Quiz - M2.5G POST-TEST May Sagot

16/12/2020 Quiz: M2.
5G POST-TEST
M2.5G POST-TEST
Started: Dec 15 at 8:45pm
Quiz Instructions
For journal entries, input figures by separating them by comma. For the rest, select the best answer from
the dropdown options.
Question 1 20 pts
Which is a major characteristic of property, plant and equipment?

Expected to be used for one
An item of property, plant and equipment shall be recognized as an asset when

It is probable that future econ
Major spare parts and standby equipment which are expected to be used for one
year or less should be classified as Inventory
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16/12/2020 Quiz: M2.5G POST-TEST
The cost of an item of property, plant and equipment comprises its purchase
price, including import duties and non-refundable purchase taxes and
All directly attributable costs n
An entity installed a new production facility and incurred a number of expenses at

the point of installation. The entity’s accountant is arguing that most expenses do
not qualify for capitalization. Included in those expenses are initial operating
losses. These should be Capitalized as part of the cos
Which of the following terms best describes the removal of an asset from the
statement of financial position? Impairment
Which exchange has commercial substance? Exchange of assets with a dif
Which should not be considered qualifying assets for purposes of capitalization of
borrowing cost? Power generation facilities.
What is the acceptable approach in accounting for government grants?

Government grants should be
An entity purchased a certain plant asset under a deferred payment contract. The
agreement was to pay P 10,000 per year for five years. The plant assets should
be valued at Present value of P 10,000 an
The term “betterment” refers to An expenditure made to impr
An improvement made to a machine increased its fair market value and its
production capacity by 25% without extending the machine’s useful life. The cost
of the improvement should be Capitalized in the Machine ac
Which of the following expenditures may properly be capitalized?

Research and development r
It is the systematic allocation of the depreciable amount of an item of property,
plant and equipment. Depreciation
The useful life of an item of property, plant and equipment should be reviewed
periodically and if expectations are significantly different from previous estimates,
the depreciation charge for Current and future periods sh
The depreciation method applied to property, plant and equipment shall be

reviewed periodically, and if there has been a significant change in the expected
pattern of consumption of economic benefits from the assets, the change
Shall not be recognized.
Which of the following depreciation methods is not appropriate for situations

involving large number of similar items, each having a small peso amount?
Inventory Method
Question 2 14 pts
PROBLEM 1
On October 1, 2020, ABC Corporation purchased land and building at a basket price
of P 30,000,000. A check was issued upon receipt of the land title. At the time of
acquisition, the relative fair values of land and building are P 12,000,000 and
24,000,000, respectively.
1. What would be the journal entry to record the acquisition?
Account Names Debit Credit
Land 12,000
Building 24,000
Cash 36,000
PROBLEM 2
On October 1, 2020, Hello Company purchased equipment and furniture at a total

cost of P 100,000. The relative sales values of these two properties at acquisition
date are P 75,000 and P 50,000, respectively. Inward related costs paid by entity was
P 20,000. Term of purchase is 3/10, n/90.
1. What would be the journal entry to record the acquisition?
Account Names Debit Credit
Equipment [(P 100,000 x 97%) +20,000] 70,200

x75/125
Furniture [(P 100,000 x 97%) +20,000] 46,800

x50/125
Accounts Payable (100,000 x 97%) 97,000
Cash
20,000
PROBLEM 3
On July 1, 2020, Manuel Corporation purchased machinery worth P 8,000,000.

Terms: P 500,000 down payment, the balance on three equal annual payments every
July 1 of each year. The cash price of the machinery is P 6,000,000. A promissory
note is issued for the installment balance.
Required:
1. What would be the journal entry to record the acquisition of machinery?
Date Account Names Debit Credit
7/1/2020 Machinery 8,000,000
Discount on Notes Payable 2,000,000
Notes Payable 7,500,000
Cash 2,500,000
2. What would be the journal entries to record the amortization at December 31,
2020?
12/31/20 Interest Expense 482,350
Discount on Notes Payable 482,350
PROBLEM 5 (Adapted from Auditing Textbook)
On January 1, 2020, Marcus Company acquired a machinery with a fair value of P

