Professional Documents
Culture Documents
Solve the following problems using the current standards. Showing of solutions is not required at all. Write your
final answer on space provided after the questions.
A. On January 1, 2013, the Prince Gabriel Manufacturing Company began construction of a building to be
used as its office headquarters. The building was completed on June 30, 2014.
On January 3, 2013, the company obtained a P2 million construction loan with a 10% interest rate. The loan was
outstanding all of 2013 and 2014. The company’s other interest-bearing debt included a long-term note of
P5,000,000 with an 8% interest rate, and a mortgage of P3,000,000 on another building with an interest rate of 6%.
Both debts were outstanding during all of 2013 and 2014. The company’s fiscal year end is December 31.
Questions
1. The interest capitalized at the end of December 31, 2013 is:
4. The total interest expense at the end of December 31, 2013 is:
5. The total interest expense at the end of December 31, 2014 is:
B. On January 1, 2013, BLESSING COMPANY signs a 10-year noncancelable lease agreement to lease a storage
building from GRACE COMPANY. The following information pertains to this lease agreement:
a. The agreement requires equal rental payments of P720,000 beginning on January 1, 2013.
c. The building has an estimated economic life of 12 years, with an unguaranteed residual value of P100,000.
BLESSING COMPANY depreciates similar buildings on the straight-line method.
d. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
e. BLESSING COMPANY’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by
BLESSING COMPANY.
f. The yearly rental payment includes P24,705.10 of executory costs related to taxes on the property.
The following present value factors are for 10 periods at 12% annual interest rate:
Questions
1. The minimum annual lease payment is:
C. On an audit engagement for calendar year 2013, you handled the audit of Fixed Assets of Crame
Corporation. Plant assets consists of:
Land P 100,000
Leasehold improvements 190,000
Equipment 450,000
Total per WBS P 740,000
The land was acquired on October 1, 2013, at a cost of P500,000. Crame Corporation made a cash downpayment
of P100,000 and signed a 18% mortgage note payable in four equal annual installments of P100,000. The first
interest and principal payment is due on October 1, 2014. No interest has been accrued as of December 31, 2013.
In October 1, 2013, a lawyer was engaged to title the property at a fee of P10,000 which was charged to operating
expenses.
You ascertained that due to obsolescence, computer equipment with an original cost of P80,000 and accumulated
depreciation of P16,000 at January 1, 2013 had suffered a permanent impairment in value and, as a result, should
have a carrying value of only P40,000 at the beginning of the year. In addition, the remaining useful life of the
equipment was reduced from 4 to 2 years. No entry has yet been made in the books. For 2013, the company
recorded depreciation of P16,000 for the said equipment.
At present, Crame Corporation’s office and warehouse are located in a rented building. The rental contract was
signed on July 1, 2013 and has a term of five (5) years renewable for another five (5) years. On October 1, 2013,
Crame Corporation spent P190,000 to install walls and fixtures. The leasehold improvements have a useful life of
five years. No amortization has been booked as of December 31, 2013.
Questions
1. The adjusted cost of land amounted to:
2. The carrying value of leasehold improvements as of December 31, 2013 amounted to:
D. VW acquired the right to use a property to explore natural resources at a cost of P 1, 200, 000. In
addition, VW incurred the following expenditures related to this natural resource:
It is estimated that the resource deposit is approximately 200, 000 units and that the property can be sold for
P 200, 000.00 after the exploration activities. However, VW will be required to restore the property to its
original condition in order to comply with environmental laws. Restoration cost are estimated to be P 130,
000.00
In 2013, VW extracted 50,000 units from the property. Early in 2014, additional development costs were
incurred in the amount of P 300, 000.00. A total of 30, 000 units were extracted during the year. At the end of
2014, it is estimated that the remaining recoverable deposits from this property will be 250, 000 units.
E. Regal Corp. has its own research department. However, the company purchases patents from time to
time. The following is a summary of transactions involving patents now owned by the company.
During 2008 and 2009, Regal spent a total of P 459, 000 in developing a new process
that was patented ( Patent A) on April 1, 2010; additional legal and other cost of P 50,
000 were incurred.
A patent ( Patent B) developed by Nonoy Inventor, an inventor, was purchased for P
187, 500 on November 1, 2011, on which date it has an estimated useful life of 12 ½
years.
During 2010, 2011, and 2012, research and development activities cost P 510, 000. No
additional patents resulted from these activities.
A patent infringement suit brought by the company against a competitor because of
the manufacture of articles infringing on Patent B was successfully prosecuted at a
cost of P 42, 600. A decision in the case was rendered in June 2012.
