INTANGIBLES:

Problem 1:
On January 3, 2012, the Jazz Company spent P480,000 to apply for and obtain a patent on a
newly developed product.   The patent had an estimated useful life of 10 years.   At the
beginning of 2016, the company spent P90,000 in successfully prosecuting an attempted
infringement of the patent.   At the beginning of 2017, the company incurred additional costs of
P200,000.  It is expected that future economic benefits will flow to the enterprise because of this
expenditure through cost savings and the asset’s use is estimated to be extended by additional 5
years.   On July 1, 2020, a competitor obtained rights to a patent which made the company’s
patents obsolete. 
a. How much is the patent amortization for the year 2016?
480,000/10= 48,000
b. How much is the patent amortization for the year 2017?
CA: 480000 X5/10=240,000 +200,000=440000/5+5= 44,000
c. How much is the loss on patent obsolescence recognized in the year 2020?
CA=440,000-(44,000* 3.5YEARS)= 286,000
 
Problem 2:
Transactions during 2020 of the newly organized Jazz Corporation included the following:

 Patented a newly developed process. Legal fees to obtain the patent amounted to
P60,000 while patent application and licensing fees were P25,000.
 Acquired both a license to sell a special type of product and a distinctive trademark to
be printed on the product for a total of P150,000. The license is worth twice as much
as the trademark.
 Constructed a shed for P200,000 to house prototypes and experimental models to be
developed in future research projects.
 Incurred salaries for an engineer and chemist involved in product development
totaling P220,000 in 2020.       

What is the total cost to be capitalized as intangible assets?

455,000

 Problem 3:
During 2020, Jazz Corporation incurred costs to develop and produce a routine, low-risk
computer software product, as follows:
                  Completion of detailed program design                                                 P  
130,000                                                      
                  Costs incurred for coding and testing to establish technological 
                           feasibility                                                                                                100,000
                  Other coding costs after establishment of technological feasibility          240,000
                  Other testing costs after establishment of technological feasibility          200,000
                  Cost of producing product masters for training materials                           150,000
                  Duplication of computer software and training materials from
                       product masters(1,000 units)                                                                     250,000
                  Packaging product (500 units)                                                                           90,000
        
a. In Jazz’s December 31, 2020 statement of financial position, what amount should be reported
in inventory?
240+ 200+150= 590,000
b. In Jazz’s December 31, 2020 statement of financial position, what amount should be
capitalized as software cost, subject to amortization?
250+90= 340,000

1. The AAA Company’s accounts payable balance on December 31, 2020 was 540,000
before the year-end adjustment relating to the following information:


o Goods with an invoice cost of 30,000 were in transit from the vendor to
AAA on December 31, 2020. The goods were shipped FOB shipping
point on December 29, 2020 and were received on January 3, 2018.
o Goods with an invoice cost of 15,000, which were shipped FOB shipping
point on December 22, 2020, from a vendor to AAA, were lost in transit.
On January 4, 2021, AAA filed a 15,000 claim against the transportation
company.
o Goods with an invoice cost of 9,000 which were shipped FOB destination
from a vendor to AAA were received on January 5, 2021.
What amount should AAA report as accounts payable on its balance sheet as of December 31,
2020?
540+ 30+15= 585,000
 
2. On December 31, 2020, BBB Co. issued a 100,000 face value notes payable to CCC, Inc. in
exchange for services rendered to BBB. The note made at usual trade terms, is due in nine
months and bears interest payable at maturity, at the annual rate of 3%. The market interest rate
is 8%. The compound interest factor of 1 due in nine months at 8% is 0.944.
At what amount should the notes payable be reported in BBB’s December 31, 2020 balance
sheet?
100k*.944= 94400
 
3. The effective interest on a 12-month zero-interest-bearing note payable of 300,000, discounted
at the bank at 10% is –
30/(300-30)= 11.11%

4. During 2020, CCC became involved in a tax dispute with the BIR. On December 31, 2020,
CCC’s tax advisor believed that an unfavorable outcome was probable, and a reasonable estimate
of additional taxes was 500,000 but could be as much as 650,000. After the 2020 financial
statements were issued, CCC received and accepted a BIR settlement offer of 550,000.
What amount of accrued liability would CCC have reported in its December 31, 2020 balance
sheet?
500,000
5. Use the information give in #4. Assume that the company accepted the BIR settlement offer of
550,000 before the 2020 financial statements were issued. What amount of accrued liability
would CCC have reported in its December 31, 2020 balance sheet?
550,000
6. DDD company’s salaried employees are paid biweekly. Occasionally, advances made to
employees are paid back by payroll deductions. Information relating to salaries for the calendar
year 2020 is as follows:
                                                    12/31/19        12/31/20
Employee advances                     12,000          18,000
Accrued salaries payable              65,000          ?
Salaries expense during the year                      815,000
Salaries paid during the year (gross)                 780,000
 
