cash inflows from the entity as a whole. In this case, the cash generating unit is Litmus Company as a whole. The building is not held for investment. Thus, it is not appropriate to determine the value in use of the building based on the cash inflows of related rent. Problem 40-12 Question 1 Answer C Question 2 Answer B Question 3 Answer D Carrying amount —_Implied value Loss 300,000 250,000 50,000 200,000 100,000 100,000 Financing 400,000 600,000 : Total impairment loss 150,000Goodwill impairment is determined at the level of the individual reporting unit and not at the entity level. Thus, no loss is recognized for the Financing unit because the implied value of goodwill exceeds the carrying amount. Problem 40-13 Telecommunication Segment carrying amount including goodwill 2,500,000 Estimated total fair value of segment 2,900,000 Impairment loss The carrying amount of goodwill of P500,000 is not affected because the Telecommunication reporting unit is not impaired. Networking Segment carrying amount including goodwill 3,000,000 Estimated total fair value of segment 2,800,000 Impairment loss - all allocated to goodwill 200,000 Goodwill 500,000 Impairment loss (200,000) Carrying amount of goodwill 300,000 Problem 40-14 D SLYONAMaWN= >e>ORPBZNADCHAPTER 41 Problem 41-1 Problem 42-2 Problem 41-3 1c 1A 1D 2 2A 20 3.D 3.D 3.8 4.0 4A 4.0 5.D 5. 5. 6.D 6c 6c 7.D 7.D 7.0 8.D 8D 8D 9.D 9C 9A 10. D 10. D 10. B Problem 41-4 Problem 41-5 wc 1. 2.8 2. 3.D 3. C 4A 4.8 5.8 6A z¢ 8. D 9.D 10. B CHAPTER 42 Problem 42-1 2016 Jan. 1 Patent 255,000 Cash 255,000 Dec. 31 Amortization of patent 12,750 Patent (255,000 / 20) 12,750 2017 Dec. 31 Amortization of patent 12,750 Patent 12,750 2018 Jan. 5 Legal expense 90,000 Cash 90,000 Dec. 31 Amortization of patent 12,750 Patent 12,750 2019 Jan. 1 Patent 510,000 Cash 510,000 Dec. 31 Amortization of patent 42,750 Patent 42,750On original cost 12,750 On competing patent (510,000 / 17) Problem 42-2 2016 Research and development expense Cash 2019 Patent Cash Amortization of patent (720,000 / 16) Patent 2020 Patent Cash Amortization of patent Patent On related patent 45,000 On competing patent (540,000 / 15) 36,000 Problem 42-3 2016 Research and development expense Cash 2017 Patent Cash Amortization of patent Patent (60,000 / 10) 2018 Patent Cash Original cost New patent Total cost Less: Amortization for 2017 Carrying amount - January 1, 2018 Amortization of patent (654,000 / 15) Patent 2019 Amortization of patent Patent 510,000 720,000 45,000 540,000 81,000 250,000 60,000 6,000 600,000 43,600 43,600 510,000 720,000 45,000 540,000 81,000 81,000 250,000 60,000 6,000 600,000 60,000 600,000 660,000 6,000 654,000 43,600 43,600Patent written off 566,800 Patent Carrying amount - 1/1/2018 654,000 Less: Amortization 2018 43,600 2019 43,600 Carrying amount - 12/31/2019 Problem 42-4 1. Patent 7,140,000 Cash 2. Amortization of patent 476,000 Patent (7,140,000 / 15) 3. Amortization of patent 816,000 Patent (5,712,000 / 7) 4. Acquisition cost Amortization for 2016, 2017 and 2018 (476,000 x 3) Carrying amount - 1/1/2019 5,712,000 Amortization for 2019 Carrying amount - 12/31/2019 Problem 42-5 1, Patent 900,000 Cash 2. Amortization of patent 90,000 Patent (900,000 / 10) 90,000 3. Patent written off 540,000 Patent Cost Amortization for 2016, 2017, 2018 and 2019 (90,000 x 4) (360,000) Carrying amount - 12/31/2019 Problem 42-6 1, Patent 6,200,000 Cash 2, Legal expenses 450,000 Cash 3. Amortization of patent 1,050,000 Patent X (1,200,000 / 8) 566,800 87,200 566,800 7,140,000 476,000 816,000 7,140,000 (1,428,000) 816,000) 4,896,000 900,000 540,000 900,000 6,200,000 450,000 1,050,000 150,000Y (2,000,000 / 5) Z (3,000,000 / 6) Problem 42-7 1, Retained earnings Patent 2. Patent Retained earnings 510,000 3. No adjustment. 