ACT1104

FINAL PERIOD QUIZ NO.5

1. During 2020, Pau Company constructed its own equipment costing Php10,000,000. The weighted
average accumulated expenditure on these assets during 2020 was Php5,000,000. To help finance
the construction , Php3,600,000 was borrowed at 10% on January 1, 2020, and funds not needed for
construction were temporarily invested in short-term securities, yielding Php90,000 in interest revenue.
Other than the construction funds borrowed, the only other debt outstanding during the year was a
Php5,000,000, 10-year, 9% notes payable dated January 1, 2020.

a. What is the amount of interest that should be capitalized by Pau Company during 2020?
Final answer: ___________(1pt) Php396,000
Supporting computation: (3pts)
Accumulated Expenditure Php 5,000,000
Less: Specific borrowing loan 3,600,000
--------------------------
Loan Allocated to General borrowing Php 1,400,000
==============

Capitalized Interest Cost

Specific borrowing (Php3,600,000x 10%) Php 360,000
General borrowing, lower between
(a) or (b)
(a)Actual interest Cost (Php5,000,000 x 9%) Php 450,000
------------------
(b) 1,400,000 x 9% Php 126,000
------------------ 126,000
-------------------------
Total 486,000
Less: Interest earned 90,000
-----------------------
Capitalized interest cost Php 396,000
=============

b. Entry to record payment of interest for 2020 (2.5pts)

Equipment 486,000
Interest expense (450,000-126,000) 324,000
Cash 810,000

c. Entry to record receipt of interest earned for 2020 (2.5pts)

Cash 90,000
Equipment 90,000
2. Cam Company borrowed Php8,000,000 on a 10% note payable to finance a new warehouse Cam
Company is constructing for its own use. The only other debt Cam Company’s books is a
Php12,000,000, 12% mortgage payable on an office building. The construction of the warehouse was
completed in six months and the average accumulated expenditures amounted to Php9,500,000. What
is the amount of interest that Cam Company should capitalize?
Final answer: ___________ (1pt) Php490,000
Supporting Computation (4pts)
Capitalized Interest Cost
Specific borrowing to warehouse construction Php 400,000
( Php8,000,000 x 10% x 6/12)
General borrowing
(Php9,500,000-Php8,000,000) x 12% x 6/12 90,000
------------------------
Php 490,000
=============

3. On October 1, 2021, Pau Company traded its old delivery equipment with Megaredpinlaw Company’s
office equipment. The following data are available:
Pau Company Megaredpinlaw
Cost Php 80,000 Php 100,000
Accumulated depreciation 60,000 76,000
Fair value 40,000 ?
Cash received from Megaredpinlaw ?
Cash paid to Pau Company 6,000
Required:
a. Cash received from Megaredpinlaw: __________ (2pts) Php6,000
b. Fair value of Megaredpinlaw equipment: _______ (1pt) Php34,000
c. Supporting computation (2pts)
Php40,000-Php6,000 = Php34,000
d. Gain or loss on exchange in the books of Pau Company (2.5pts) (indicate in your final answer
whether gain or loss)
Net book value (80,000-60,000) 20,000
Less: Fair value 40,000
---------
Gain on exchange 20,000
======
e. Gain or loss on exchange in the books of Megaredpinlaw (2.5pts) (indicate in your final answer
whether gain or loss)
Net book value (100,000-76,000) 24,000
Less: Fair value 34,000
---------
Gain on exchange 10,000
=====
 f. Entry to record exchange of equipment in the books of Pau Company (2.5pts)
Equipment (40,000-6,000)-New 34,000
Cash 6,000
Accumulated depreciation 60,000
Equipment-Old 80,000
Gain on exchange 20,000

g. Entry to record exchange of equipment in the books of Megaredpinlaw Company (2pts)

Equipment (34,000+6,000)-New 40,000
Accumulated depreciation 76,000
Equipment-Old 100,000
Gain on exchange 10,000
Cash 6,000

4. X-ray Company traded in an old machine having a carrying amount of Php168,000, and paid a cash
difference of Php60,000 for a new machine having a total cash price of Php205,000.

a. How much is the fair market value of old machine?

Final answer: _______(1pt) Php145,000
Supporting computation: (3pts)
Php205,000-Php60,000 = Php145,000

b. What amount of loss should X-ray Company Recognize on this exchange?