On December 31, 2020, what amount should DDD report for accrued salaries payable?
Beg, payable 65000
Expense 815,000
Less: paid ( 780,000)
100,000

7. EEE, Inc. operates a retail store and must determine the proper December 31, 2020, yearend
accrual for the following expenses:
- The store lease calls for fixed rent of 12,000 per month, payable at the beginning of the month,
and additional rent equal to 6% of sales over 2,500,000 per calendar year, payable on January 31
of the following year. Net sales for 2020 are 4,500,000.
- An electric bill of 8,500 covering the period 12/16/20 through 1/15/21 was received January 22,
2021.
- A 4,000 telephone bill was received January 7, 2021, covering:
     Service in advance for January 2020        1,500
     Local and toll calls for December 2020      2,500
 
In its December 31, 2020 balance sheet, EEE should report accrued liabilities of –
6% x (4500-2500m)= 120000
8500/2= 4250
2500
126,750

8. FFF Company sells contracts agreeing to service equipment for a three-year period.
Information for the year ended December 31, 2020 is as follows:
 
Cash receipts from service contracts sold        960,000
Service contract revenue recognized                780,000
Unearned service contract revenue 1/1/20     540,000
 
In its December 31, 2020 balance sheet, what amount should FFF report as unearned service
contract revenue?
960,000-780,000= 180,000+540000= 720,000

This assignment was locked Feb 2 at 6pm.

1. On December 31, 2020, Jazz Company shows the following data with respect to its
matured obligation:

 
Notes payable                                                             5,000,000
Accrued interest payable                                            500,000
 
The company is threatened with a court suit if it could not pay its maturing debt. Accordingly,
the company enters into an agreement with the creditor for the transfer of a non-cash asset in full
settlement of the mortgage. The agreement provides for the transfer of real estate carried in the
books of Jazz at 3,000,000. The real estate has current fair market value of 4,500,000.  What is
the gain on disposal of real estate that Jazz recognizes because of the debt restructuring?
5500000-500000= 2500,000
 
2. On December 31, 2020, Jazz Corporation is experiencing extreme financial pressure and is in
default in meeting interest payment on its long-term note of 6,000,000 due on December 31,
2021. The interest rate is 10% payable every December 31.
In agreement with the creditor, Jazz Corporation obtained the following changes in the terms of
the note.

 The accrued interest of 600,000 on December 31, 2020 is forgiven.

 The principal is reduced by 1,000,000.
 The new interest rare is 8%
 The new date of maturity is December 31, 2025.

New Fa= 5,000,000x .6209= 3104500

New interest= 400000x3.7908=1516320

4620820

What is Jazz Corporation’s net book value of the notes payable after the restructuring?
 
3. Jazz Company has an overdue Notes Payable to Baguio City Bank of 8,000,000 and recorded
accrued interest of 640,000, based on 8% interest rate.
As a result of a settlement on December 31, 2020, Baguio City Bank agreement to the following
restructuring agreement:

 Reduced the principal obligation to 6,000,000.

 Forgave the 640,000 accrued interest.
 Extended the maturity date to December 31, 2022.
 Annual interest of 10% is to be paid on December 31, 2021 and 2022.

What is Jazz Company’s discount/premium on notes payable?

 
4. Jazz Company has an overdue Notes Payable to City Bank of P8,000,000 and recorded
accrued interest of P500,000. As a result of a settlement on December 31, 2020, City Bank
agreed to the following restructuring arrangement:

 Reduced the principal obligation to P6,000,000.

 Forgave the P500,000 accrued interest.
 Extend the maturity date to December 31, 2022.
 Annual interest of 10% is to be paid on December 31, 2021 and 2022.

What is Jazz Company’s gain on debt restructuring? (use 2 decimal places)

 
5. Jazz Company has an overdue Notes Payable to City Bank of P8,000,000 and recorded
accrued interest of P500,000. As a result of a settlement on December 31, 2020, City Bank
agreed to the following restructuring arrangement:

 Reduced the principal obligation to P7,500,000.

 Forgave the P500,000 accrued interest.
 Extend the maturity date to December 31, 2022.
 Annual interest of 10% is to be paid on December 31, 2021 and 2022.

 What is Jazz Company’s gain on debt restructuring? (use 2 decimal places)