4. Loss on damages Legal expense Accrued liabilities 130,000 5. Patent Retained earnings Amortization per book (500,000 ~ 450,000) 50,000 Correct amortization for 2016 (510,000 / 20) Overamortization 24,500 6. Amortization of patent Patent 400,000 500,000 1,050,000 500,000 500,000 510,000 100,000 30,000 24,500 24,500 25,500 25,500 25,500Problem 42-8 1, Amortization of patent 280,000 Accumulated amortization (1,920,000 - 240,000 / 6) 280,000 2. Trademark (800,000 x 3/4) 600,000 Noncompetition agreement 200,000 Cash 800,000 315 3. Amortization of noncompetition agreement 40,000 Accumulated amortization (200,000 / 5) 40,000 4, Royalty expense 50,000 Cash 50,000 Problem 42-9 Answer C Cost 1/1/2011 6,000,000 Accumulated depreciation - 12/31/2015 (6,000,000 / 15 x 5) 2,000,000 Carrying amount ~ 1/1/2016 4,000,000 Amortization for 2016 (4,000,000 / 5) 800,000Problem 42-10 Answer A Amortization for 2016 (4,500,000 / 10) 450,000 Problem 42-11 Answer D Acquisition cost - January 1, 2013 Amortization for 2013, 2014 and 2015 (450,000 / 15 x 3) 90,000) Carrying amount - January 1, 2016 Problem 42-12 Answer C Cost - 1/1/2014 Amortization for 2014 and 2015 (5,400,000 / 6 x 2) Carrying amount - 1/1/2016 3,600,000 Amortization for 2016 (3,600,000 / 20) 180,000 Problem 42-13 Answer A Cost - 1/1/2015 Amortization for 2015 and 2016 (5,800,000 / 5 x 2) Carrying amount ~ 12/31/2016 Value in use - higher Impairment loss Problem 42-14 Answer C Problem 42-15 Answer A Design costs Legal fees of registering trademark 150,000 Registration fee with Patent Office Total cost of trademark Problem 42-16 Answer D Problem 42-17 Answer A Trademark 2,000,000 Value in use (120,000 / 8%) Impairment loss Patent Amortization for 2016 (6,000,000 / 5) Carrying amount - 12/31/2016 Value in use (1,000,000 x 3.31) Impairment loss Problem 42-18 Answer A 450,000 ( 360,000 5,400,000 (1,800,000) 5,800,000 (2,320,000) 3,480,000 2,825,000 855,000 1,500,000 50,000 1,700,0 Zero 1,500,000 500,000 6,000,000 1,200,000 4,800,000 3,310,000 1,490,000Acquisition cost Amortization for 2016 and 2017 (5,200,000 / 10 x 2) Carrying amount - 12/31/2017 Value in use - higher than fair value 3,800,000 Impairment loss Problem 42-19 Answer B Problem 42-20 Answer C Patent Excess of cost 4,000,000 Trademark 900,000 Total intangible assets Problem 42-21 Answer B Intangible asset - Beginning of year 3,000,000 Amortization for current year (3,000,000 / 10) 300,000) Carrying amount - End of year Value in use (300,000 x 7.11) Carrying amount Impairment loss Problem 42-22 Problem 42-23 yaeee on>oo PP onpap 5,200,000 (1,040,000) 160,000 360,000 3,700,000 500,000 5,400,000 ( 2,700,000 2,133,000 2,200,000 (567,000)Problem 43-1 2016 Copyright Cash Amortization of copyright Copyright 150,000 285,000 / 95,000 = 3 per copy 50,000 x 3 150,000 2017 Amortization of copyright Copyright (30,000 x 3) Problem 43-2 1. Copyright Retained earnings 240,000 Cost of