1,900,000 by issuing a 4-year, 12%, P 2,000,000 bonds. Principal is due on
December 31, 2023 but the interest is due annually at the end of each year. The
prevailing market rate of interest for a similar instrument on January 1, 2020 is 14%.
The present value of the future cash flows from the bonds discounted at 10% is P
2,126,776.
1. What would be the journal entries to record the amortization at December 31,
2020?
2,126,776
1/1/2020 Machinery (at present value)
2,126,776
126,776
Premium on Bonds Payable
126,776
2,000,000
Bonds Payable
2,000,000
On December 15, 2020, Tenorio Company amd Jason Company exchanged

equipment. The following data are available on the exchange. The exchange is with
commercial substance,
Tenorio Jason
Equipment (cost) 500,000 300,000
Accumulated Depreciation 300,000 50,000
Fair value of Equipment 180,000 220,000
Cash paid by Tenorio to Jason 40,000 40,000
1. What is the journal entry to record the transaction in the books of Tenorio?
12/15/2020 Equipment - new 180,000
Accumulated Depreciation 300,000
Loss on Exchange 320,000
Equipment - old 500,000
Cash 300,000
2. What is the journal entry to record transaction in the books of Jason?
12/15/2020 Equipment - new 220,000
Accumulated Depreciation 50,000
Loss on Exchange 10,000
Cash 40,000
Equipment - old 300,000
Question 3 36 pts
PROBLEM 3
On July 1, 2020, Manuel Corporation purchased machinery worth P 8,000,000.

Terms: P 500,000 down payment, the balance on three equal annual payments every
July 1 of each year. The cash price of the machinery is P 6,000,000. A promissory
note is issued for the installment balance.
1. What is the carrying amount of machinery at December 31, 2020?

7,500,000
Chot acquired a tract of land with an existing building in exchange for 20,000 ordinary
shares of P 10 par value with a market price of P 20 per share on the date of
acquisition. The last tax bill assessed value of P 200,000 for the land and P 120,000
for the building. However, the land has a fair value of P 550,000 and the building has
no determinable fair value. Shortly, after acquisition, the building was razed at a cost
of P 9,000 in anticipation of a new building construction.
1. What is the cost assigned to land? 559,000
2. Assuming the fair value of the land is not available, what would be the cost of the
land? 550,000
On December 15, 2020, Tenorio Company amd Jason Company exchanged

equipment. The following data are available on the exchange.
Tenorio Jason
Equipment (cost) 500,000 300,000
Accumulated Depreciation 300,000 50,000
Fair value of Equipment 180,000 220,000
Cash paid by Tenorio to Jason 40,000 40,000
1. How much should Tenorio record the asset? 220,000
2. How much should Jason record the asset? 250,000
PROBLEM 7 (Adapted)
Brave Company carried out a number of transactions involving the acquisition of

several assets. All expenditures were recorded in the following single asset account,
identified as Property and equipment:
Property and equipment
Acquisition price of land and building 960,000
Options taken out on several pieces of property 16,000
List price of machinery purchased 318,400
Freight on machinery purchased 5,000
Repair to machinery resulting from damage during

1,480
shipment
Cost of removing old machinery 4,800
Driveways and sidewalks 102,000
Building remodeling 400,000
Utilities paid since acquisition of building 20,800
1,828,480
Based on property tax assessments, which are believed to fairly represent the
relative values involved, the building is worth twice as much as the land. The
machinery was subject to a 2% cash discount, which was taken and credited to
Purchases Discounts. Of the two options, P 6,000 is related to the building and land
purchased and P 10,000 related to those not purchased. The old machinery was sold
at book value.
QUESTIONS:
Based on the above and the result of your audit, determine the adjusted balance of
the following:
1. Land 322,000
2. Building 1,044,000
3. Machinery 323,400
PROBLEM 8 (Adapted)
The following items relate to the acquisition of a new machine by Bongabon

Corporation in 2020:
Invoice price of machinery P 2,000,000
Cash discount not taken 40,000
Freight on new machine 10,000
Cost of removing the old machine 12,000
Loss on disposal of the old machine 150,000
Gratuity paid to operator of the old machine who was laid off 70,000
Installation cost of new machine 60,000
Repair cost of new machine damaged in the process of installation 8,000
Testing costs before machine was put into regular operation 15,000
Salary of engineer for the duration of the trial run 40,000
Operating cost during first month of regular use 250,000
Cash allowance granted because the new machine proved to be of

100,000
inferior quality
1. How much should be recognized as cost of the new machine?

