PROBLEM NO.

1 - Indigo Company
Question no. 1 - C
Selling price, net 10,000
Less dismantling cost 4,000
Net selling price 6,000
Less book value of machine no. 3:
Cost 80,000
Accumulated dep. (80,000 x 10% x 4) 32,000 48,000
Loss on sale of machine no. 3 42,000
Question no. 2 - C
Machinery account
Unadjusted balance, Dec. 31 644,000
Add (deduct) adjustments:
Understatement in crediting machinery account
upon sale of machine no. 3 on Sept. 1:
Cost 80,000
Amount credited 10,000 (70,000)
Dismantling cost of machine no. 3 (4,000)
Installation cost of machine no. 23 35,000
Adjusted balance of equipment account 605,000
Question no. 3 - B
Depreciation expense (P605,000 x 10%) 60,500
Question no. 4 - A
Accumulated Depreciation
Unadjusted balance, Dec. 31 344,400
Add (deduct) adjustments:
Accumulated depreciation of machine no. 3 (80,000 x 10% x 4) (32,000)
Overstatement of depreciation expense
Should be (605,000 x 10%) 60,500
As recorded 64,400 (3,900)
Adjusted balance of accumulated depreciation account 308,500
Question no. 5 - C
Loss on sale of machine 42,000
Accumulated depreciation 32,000
Machinery 74,000
To correct recording of sale of machine no. 3

PROBLEM NO. 3 - Matador Corporation

Question No. 1 - B
Cost of building A (P820,000 x 810/900) 738,000

Question No. 2 - A
Fair value of common stock (2,500 x P30) 75,000
Demolition costs 16,000
Cost of Land B 91,000

Question No. 3 - D
Down payment 5,740
Add present value of installment payments (P6,000 x 7.710) 46,260
Cost of Machine B 52,000
Question No. 4 - C
Building A (same in 2004 since it is straight-line depreciation) 17,450
Building B (under construction) -
Donated equipment (P25,500* x 1/10 x 1.5) 3,825
Machine A [(P150,000 - P6,000) x 7/36 x 4/12] 9,333
Machine B (P52,000/20) 2,600
Total deprection expense 33,208
* P30,000 - (P30,000 x 1/10 x 1.5)
PROBLEM NO. 2 - Olive Corporation
Question No. 1 - B
Acquisition cost 1,800,000
Real estate broker's commission 108,000
Legal fees 18,000
Title guarantee insurance 54,000
Cost of razing the existing building 225,000
2,205,000
Question No. 2 - B
Fixed-price contract cost 9,000,000
Plans, specifications and blueprints 36,000
Architect's fees and design supervision 285,000
Capitalizable borrowing cost:
Mar. 1 to Dec. 31, 2004 (P2,700,000 x 14% x 10/12) 315,000
Jan. 1 to Sept. 30, 2005 (P6,900,000 x 14% x 9/12) 724,500 1,039,500
10,360,500
Question No. 3 - C
Depreciation expense [P10,360,500 x (1/40 x 1.5) x 3/12] 97,130
PROBLEM NO. 4 - Teal Corporation

1 C
Cash received 2,480,000
Cost 3,200,000
Loss on condemnation of land (720,000)

2 D
None. The demolition proceeds will be deducted from the cost of the land.

3 A
Insurance proceeds 5,920,000
Carrying value (P5,600,000 - P880,000) 4,720,000
Gain on insurance policy settlement 1,200,000

4 B
Fair value of old machine 576,000
Carrying value (P640,000 - P256,000) 384,000
Gain on exchange 192,000
5 B
Sales proceeds 376,000
Carrying value (P800,000 - P380,000) 420,000
Loss on sale (44,000)

PROBLEM NO. 5 - Gold Mines Company

Question no. 1 - C

Purchase price allocated to copper ore 19,440,000

Divide by estimated copper ore reserves 6,480,000
Depletion rate per ton 3.00

Depletion expense per audit for 2005 (60,000 tons x P3 x 6) 1,080,000

Depletion expense per books for 2005 1,620,000
Overstatement of depletion expense 540,000

Question no. 2 - A

Cost of machinery 2,400,000

Less residual value 240,000
Depreciable cost 2,160,000
Divide by estimated copper ore reserves 6,480,000
Depreciation rate 0.33

Depreciation expense per audit for 2005 (60,000 tons x P0.33 x 6) 120,000
Depreciation expense per books for 2005 160,000
Overstatement of depreciation expense 40,000