copyright Less: Amortization (300,000 / 5) 60,000 Carrying amount 2. Amortization of copyright Copyright 285,000 150,000 90,000 240,000 60,000 285,000 90,000 300,000 240,000 60,000Problem 43-3 1. Copyright 620,000 Patent 400,000 Retained earnings 1,020,000 Copyright 1 400,000 Less: Amortization from 1/1/2012 to 12/31/2015 (400,000 / 20 x 4) 80,000 Carrying amount 320,000 Copyright 2 360,000 Less: Amortization from 7/1/2013 to 12/31/2015 (360,000 / 15 x 2.5) 60,000 Carrying amount 300,000 Patent 500,000 mortization for 2014 and 2015 (500,000 / 10 x 2) Carrying amount 400,000 2. Amortization of copyright (20,000 + 24,000) 44,000 Amortization of patent 50,000 Copyright 44,000 Patent 50,000 Problem 43-4 Books of Franchisee 1. Franchise 6,000,000 Cash 6,000,0002. Amortization of franchise 300,000 Franchise (6,000,000 / 20) 300,000 3. Cash 25,000,000 Sales 25,000,000 4, Franchise fee expense 1,250,000 Cash (25,000,000 x 5%) 1,250,000 Problem 43-5 Books of Franchisee 1. Franchise 20,000,000 Cash 5,000,000 Note payable 15,000,000 2. Note payable (15,000,000 / 4) 3,750,000 Interest expense (15,000,000 x 10%) 1,500,000 Cash 5,250,000 3. There is no amortization because the franchise is for an indefinite period. Problem 43-6 Books of Franchisee 1, Franchise (3,000,000 + 3,790,000) 6,790,000 Discount on note payable 1,210,000 Cash 3,000,000 Note payable 5,000,000 Note payable 5,000,000 Present value of note (1,000,000 x 3.79) 3,790,000 Implied interest 1,210,000 2. Amortization of franchise 679,000 Franchise (6,790,000 / 10) 679,000 3. Note payable 1,000,000 Cash 1,000,000 4, Interest expense (10% x 3,790,000) 379,000 Discount on note payable 379,000 Problem 43-7 1, Rent expense 1,200,000 Prepaid rent 1,200,000 Cash 2,400,000 2. Leasehold 2,000,000 Cash 2,000,000 3. Leasehold improvement 500,000 Cash 500,0004, Amortization of leasehold Leasehold (2,000,000 / 5) 5. Depreciation (500,000 / 5) Accumulated depreciation Problem 43-8 1. Leasehold Cash 2. Rent expense (150,000 x 12) Cash 3. Leasehold improvement Cash & Leasehold improvement Cash 5. Amortization of leasehold Leasehold (1,000,000 / 10) 6. Depreciation Accumulated depreciation 60,000 400,000 / 10 100,000 / 5 Problem 43-9 Requirement a 1, Leasehold improvement - building Cash 2. Rent expense (50,000 x 12) Cash 3. Depreciation (5,000,000 / 10) Accumulated depreciation Requirement b Accumulated depreciation Loss on leasehold cancelation Leasehold improvement - building Problem 43-10 1. Rent expense Cash 2. Leasehold 400,000 400,000 100,000 100,000 1,000,000 1,000,000 1,800,000 1,800,000 400,000 400,000 100,000 100,000 100,000 100,000 60,000 40,000 20,000 60,000 5,000,000 5,000,000 600,000 600,000 500,000 500,000 2,500,000 2,500,000 5,000,000 600,000 600,000 100,000Cash 100,000 3, Leasehold improvement 200,000 Cash 200,000 4, Leasehold improvement 50,000 Cash 50,000 5. Amortization of leasehold 20,000 Leasehold (100,000 / 5) 20,000 6. Depreciation 52,500 Accumulated depreciation 52,500 200,000 / 5 40,000 50,000 / 4 12,500 92,500 Problem 43-11 Answer A Problem 43-12 Answer A Problem 43-13 Answer C Downpayment 2,000,000 Present value of annual payment for 4 years (1,000,000 x 2.91) 2,910,000 Cost of franchise 4,910,000 Problem 43-14 Answer AProblem 43-15 Answer B Original lease 12 years Extension 8 Total life 20 Less: Years expired (2014 and 2015) 2 Remaining