On July 1, 2013, Patent C was purchased for P 172, 800. This patent had 16 years yet
to run.
During 2014, Regal expended P 180, 000 on patent development. However, the
company is still undecided as to how the patent, if approved by the Bureau of
Patents, will generate probable future economic benefits.
Compute for the following:
1. What is Patent A’s carrying value on December 31, 2014?
4. What is the total patent amortization expense to be reported on Regal’s income statement for the year
ended December 14, 2014? 28, 300
F. RUANN Service Center is wholly owned subsidiary of RUANN Stores. The company’s function is to deliver
furniture and appliances sold by the parent and to service electronics and appliances, also sold by the
parent company. RUANN Stores, the parent, operates twelve retail outlets in a large metropolitan area.
The service center uses three delivery trucks and fifteen service vehicles for delivering goods and for
making service calls related to large appliances and electronic equipment. For small appliances and
electronics, customers typically bring these to the service center for repair.
At January 1, 2006, RUANN Service center reported audited balances of P525,000 and P320,000 for “Trucks” and
“Accumulated Depreciation – Trucks,” respectively. The vehicles consisted of
Three delivery trucks costing P50,000 each; and
Fifteen service trucks costing P25,000 each.
The company depreciates all trucks on a straight-line basis, using a five- year life and zero salvage value. One-half
year’s depreciation is taken in the year of acquisition and in the year of disposal.
During 2006, the following transactions and journal entries were completed by the company:
2/2/06: Sold one delivery truck for P2,000. the truck was fully depreciated at 12/31/07.
Cash P2,000
Trucks P2,000
G. Information pertaining to Highland Corporation’s property, plant and equipment for 2005 is presented
below:
Depreciation data:
Depreciation method Useful life
The salvage values of the depreciable assets are immaterial. Depreciation is computed to the nearest month.
a. On January 2, 2005, Highland purchased a new car for P20,000 cash and trade-in of a 2-year-old car with a
cost of P18,000 and book value of P5,400. The new car has a cash price of P24,000; the market value of the
trade-in is not known.
b. On April 1, 2005, a machine purchased for P23,000 on April 1, 2000, was destroyed by fire, Highland recovered
P15,500 from its insurance company.
c. On May 1, 2005, costs of P168,000 were incurred to improve leased office premises. The leasehold
improvements have a useful life of 8 years. The related lease terminates on December 31, 2011.
d. On July 1, 2005, machinery and equipment were purchased at a total invoice cost of P280,000; additional
costs of P5,000 for freight and P25,000 for installation were incurred.
e. Highland determined that the automotive equipment comprising the P115,000 balance at January 1, 2005,
would have been depreciated at a total amount of P18,000 for the year ended December 31,2005.
1. The adjusted balance of Machinery and Equipment (at cost) at December 31, 2005 is:
2. The adjusted balance of Automotive Equipment (at cost) at December 31, 2005 is:
3. The adjusted balance of Accumulated Depreciation of Building at December 31, 2005 is:
4. The adjusted balance of Accumulated Depreciation of Machinery and Equipment at December 31, 2005 is:
5. The adjusted balance of Accumulated Depreciation of Automotive Equipment at December 31, 2005 is:
6. The adjusted balance of Accumulated Depreciation of Leasehold Improvements at December 31, 2005 is:
7. The total adjusted balance of Accumulated Depreciation of Property and Equipment at December 31, 2005 is:
8. The total gain(loss) from disposal of assets at December 31, 2005 is:
10. The adjusted book value of Leasehold Improvement at December 31, 2005 is:
H. The Terran Company acquired several small companies at the end of 2013 and based on the acquisitions,
reported the following intangibles in its December 31, 2013 statement of financial position:
The company’s accountant determines that patent has an expected life of 10 years and no expected
residual value, and it will generate approximate equal benefits each year. The company expects to use
the copyright and trade name for the foreseeable future. The accountant knows that the computer
software is used in the company’s 120 sales office. The company has replaced the software in 40 more
offices in 2015 and the remainder in 2016.
On December 31, 2014, there are no indications of impairment of patent and computer software. The
following information relates to the other intangible assets.
a. Because of the rampant piracy, the copyright is expected to generate cash flows of P 8, 000 per year.
b. The Trade name is expected to generate cash flows of P 15, 000 per year.
c. The Goodwill is associated with Terran’s SCV Manufacturing reporting unit. The cash flow is expected
to be generated by the SCV Manufacturing unit is P 200, 000 per year for the next 25 years. The
reporting unit has a carrying amount of P 3, 000, 000
Based on the above information determine the following. ASSUME that the discount rate is 5% for all items.