Financial Accounting and Reporting

PROPERTY PLANT & EQUIPMENT

1.) In October of the current year, Everest Company exchanged an old packing
machine, which cost P1,200,000 and was 50% depreciated, for another used
machine and paid a cash difference of P160,000. The fair value of the old
packaging machine was determined to be P700,000.

What is the cost of the machine acquired in the exchange on the books of Everest
Company?
A. P860,000 C. P760,000
B. P700,000 D. P540,000

On December 31, 2010, the property, plant and equipment account of Pure
Company includes the details below:

Plant assets acquired from Zip Company P7,500,000

Repairs made on building prior to occupancy 200,000
Special Tax assessment 30,000
Construction of platform for machinery 70,000
Remodeling of office space in building including new partitions
and walls 400,000
Purchase of new machinery 800,000

Total property, plant and equipment P9,000,000

In exchange for the plant assets of Zip company, Pure Company issued 50,000
shares with P100 par value. On the date of purchase, the share had a quoted price
of P150 and the plant assets had the following fair value:
Land P 500,000
Building 4,000,000
Machinery 1,500,000

2. The Land should be reported at

A. P530,000 C. P625,000
B P500,000 D. P655,000
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 Financial Accounting and Reporting

3. The building should be reported at

A. P4,400,000 C. P5,600,000
B. P4,600,000 D. P5,400,000

4. The machinery should be reported at

A. P2,300,000 C. P2,370,000
B. P2,675,000 D. P2,745,000

5. Coco Company commenced construction of a new plant on February 1, 2010.

The cost of P18,000,000 was funded from existing general borrowings. The
construction was completed on September 30,2009. Coco Company’s borrowings
during 2009 comprised of the following:
Bank A - 6% P 8,000,000
Bank B - 6.6% 10,000,000
Bank C - 7% 30,000,000

What is the amount of borrowing costs that should be capitalized in relation to the
plant?
A. P1,215,000 C. P911,250
B. P 810,000 D. P 0

6. Pacific Company’s depreciation policy on machinery is as follows:

 A full year’s depreciation is taken in the year of an asset’s acquisition.

 No depreciation is taken in the year of an asset’s disposition.
 The estimated useful life is five years.
 The straight line method is used.

On June 30, 2010, Pacific sold for P2,300,000 a machine acquired in 2007
for P4,200,000. The estimated residual value was P600,000.

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How much gain on the disposal should Pacific record in 2010?

A. P140,000 C. P620,000
B. P260,000 D. P980,000

7. Hills Company provided the following information with respect to its building.

 The building was acquired January 1, 2005 at a cost of P7,800,000 with

an estimated useful life of 40 years and residual value of P200,000.
Yearly depreciation was computed on the straight line method.
 The building was renovated on January 1, 2007 at a cost of P760,000.
This was considered as improvement. Residual value did not change.
 On January 1, 2010, the management decided to change the total life
of the building to 30 years.

What is the depreciation of the building for 2010?

A. P292,400 C. P334,400
B. P266,000 D. P294,000

8.Euro Company purchased a machine for P4,500,000 on January 1, 2009. The

machine has an estimated useful life of four years and a residual value of
P500,000. The machine is being depreciated using the sum of the year’s digits
method.

The December 31, 2010 asset balance, net of accumulated depreciation, should be
A. P2,900,000 C. P1,700,000
B. P2,700,000 D. P1,350,000

9. On July 1, 2009, Dagupan Company purchased factory equipment for P5,000,000.

Residual value was estimated at P20,000. The equipment is depreciated over ten
years using the double declining balance method.

Counting the year of acquisition as one half year, Dagupan should record
depreciation expense for 2010 at
A. P1,000,000 C. P768,000
B. P 900,000 D. P960,000
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10. In January 2009, Nova Company purchased equipment at a cost of P6,000,000

to be used in its manufacturing operations. The equipment was estimated to have a
useful life of eight years with residual value estimated at P600,000. Nova
considered various methods of depreciation and selected the sum of years’ digits
method.
On December 31,2010, the accumulated depreciation should have a balance of
A. P750,000 less than under the straight line method
B. P750,000 less than under the double declining balance method
C. P900,000 greater than under the straight line method
D. P900,000 greater than under the double declining balance method

11. Jazz Company acquired land and paid for it in full by issuing P600,000 of its 10
percent bonds payable and 40,000 shares of its common stock, par P10. The stock
was selling at P19 per share and the bonds were trading at 102. What amount
should Jazz record as the cost of the land?
a. P988,000 b. P1,000,000 c. P1,372,000 d. P1,387,200

12. Jazz Company purchased land with a current market value of P240,000. Its book
value in the accounts of the seller was P130,500. In exchange for the land, Jazz
issued 20,000 shares of its common stock, par P10, with an estimated market value
of P14 per share. Jazz stock is not traded on an established stock exchange. What
amount should Jazz record as the cost of the land?
a. P130,500 b.P200,000 c. P240,000 d.P280,000

13. The third year of a construction project began with a P30,000 balance in
..Construction in Progress. Included in that figure is P6,000 of interest capitalized in
the first two years. Construction expenditures during the third year were P80,000
which were incurred evenly throughout the entire year. The company has had over
P300,000 in interest-bearing debt outstanding the third year, at a weighted average
rate of 9 percent. How much interest for the third year is capitalized?
a. P3,600 b. P6,300 c. P9,360 d. P9,900

14. During the year just ended, Morton Company made the following
expenditures relating to its plant building:

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 Financial Accounting and Reporting

Continuing and frequent

repairs............................................................................................ P160,000
Repainted the plant
building.................................................................................................. 40,000
Major improvements to the electrical wiring
system............................................................. 128,000
Partial replacement of roof
tiles............................................................................................. 56,000