life 18 years: Life of improvement (shorter) 1s years: Leasehold improvement 540,000 Less: Depreciation for 2016 (540,000 / 15) 36,000 Carrying amount 504,000 Problem 43-16 Answer D Depreciation (3,600,000 / 6) 00,000 Problem 43-17 Answer D Travel costs of salaried employees 400,000 Training of local employees 1,200,000 Total start-up costs to be expensed 1,600,000 The production equipment definitely should be capitalized. The license fees and advertising costs are also charged to expense but not embraced in the definition of start-up costs. The license fees and advertising costs are operating costs and not preopening or preoperating costs. The organization costs contemplated in this problem squarely pertain to start-up costs. Under PAS 38, start-up costs are outright expense. Start-up costs may consist of establishment costs such as legal and secretarial costs incurred in establishing a legal entity or preopening costs - expenditures to open a new facility or preoperating costs - expenditures for commencing or launching a new product. 321 Problem 43-18 1c 2D 3.8 4.D 5. € 6. D 7.0 8. 8B 9DCHAPTER 44 Problem 44-1 1, Acquisition cost Net assets acquired Goodwill 2. Cash Accounts receivable Inventory Property, plant and equipment Goodwill ‘Accounts payable 900,000 Note payable - bank Cash Problem 44-2 1. Acquisition cost Net assets acquired at fair value (3,300,000) Goodwill Total assets at fair value 5,300,000 Total liabilities 2,000,000 Net assets acquired at fair value 3,300,000 2. Cash Accounts receivable Inventory Patent Property, plant and equipment Goodwill Accounts payable 2,000,000 Cash Problem 44-3 1. Cash Inventory In-process R and D 50,000 800,000 1,350,000 4,300,000 2,900,000 50,000 500,000 1,500,000 250,000 3,000,000 2,700,000 7,500,000 (4,600,000) 2,900,000 1,000,000 7,500,000 6,000,000 2,700,000 6,000,000 1,000,000 500,000 5,000,000Total assets 6,500,000 Total liabilities 3,000,000 Net assets 3,500,000 Acquisition cost 8,000,000 Net assets acquired at fair value (3,500,000) Goodwill 4,500,000 The goodwill includes the fair value of the assembled workforce of P1,200,000. The assembled workforce is not accounted for separately as an asset. 2. Cash 1,000,000 Inventory 500,000 In process R and D 5,000,000 Goodwill 4,500,000 Accounts payable 2,600,000 Notes payable 400,000 Cash 8,000,000 Problem 44-4 Average earnings or prior years (1,500,000 / 3) 500,000 Increase in average earnings (10% x 500,000) 50,000 Total 550,000 Less: Patent amortization (500,000 / 5 years) 100,000 Earnings for goodwill computation 450,000 a. Average future earnings 450,000 Divide by 8% Net assets including goodwill 5,625,000 Less: Net assets excluding goodwill 5,000,000 Goodwill —§25,000 b, Average earnings 450,000 Less: Normal earnings (8% x 5,000,000) 400,000 Average excess earnings 50,000 Divide by 10% Goodwill 500,000 c, Goodwill (50,000 x 3.17) 158,500Problem 44-5 1. Average earnings 250,000 Divide by Net assets including goodwill 2,500,000 Less: Net assets before goodwill 1,200,000 Goodwill 2. Average earnings 250,000 Less: Normal earnings (8% x 1,700,000) Goodwill 3. Average earnings 250,000 Less: Normal earnings (10% x 1,700,000) Excess earnings Multiply by Goodwill 4. Excess earnings Multiply by 5.65 Goodwill Problem 44-6 1. Share capital Retained earnings 1,500,000 Total shareholders’ equity Less: Recorded goodwill Net assets before goodwill Average earnings (1,200,000 + 150,000 / 3) 450,000 Less: Normal earnings (10% x 2,500,000) Excess earnings Divide by Goodwill 2. Net assets before goodwill Goodwill Purchase price 3,750,000 Problem 44-7 114,000 — 15% 760,000 170,000 80,000 400,000 80,000 452.000 2,000,000 3,500,000 1,000,000 2,500,000 250,000 200,000 16% 1,250,000 2,500,000 1,250,000Land Machinery Inventory Accounts receivable Trademark 1,000,000 Patent Accounts payable (3,000,000) zi Net assets acquired Acquisition cost Goodwill Land Machinery Inventory Accounts receivable Trademark Patent Goodwill Accounts payable 3,000,000 Cash Problem 44-8 Impairment loss Trademark 1,250,000 Carrying amount PV of cash flows (105,000 / 6%) Impairment loss 3,500,000 2,000,000 1,800,000 700,000 500,000 6,500,000 9, 10 2,500,000 3,500,000 2,000,000 1,800,000 700,000 1,000,000 500,000 2,500,000 9,000,000 1,250,000 3,000,000 1,750,000 250,0002. Impairment loss 610,000 Goodwill Assets Carrying amount of net assets (4,000,000 - 1,100,000) 2,900,000 PV of cash flows (200,000 x 11.45) Impairment loss Problem 44-9 Answer C Cost Net assets at fair value (3,000,000 + 300,000) Goodwill Problem 44-10 Answer C Acquisition cost Net assets at fair value (6,200,000 + 600,000 + 450,000) Goodwill Problem 44-11 Answer B Acquisition cost 500,000 110,000 2,290,000 610,000 325 6,000,000 3,300,000 2,700,000 8,000,000 2,250,000 750,000 6,000,000Net assets at fair value (3,000,000 + 6,000,000 - 2,000,000) Excess net fair value Journal entry Current assets Noncurrent assets Liabilities Cash Gain on bargain purchase 1,000,000 Problem 44-12 Answer C Acquisition cost (150,000 x P50) 7,500,000 Fair value of net assets acquired 6,800,000 Goodwill Carrying amount of net assets Excess fair value of property, plant and equipment 800.000 Fair value of net assets Problem 44-13 Answer C Accounts receivable Inventory Equipment 500,000 Short-term payable Net assets at fair value 7,000,000 1,000,000 3,000,000 6,000,000 2,000,000 6,000,000 700,000 6,000,000 6,800,000 2,000,000 500,000 (2,000,000) 1,000,000Acquisition cost 5,000,000 Net assets at fair value 1,000,000) Goodwill 4,000,000 Problem 44-14 Answer C Acquisition cost (200,000 x P30) 6,000,000 Fair value of net assets acquired (5,400,000) Goodwill 600,000 Carrying amount of net assets 5,000,000 Excess fair value of identifiable assets 400,000 Fair value of net assets 5,400,000 326 Problem 44-15 Answer A Carrying amount of net assets 3,200,000 Undervaluation of property, plant and equipment 750,000 Overvaluation of other assets ( 500,000) Overvaluation of long-term debt 200,000 Fair value of net assets 3,650,000 Acquisition cost 4,000,000 Fair value of net assets acquired (3,650,000) Goodwill 350,000 Problem 44-16 Problem 44-17 1D 1c 2.A 2.D 3. 3.D 4B aA 5. A 5AProblem 45-1 1. Designing and planning 1,000,000 Code development 1,500,000 Testing 500,000 Total R and D expense in 2016 3,000,000 The cost of producing the product master of P2,500,000 is capitalized as software cost to be subsequently amortized. 