Problem 25-1

1 assessed value 4,500,000.00 is not fair value

issued shares in exchange for ppe:
cost = priority 1 fv of asset received x
priority 2 fv of shares issued 50,000 shares x P120 per share 6,000,000.00
priority 3 par value of shares issued

Land 6,000,000.00
Share Capital (50,000 shares x P100) 5,000,000.00
Share Premium 1,000,000.00

2 donated ppe
from shareholder cr donated capital shareholders' equity
other than shareholdcr other income income statement

Land 1,000,000.00
Donated Capital 1,000,000.00

Donated Capital 50,000.00

Cash 50,000

Appraised
3 Value Fraction Allocation
Land 2M 2/5 2,200,000.00
Warehouse Building 3M 3/5 3,300,000.00
5M 5,500,000.00

Land 2,200,000.00
Warehouse Building 3,300,000.00
Cash 5,500,000.00

4 Total consideration:
Cash 7,500,000.00
Liability assumed 2,500,000.00
10,000,000.00
Land (10M x 40%) 4,000,000.00
Office Building (10M x 60%) 6,000,000.00
Cash 7,500,000.00
Mortgage Payable 2,500,000.00
Problem 25-2
The PPE must be recorded at its cash price equivalent
Cash Price Equivalent 580,000.00
Actual Cash to Be Paid
Down Payment 200,000.00
Payment for the notes (100,000 x 5) 500,000.00 700,000.00
Discount on Notes Payable 120,000.00

no eir given; ei method cant be used

best method since the payment is in installment outstanding balance method
Date O. B. Fraction Amortization
2019 500,000 5/15 40,000.00
2020 400,000 4/15 32,000.00
2021 300,000 3/15 24,000.00
2022 200,000 2/15 16,000.00
2023 100,000 1/15 8,000.00
1,500,000 120,000.00

2019
1-Jan Equipment 580,000.00
Discount on Notes Payable 120,000.00
Cash 200,000.00
Notes Payable 500,000.00

31-Dec Estimated Useful life of the equipment is 5 years; Residual Value = 80,000
Annual Depcn = 100,000.00

Depcn Expense 100,000.00

Accum Depcn 100,000.00

Notes Payable 100,000.00

Cash 100,000.00

Interest Expense 40,000.00

Discount on Notes Payable 40,000.00
2020
Dec 31 Depcn Expense 100,000.00
Accum Depcn 100,000.00

Notes Payable 100,000.00

Cash 100,000.00

Interest Expense 32,000.00

Discount on Notes Payable 32,000.00
Problem 25-3
Present Value of Cash Payments
Down Payment 100,000.00
Installment Payment (200,000 x 3.170) 634,000.00 734,000.00 Discounted Value
Actual Cash Payment (Undiscounted Value)
Down Payment 100,000.00
Notes Payable (200,000 x 4 payments) 800,000.00 900,000.00
Discount on Notes Payable 166,000.00
since eir is given, the best method is ei method

Date Payment Amort Principal CA

1/1/2019 634,000.00
12/31/2019 200,000 63,400.00 136,600.00 497,400.00
12/31/2020 200,000 49,740.00 150,260.00 347,140.00
12/31/2021 200,000 34,714.00 165,286.00 181,854.00
12/31/2022 200,000 18,146.00 181,854.00 -

Journal Entries:
1/1/2019 Machinery 734,000.00
Discount on Notes Payable 166,000.00
Cash 100,000.00
Notes Payable 800,000.00

12/31/2019 depcn
Notes Payable 200,000.00
Cash 200,000.00

Interest Expense 63,400.00

Discount on Notes Payable 63,400.00
Discounted Value
Problem 25-6
1 Office Equipment (at Fair Value) 430,000
Inventory 300,000
Cash 50,000
Gain on Exchange 80,000
Receive NCA in exchange for a CA

2 Old Machine:
Cost 240,000
Accum Depreciation 120,000
Carrying Amount 120,000

Cash Paid 30,000

Fair Value of Old 110,000
New Machine 140,000

Fair Value of Old 110,000

Carrying Amount of Old 120,000
Loss on Exchange 10,000

Machinery, New 140,000

Loss on Exchange 10,000
Accumulated Depreciation 120,000
Machinery, Old 240,000
Cash 30,000

3 Cost of Old 3,000,000

Accum Depcn 1,800,000
Carrying Amount 1,200,000
FV of Old 1,000,000 Cost, New
Loss on Exchange 200,000

Equipment, New 1,000,000

Accumulated Depreciation 1,800,000
Loss on Exchange 200,000
Equipment, Old 3,000,000
Problem 25-7
Books of Smile

Equipment, New 500,000.00

Accumulated Depreciation 2,000,000.00
Equipment, Old 2,400,000.00
Gain on Exchange 100,000.00

Books of Frown
Equipment, New 500,000.00
Accumulated Depreciation 1,750,000.00
Gain on Exchange 50,000.00
Equipment, Old 2,200,000.00