1,930,000
PROBLEM 9 (Adapted)
On July 1, 2020, Drenz Company purchased land and incurred other costs relative to
the construction of a new warehouse. A summary of economic activities is listed
below.
Purchase price 925,000
Title insurance 7,500
Legal fees to purchase land 5,000
Cost of razing old building on lot 42,500
Proceeds from sale of salvageable materials 6,000
Property taxes, January 1, 2019 to June 30, 2019 15,000
Cost of grading and filling building site 45,000
Cost of building construction 3,100,000
Interest in construction loan 60,000
Cost of constructing driveway 400,000
Cost of parking lot and fencing 60,000
Based on the above data, determine the cost of the following:
1. Land 1,034,000
2. Building 3,160,000
3. Land Improvements 460,000
PROBLEM 10
On January 1, 2020, ABC Company obtained a loan of P 4,000,000 at an interest

rate of 10% specifically to finance the construction of its new building. Availments
from the loan were made quarterly in unequal amounts. Total borrowing cost
amounted to P 250,000. Prior to their disbursements, the proceeds of the loan were
temporarily invested and earned interest income amounting to P 40,000. The building
was completed on December 31, 2020.
1. The amount of capitalizable borrowing costs is 250,000
PROBLEM 11
Frey Company purchased a machine for P 4,500,000 on January 1, 2020. The

machine has an estimated useful life of four years and a residual value of P 500,000.
The machine is depreciated using the SYD.
1. The December 31, 2021 asset balance, net of accumulated depreciation, should
be: 2,700,000
PROBLEM 12
Bergen Company purchased factory equipment which was installed and put into
service January 1, 2019 at a total cost of P 1,280,000. Residual value was estimated
at P 80,000. The equipment is being depreciated over eight years by the double
declining balance method.
1. For the year 2020, how much depreciation expense should be recorded on the
equipment? 240,000
PROBLEM 15
During 2020, Dual Company incurred P 4,000,000 in exploration cost for each of 15
oil wells drilled in 2020.
Of the 15 wells drilled, 10 were dry holes. The entity used the successful effort
method of accounting. The entity depleted 30% of the oil discovered in 2020.
What amount of exploration cost should be reported in the December 31, 2020
statement of financial position? 14,000,000
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16/12/2020 Quiz: M2.

Which is a major characteristic of property, plant and equipment?

An item of property, plant and equipment shall be recognized as an asset when

year or less should be classified as Inventory

An entity installed a new production facility and incurred a number of expenses at

losses. These should be Capitalized as part of the cos

statement of financial position? Impairment

Which exchange has commercial substance? Exchange of assets with a dif

Which should not be considered qualifying assets for purposes of capitalization of

borrowing cost? Power generation facilities.

What is the acceptable approach in accounting for government grants?

be valued at Present value of P 10,000 an

The term “betterment” refers to An expenditure made to impr

of the improvement should be Capitalized in the Machine ac

Which of the following expenditures may properly be capitalized?

It is the systematic allocation of the depreciable amount of an item of property,

plant and equipment. Depreciation

the depreciation charge for Current and future periods sh

The depreciation method applied to property, plant and equipment shall be

Which of the following depreciation methods is not appropriate for situations

1. What would be the journal entry to record the acquisition?

Account Names Debit Credit

On October 1, 2020, Hello Company purchased equipment and furniture at a total

1. What would be the journal entry to record the acquisition?

Account Names Debit Credit

Equipment [(P 100,000 x 97%) +20,000] 70,200

Furniture [(P 100,000 x 97%) +20,000] 46,800

Accounts Payable (100,000 x 97%) 97,000

On July 1, 2020, Manuel Corporation purchased machinery worth P 8,000,000.

1. What would be the journal entry to record the acquisition of machinery?

Date Account Names Debit Credit

7/1/2020 Machinery 8,000,000

Discount on Notes Payable 2,000,000

Notes Payable 7,500,000

Date Account Names Debit Credit

12/31/20 Interest Expense 482,350

Discount on Notes Payable 482,350

PROBLEM 5 (Adapted from Auditing Textbook)

On January 1, 2020, Marcus Company acquired a machinery with a fair value of P

Date Account Names Debit Credit

PROBLEM 6 (Adapted from Auditing Textbook)

On December 15, 2020, Tenorio Company amd Jason Company exchanged

Equipment (cost) 500,000 300,000

Accumulated Depreciation 300,000 50,000

Fair value of Equipment 180,000 220,000

Cash paid by Tenorio to Jason 40,000 40,000

Date Account Names Debit Credit

12/15/2020 Equipment - new 180,000

Accumulated Depreciation 300,000

Loss on Exchange 320,000

Equipment - old 500,000

2. What is the journal entry to record transaction in the books of Jason?

Date Account Names Debit Credit

12/15/2020 Equipment - new 220,000

Accumulated Depreciation 50,000

Loss on Exchange 10,000

Equipment - old 300,000

On July 1, 2020, Manuel Corporation purchased machinery worth P 8,000,000.

1. What is the carrying amount of machinery at December 31, 2020?

PROBLEM 4 (Adapted from Auditing Textbook)

1. What is the cost assigned to land? 559,000

PROBLEM 6 (Adapted from Auditing Textbook)

On December 15, 2020, Tenorio Company amd Jason Company exchanged