2. Cost of producing the software program in 2017 1,000,000 Amortization of software cost (2,500,000 / 4) 625,000 Total expense in 2017 1,625,000 Problem 45-2 12/31/2016 Rand D expense 2,500,000 Cash 2,500,000 1/1/2017 Rand D expense 1,200,000 Cash 1,200,000 7/1/2017 Rand D expense 500,000 Cash 500,000 11/1/2017 Patent 350,000 Cash 350,000 11/15/2017. Patent 800,000 Cash 800,000 12/31/2017 Patent 100,000 Cash 100,000 Problem 45-3 Answer A 1,600,000 All costs incurred are charged to research and development expense with the exception of the cost of conference. The cost of conference is also expensed immediately but not as part of research and development expense. Problem 45-4 Answer C Depreciation of equipment 135,000 Materials used 200,000 Compensation costs of personnel 500,000 Outside consulting fees 150,000 Indirect costs allocated 250,000 1,235,000 Problem 45-5 Answer A Modification to the formulation of a chemical product 135,000 Design of tools, jigs, molds and dies 170,000 Laboratory research 215,000 Total research and development expense 520,000Problem 45-6 Answer D All costs are charged to R and D expense. Problem 45-7 Answer A Problem 45-8 Answer B Depreciation 300,000 Salaries 700,000 Indirect costs allocated 200,000 Materials 180,000 Total research and development expense 1,380,000 PAS 38 does not cover research and development performed under contract for others, including indirect costs that are specifically reimbursable under the contract. Problem 45-9 Answer C Special equipment used solely for Product Y 600,000 Labor and material costs 2,000,000 Cost of testing prototype 800,000 Total research and development expense 3,400,000 The legal costs incurred to file a patent should be charged to the patent account. Problem 45-10 Answer D Design of tools, jigs and dies 125,000 Modification of the formulation of a process 160,000 Total R and D expense 285,000 The other two costs incurred are not R and D activities because they relate to commercial production. Problem 45-11 Answer B Problem 45-12 Answer D The P1,000,000 cost should be charged to computer software on the premise that there is already a technological feasibility. The P750,000 cost should be classified as distribution cost. Problem 45-13 Question 1 Answer B Duplication of computer software and training materials 2,500,000 Packaging product Total inventory Question 2 Answer BCompletion of detail program design 1,300,000 Cost incurred for coding and testing to establish technological feasibility 1,000,000 Total costs charged as expense 2,300,000 Question 3 Answer C Other coding costs after establishment of technological feasibility 2,400,000 Other testing costs after establishment of technological feasibility 2,000,000 Costs of producing product masters for training materials 1,500,000 Total costs to be capitalized 5,900,000 Problem 45-14 Answer A Problem 45-15 Answer B Problem 45-16 Answer B All costs incurred are expensed immediately. Problem 45-17 Answer C Laboratory research 200,000 Cost of testing prototype 50,000 Construction of research facility 400,000 R and D expense 650,000Problem 45-18 Answer A R and D equipment (1,800,000 / 4) Engineering costs 1,200,000 Total R and D expense Problem 45-19 Answer C Design, construction and testing of models 110,000 Laboratory research Total research and development expense Problem 45-20 Answer C Machine A - charged entirely to expense 1,000,000 Machine B - (1,000,000 / 10) 100,000 Total R and D expense Problem 45-21 Problem 45-22 Problem 45-23 ie 1.8 LA 2.8 2.8 28 3.D 3.8 2B AA 4.8 aA 5. ¢ 5A 450,000 1,650,000 180,000 1,100,000 Problem 45-24 Seenayewn> ooen>nvongG