How much should be charged to repair and maintenance expense during the year
just ended?
a. P160,000 b.P216,000 c.P256,000 d.P328,000

15. On September 10, Sandy Company incurred the following costs for one of
its printing presses:
Purchase of stapling
attachment........................................................................................... P90,000
Installation of
attachment................................................................................................ 20,000
Replacement parts for renovation of
press........................................................................... 60,000
Labor and overhead in connection with renovation of
press................................................ 28,000

Neither the attachment nor the renovation increased the estimated useful
life of the press.However, the renovation resulted insignificantly increased
productivity. What amount of the costs should be capitalized?
a. P198,000 b.P110,000 c.P90,000 d.P88,000

16. Dewey Company purchased a machine that was installed and placed in service
on January 2, 2001, at a total cost of P480,000. Residual value was estimated at
P80,000. The machine is being depreciated over ten years by the double-declining-
balance method.
For the year 2002, Dewey should record depreciation expense of
a. P64,000. b.P76,800. c.P80,000. d.P96,000.

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17. Malone Company traded in an old machine with a book value of P15,000 on a
new similar machine. The new machine, which had a cash price of P75,000, was
purchased for P64,000 cash plus the old machine. Malone should record the cost of
the new machine as

a.P64,000. b.P71,000. c.P75,000. d.P79,000.

18. Overberg Company purchased a machine on January 2, 2001, for P1,000,000.

The machine has an estimated useful life of five years and a salvage value of
P100,000. Depreciation was computed by the 150% declining-balance method. The
accumulated depreciation balance at December 31, 2002, should be
a. P360,000. b.P459,000. c.P490,000. d.P510,000.

19. XYZ Corporation bought a machine on January 1, 2002. In purchasing the

machine, the company paid P50,000 cash and signed an interest-bearing note for
P100,000. The estimated useful life of the machine is five years, after which time
the salvage value is expected to be P15,000. Given this information, how much
depreciation expense would be recorded for the year ending December 31, 2003, if
the company uses the sum-of-the-years’-digits depreciation method?
a. P45,000 b.P40,000 c.P36,000 d.P34,000

20. On December 2, 2001, Part Company, which operates a furniture rental

business, traded in a used delivery truck with a carrying amount of P5,400 for a
new delivery truck having a list price of P16,000 and paid a cash difference of
P7,500 to the dealer. The used truck had a fair value of P6,000 on the date of the
exchange. At what amount should the new truck be recorded on Part’s books?
a. P10,600 b.P12,900 c .P13,500 d.P16,000

21. The Bucol Company purchased a tooling machine in 1992 for P120,000. The
machine was being depreciated on the straight-line method over an estimated
useful life of 20 years, with no salvage value. At the beginning of 2002, when the
machine had been in use for ten years, the company paid P20,000 to overhaul the
machine. As a result of this improvement, the company estimated that the useful

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life of the machine would be extended an additional five years. What would be the
depreciation expense recorded for the above machine in 2002?
a. P4,000 b.P5,333 c.P6,000 d.P7,333

22. Tillman Company owns a machine that was bought on January 2, 1999, for
P376,000. The machine was estimated to have a useful life of five years and a
salvage value of P24,000. Tillman uses the sum-of-the-years’-digits method of
depreciation. At the beginning of 2002, Tillman determined that the useful life of
the machine should have been four years and the salvage value P35,200. For the
year 2002, Tillman should record depreciation expense on this machine of
a.P19,200. b.P44,400. c.P59,200. d.P70,400.

23. A truck that cost P8,000 was originally being depreciated over four years using
the straight-line method with no salvage value. If after one year, it was decided
that the truck would last an additional four years (or a total of five years), the
second year’s depreciation would be
a. P2,000. b.P1,000. c.P1,500. d.P2,500.

24. Andrews Manufacturing Company purchased a new machine on July 1, 2001. It

was expected to produce 200,000 units of product over its estimated useful life of
eight years. Total cost of the machine was P600,000, and salvage value was
estimated to be P60,000. Actual units produced by the machine in 2001 and 2002
are shown below.
2001....................................................................................................16,000 units
2002....................................................................................................30,000 units

Andrews reports on a calendar-year basis and uses the sum-of-the-years’-digits

method of depreciation, computed to the nearest month. The amount of
depreciation expense for this machine in 2002 would be
a.P135,000. b.P125,000. c.P112,500. d.P105,000.

25. On July 1, Phoenix Corporation, a calendar-year company, received a

condemnation award of P150,000 as compensation for the forced sale of a plant
located on company property that stood in the path of a new highway. On this
date, the plant building had a depreciated cost of P75,000 and the land cost was
P25,000. On October 1, Phoenix purchased a parcel of land for a new plant site at a
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cost of P62,500. Ignoring income taxes, Phoenix should report in its income
statement for the year ended December 31 a gain of
a. P0. b. P12,500. c. P37,500. d P50,000.

26. The John Company purchased a machine on November 1, 1993, for P148,000.
At the time of acquisition, the machine was estimated to have a useful life of ten
years and an estimated salvage value of P4,000. John has recorded monthly
depreciation using the straight- line method. On July 1, 2002, the machine was sold
for P13,000. What should be the loss recognized from the sale of the machine?
a. P4,000 b.P5,000 c.P10,200 d.P13,000

27. In January 2002, Butz Company exchanged an old machine, with a book value
of P156,000 and a fair value of P140,000, and paid P40,000 cash for a similar
used machine having a list price of P200,000. At what amount should the machine
acquired in the exchange be recorded on Butz’s books?
a.P200,000 b.P196,000 c.P184,000 d.P180,000