CA 450,000.00
FV 500,000.00
Gain on Exchange 50,000.00
Problem 25-4
1 To record the purchase
USING GROSS METHOD
Machinery 3,000,000.00
Accounts Payable 3,000,000.00

To record payment beyond the discount period

Accounts Payable 3,000,000.00
Cash 3,000,000.00

To reduce Machinery by the amount of cash discount (whether taken or not)

Purchase Discount Lost (G& A Epenses) 300,000.00
Machinery (3,000,000 x 10%) 300,000.00

USING NET METHOD

Machinery 2,700,000.00
A/P 2,700,000.00

A/P 2,700,000.00
Purchase Discount Lost 300,000.00
Cash 3,000,000.00

To record payment for the removal of old machine:

Loss on Retirement of Old Machine 50,000.00
Cash 50,000.00

Spare Parts Inventory 150,000.00

Cash 150,000.00

2 Down Payment 500,000.00

Installment Payments (4 x 1,250,000) 5,000,000.00
Total Actual Cash Payments 5,500,000.00
Cash Price 4,700,000.00
Financing Cost, Interest Expense 800,000.00

Machinery (at cash price) 4,700,000.00

Interest Expense 800,000.00
Cash 500,000.00
Notes Payable 5,000,000.00

3 No Cash Price Given

Issued a Non-interest Bearing Note
Cost = PV of all cash payments

Subsequent Payments
 Periodic Payment 500,000.00
x pfv of annuity of 1 3.17 1,585,000.00 cost of machine
Face Value of Notes Payable 2,000,000.00
Discount on Notes Payable 415,000.00

Date Payment Interest Principal CA

Yr 1 Beg 1,585,000.00
Yr 1 500,000 158,500.00 341,500.00 1,243,500.00
2 500,000 124,350.00 375,650.00 867,850.00
3 500,000 86,785.00 413,215.00 454,635.00
4 500,000 45,365.00 454,635.00 -

Machinery 1,585,000.00
Discount on Notes Payable 415,000.00
Notes Payable 2,000,000.00

Notes Payable 500,000.00

Cash 500,000.00

Interest Expense 158,500.00

Discount on Notes Payable 158,500.00

What if the first installment payment was made in advanced, i.e. at the beginning of the year?
Cost = PV of all cash payments
Periodic Payment 500,000.00
x pvf of annuity of 1 in advance (annuity due) 3.49
PV of cash payments (cost) 1,745,000.00

Face Value of NP 2,000,000.00

PV of cash payments 1,745,000.00
Discount on Notes Payable 255,000.00

Date Payment Interest Principal Balance

Yr 1, Beg 1,745,000.00
Yr1, Beg 500,000 0 500,000 1,245,000.00
Yr 2, Beg 500,000 124,500.00 375,500.00 869,500.00
Yr 3, Beg 500,000 86,950.00 413,050.00 456,450.00
Yr 4, Beg 500,000 43,550.00 456,450.00 -

4 Cost = PV of cash payments

Cash Payment at the end of 4 years 2,000,000.00
x pvf of 1 0.68
PV of cash payments 1,360,000.00
FV of NP 2,000,000.00
Discount on Notes Payable 640,000.00
Date Interest Exp CA
1/1/2019 1,360,000.00
12/31/2019 136,000.00 1,496,000.00
12/31/2020 149,600.00 1,645,600.00
12/31/2021 164,560.00 1,810,160.00
12/31/2022 189,840.00 2,000,000.00

Machinery 1,360,000.00
Discount on Notes Payable 640,000.00
Notes Payable 2,000,000.00

End of Year
Interest Expense 136,000.00
Discount on Notes Payable 136,000.00
Problem 25-5
1 Land and Building
AV Fraction Allocation
Land 1,000,000 1/4 1,500,000.00
Building 3,000,000 3/4 4,500,000.00
4,000,000 6,000,000.00

Machinery and Office Equipment

AV Fraction Allocation
Machinery 800,000 8/12 1,200,000.00
O. Eqpt 400,000 4/12 600,000.00
1,200,000 1,800,000.00

Lang 1,500,000.00
Building 4,500,000.00
Machinery 1,200,000.00
Office Equipment 600,000.00
Delivery Equipment 500,000.00
Cash 8,300,000.00

2 Acquisition of PPE in exchange for shares of stocks

Priority
1st FV of asset received
2nd FV of shares issued
3rd Par value of shares issued

Land 1,000,000.00
Building 5,000,000.00
Machinery 2,000,000.00
Share Capital (60,000 x 100) 6,000,000.00
Share Premium 2,000,000.00

What if the FV of PPE Acquired is not given?

assume the amount given represents appraised value and not fair value
Priority
1st FV of asset received x
2nd FV of shares issued 60,000 shares x 150 = 9,000,000
3rd Par value of shares issued
AV Fraction Allocation
Land 1,000,000 1/8 1,125,000.00
Building 5,000,000 5/8 5,625,000.00
Machinery2,000,000 2/8 2,250,000.00
8,000,000 9,000,000.00

