PROBLEM 1 – PROPERTY, PLANT AND EQUIPMENT (20 PTS)

January 1, 2017, an entity disclosed the following balances:

Land 4,000,000
Land improvements 1,300,000
Buildings 20,000,000
Machinery and equipment 8,000,000

During the current year, the following transactions occurred:

* A tract of land was acquired for P2,000,000 cash as a building site.
* A plant facility consisting of land and building was acquired in exchange for 200,000 shares of
the entity. On the acquisition date, each share had a quoted price of P45 on a stock exchange.
The plant facility was carried on the seller’s books at P1,600,000 for land and P5,400,000 for
the building at the exchange date. Current appraised values for the land and the building,
respectively, are P2,000,000 and P8,000,000. The building has an expected life of forty years
with a P200, 000 residual value.
* Items of machinery and equipment were purchased at a total cost of P4,000,000. Additional
costs incurred were freight and unloading P100,000 and installation P300,000. The equipment
has a useful life of ten years with no residual value.
* Expenditures totalling P1,200,000 were made for new parking lot, street and sidewalk at the
entity’s various plant locations. These expenditures had an estimated useful life of fifteen years.
* Research and development costs were P1,100,000 for the year.
* A machine costing P200,000 on January 1, 2010 was scrapped on June 30, 2017. Straight line
depreciation had been recorded on the basis of a 10-year life with no residual value.
* A machine was sold for P500,000 on July 1, 2017. Original cost of the machine sold was
P700,000 on January 1, 2014, and it was depreciated on the straight line basis over an
estimated useful life of eight years and a residual value of P50,000.

1. What is the total cost of land on December 31, 2017?

a. 7,800,000
b. 7,600,000
c. 8,000,000
d. 6,800,000
Solution:
Land – January 1 P4,000,000
Land acquired for cash. P2,000,000
Land acquired by issuing shares (2/10 . 9,000,000) = P1,800,000

Current appraised value:

Land P2,000,000
Building P8,000,000
TOTAL P10,000,000

2. What is the total cost of land improvements on December 31, 2017?

a. 1,200,000
b. 3,600,000
c. 1,300,000
d. 2,500,000
Solution:
Land improvements - January 1 P1,300,000
Expenditures for a new parking lot, street and sidewalk. P1,200,000
TOTAL P2,500,000

3. What is the total cost of buildings on December 31, 2017?

a. 28,000,000
b. 25,400,000
c. 27,200,000
d. 27,000,000
Solution:
Plant Facility Building

4. What is total cost of machinery and equipment on December 31, 2017?

a. 12,400,000
b. 11,500,000
c. 11,000,000
d. 11,700,000
Solution
Machinery and equipment were purchased. P4,000,000
Additional costs P100,000
Installation P300,000

PROBLEM 2 (5 PTS)
Sander Company purchased a cargo truck on July 1, 2010 for P100,000. It has an estimated
P25,000 residual value on December 31, 2017. What is the depreciation expense relating to the
cargo truck for the years 2010 and 2011? Give the entry in recognizing depreciation expenses
for 2010 and 2011.
Solution
COST OF THE PPE P100,000
EST. RESIDUAL VALUE P25,000
ESTIMATED USEFUL LIFE 1
100,000-25,000=75,000
75,000/1=75,000
Depreciation Expense P75,000

PROBLEM 3 (5 PTS)
Anmary Biscuits Company owns a factory equipment which was originally purchased January 1,
2012 for P175,000. The company’s adjusted trial balance shows accumulated depreciation of
P75,000 for the said equipment. It is determined, however, that the equipment will only be used
up to December 31, 2019, by which time, it can be sold to a secondhand equipment dealer.
How much is the estimated sales value of the equipment on December 31, 2019?
Solution:
COST OF THE PPE P175,000
EST. RESIDUAL VALUE P75,000
ESTIMATED USEFUL LIFE 7
175,000-75,000=100,000
100,000/7=14,285.71
Depreciation Expense P14,285.71
PROBLEM 4 (5 PTS)
Beginning allowance for doubtful accounts for Sunflower Company is P5,000. During the year,
P2,000 was written off. At the end of the year, a bad debts expense of P7,500 was recorded.
How much is the ending balance of the allowance for doubtful accounts? Give the necessary
entries.
Solution:
Allowance for Doubtful Accounts P5,000
Written off P2,000
Bad Debt P7,500
TOTAL P14,500

PROBLEM 5 (5 PTS)
In the unadjusted trial balance of the Ordine Company, the net carrying value of the P30,000
accounts receivable is P28,000. This is due to the expected default of some customers in their
payments the following year. However, at year-end, it is estimated that only 80% of the
accounts receivable are expected to be paid. Give the journal entry to record bad debts
expense.
Solution:
Bad Debts P 22,500
Accumulated for Doubtful Accounts P22,500
80% of 28,000 is 22,400
COMPREHENSIVE PROBLEM (30 PTS)

Unadjusted Trial Balance of Summa Cum Laude Company

Fianancial Statement

Income
Unearned Rent Revenue P100,000
Rent Revenue P25,000,000
Gain on Disposal of Equipment P 500,000
Total P25,600,000

Expenses
Administrative Expense P40,000
Advertising Expense P80,000
Salaries and Wages Expense P800,000
Maintenance and Repairs Expense P350,000
Utility Expense P550,000
Insurance Expense P60,000
Total P1,880,000

PROFIT P23,720,000