Land 1,125,000.00
 Building 5,625,000.00
Machinery 2,250,000.00
Share Capital (60,000 x 100) 6,000,000.00
Share Premium 3,000,000.00

What if the FV of asset acquired and FV of shares issued are not given?
Priority
1st FV of asset received x
2nd FV of shares issued x
3rd Par value of shares issued 60,000 x 100 6,000,000.00

AV Fraction Allocation
Land 1,000,000 1/8 750,000.00
Building 5,000,000 5/8 3,750,000.00
Machinery2,000,000 2/8 1,500,000.00
8,000,000 6,000,000.00

Land 750,000.00
Building 3,750,000.00
Machinery 1,500,000.00
Share Capital (60,000 x 100) 6,000,000.00

3 Donation
Shareholder? Donated Captial SHE/SFP
Non-shareholder? Donation Income/Income from Donation Other Income /IS

Land 1,500,000.00
Income from Donation 1,500,000.00

4 Machinery (900,000 x 98% + 35,000) 917,000.00

Cash 917,000.00

5 PV of cash payments = 400,000 x .797 318,800.00

Actual cash to be paid 400,000.00
Discount on Notes Payable 81,200.00
US approach: Notes payable is recorded net of discount

Furniture and Fixtures 318,800.00 Disclosure or notes to FS:

Notes Payable 318,800.00 Notes Payable
Less: Discount on NP
Amortization of Discount:
Interest Expense 38,256.00
Notes Payable (318,800 x 12%) 38,256.00

end of year 2:
Amortization
Interest Expense 42,846.72
Notes Payable (318,800 + 38,256)x 12% 42,846.72
e or notes to FS:
400,000
ount on NP 81,200.00
318,800.00
Problem 25-8
Cost, Old 1,000,000.00
Accum Depcn 600,000.00
Carrying amount 400,000.00

Cash price without trade-in 1,400,000.00

Cash payment with trade in 980,000.00
Trade-in value of old 420,000.00

Trade in Value 420,000.00

Carrying amount 400,000.00
Gain on Exchange 20,000.00

JE:
Equipment, New 1,400,000.00
Accumulated Depreciation 600,000.00
Equipment, Old 1,000,000.00
Gain on Exchange 20,000.00
Cash 980,000.00
Problem 25-9
Cost, Old 1,500,000.00
Carrying Amount 200,000.00
Accum Depcn 1,300,000.00

Fair Value 50,000.00

Carrying Amount 200,000.00
Loss on Exchange 150,000.00

Total Cash Paid 2,680,000.00

Input Tax (300,000.00)
Insurance (120,000.00)
Taxes and Licenses (10,000.00)
Cash payment for the Car 2,250,000.00
Fair value of old 50,000.00
Cost of New 2,300,000.00

Delivery Truck, New 2,300,000.00

Input Tax 300,000.00
Insurance Expense 120,000.00
Taxes and Licenses 10,000.00
Accumulated Depreciation 1,300,000.00
Loss on Exchange 150,000.00
Delivery Truck, Old 1,500,000.00
Cash 2,680,000.00
Problem 25-10
Case 1: No overhead is assigned to the building.
Total FG Building
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 2,000,000 0
15,000,000 9,200,000 5,800,000
Fraction
Case 2: Normal production 180,000
Current Production 135,000 FG 135/180
Units not produced due to construction of building 45,000 B 45/180

Total FG Building
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 1,500,000 500,000.00
15,000,000 8,700,000 6,300,000

Case 3: Overhead is to be apportioned in the ratio of Direct Labor

DL Fraction Allocation
FG 4.2M 4.2/6 1,400,000.00
B 1.8M 1.8/6 600,000.00
6M 2,000,000.00

Total FG Building
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 1,400,000 600,000.00
15,000,000 8,600,000 6,400,000
Allocation

1,500,000.00
500,000.00
2,000,000.00
Problem 25-11:
Case 1: OH for FG = 75% of DL
75% x 4,000,000
3,000,000

OH for M = Total OH - OH for FG

3,600,000 - 3,000,000
600,000

Total FG M
Materials 3,500,000 3,000,000 500,000
DL 5,000,000 4,000,000 1,000,000
OH 3,600,000 3,000,000 600,000
Total 12,100,000 10,000,000 2,100,000

Case 2: Mfg and Construction Activitiess are to be charged using same rate
Direct Labor Rate
DL Fraction Allocation
FG 4,000,000 4/5 2,880,000.00
M 1,000,000 1/5 720,000.00
5,000,000 3,600,000.00

Total FG M
Materials 3,500,000 3,000,000 500,000
DL 5,000,000 4,000,000 1,000,000
OH 3,600,000 2,880,000.00 720,000.00
Total 12,100,000 9,880,000 2,220,000

MOH as
% of DL 72% 72% 72%