Final answer : ____________ (1pt) Php23,000
Supporting computations: (2 pts)
Carrying value of old machine Php 168,000
Fair market value of old machine 145,000
-----------------------
Loss on exchange Php 23,000
==============

c. Entry to record trading of old machine to new machine. (5pts)

Machine New 205,000
Loss on exchange 23,000
Machine-Old 168,000
Cash 60,000

5. X-ray Company traded in a old machine having a carrying amount of Php168,000, and received a cash
difference of Php60,000 for a new machine having a total cash price of Php205,000.

d. How much is the fair market value of old machine?

Final answer: _______(1pt) Php265,000
Supporting computation: (3pts)
Php205,000+Php60,000 = Php265,000

e. What amount of loss should X-ray Company Recognize on this exchange?

Final answer : ____________ (1pt)
 Supporting computations: (2 pts)
Carrying value of old machine Php 168,000
Fair market value of old machine 265,000
-----------------------
Gain on exchange Php 97,000
==============

f. Entry to record trading of old machine to new machine. (5pts)

Machine-New 205,000
Cash 60,000
Machine-Old 168,000
Gain on exchange 97,000

6. Avoidmoko Forwarders exchanged a number of used trucks plus cash for a piece of land that will be
used as its parking lot and terminal . The following information is available for the trucks:
Cost Php 12,800,000
Accumulated depreciation 4,400,000

Avoidmoko’s purchasing agent has had previous dealings in the second hand markets and has
indicated that the trucks’ the fair value at this date is Php10,000,000. In addition , Avoidmoko must
pay Php340,000 cash for the land.

Required:
Give the entry in the books of Avoidmoko Forwarders to record the exchange. (5pts)

Land (10,000,000 +340,000) 10,340,000

Accumulated depreciation 4,400,000
Trucks 12,800,000
Cash 340,000
Gan on exchange 1,600,000

Net Book Value (12,800,000-4,400,000) Php 8,400,000

FMV 10,000,000
--------------------------
Gain on exchange Php 1,600,000
===============
7. Presentkaba Processing Inc. traded its used equipment for a new model. The old machine had a
carrying amount of Php32,000 (original cost of Php48,000) and a fair value of Php24,000. It was
exchanged for a new model that had a list price of Php64,000. A trade in allowance of Php33,000 was
agreed upon on the old machine.
Required:
Give the entry in the books of Presentkaba Processing to record this exchange. (10pts)
Equipment- New (64,000-33,000) 31,000
Accumulated depreciation (48,000-32,000) 16,000
Loss on exchange (32,000-24,000) 8,000
Equipment old 48,000
Cash (64,000-33,000-24,000) 7,000

Alternative computation for cash : 24,000 + 7,000 = 31,000

8. Loginlangko Corporation purchased a machine on January 1, 2011 for Php500,000. At the time, it was
determined that the machine had an estimated life of 10 years and an estimated residual value of
Php20,000. The company used the double-declining balance method of depreciation. During 2015, the
company decided to change its depreciation method to straight line, at which time, the machine’s
remaining useful life was estimated to be 5 years, including the current year, with a residual value at
the end of useful life of Php10,000.
Required: What is the depreciation expense for the machine for the year 2015?
Final answer: _________ (1pt) Php38,960
Supporting computation: (5pts)

Cost Php 500,000

Less: Accum Depreciation (2011 to 2014= 4yrs)
DDB rate: (1/10) x 2 = 20%
2011: 500,000 x 20% = 100,000
2012: (500,000-100,000) x 20% = 80,000
2013: (500,000-180,000) x 20% = 64,000
2014: (500,000-244,000) x 20% = 51,200
------------ 295,200
------------------------
Net Book Value, Dec 31, 2014 Php 204,800
=============
Remaining life including the current year 5 yrs
=============
Revised Depreciation per year starting 2015 using Straight
Line Method
(Php204,800-Php10,000)/5 yrs Php 38,960
=============
9. Lagitulog Company purchased Machine No. 4 on August 1, 2013, for a cash price of Php360,000.
Installation costs of Php18,000 were also paid. Lagingtulog estimated the useful life and residual value
at 5 years and Php35,000, respectively.
On August 1, 2015, Lagitulog Company paid Php80,000 to overhaul Machine No. 4, after which
Machine’s No. 4’s useful life was estimated to have been extended by two years, and its residual value
increased to Php50,000.
Required:
(a) What should be the depreciation expense on this machine for the year ended December 31, 2015?
Final answer: _______ (1pt) Php62,584
Supporting computation (5pts)

Cost: 360,000 + 18,000 = 378,000

Residual value: 35,000
Cost Php 378,000
Accumulated depreciation
Aug 1, 2013 to Aug 1, 2015= 2 yrs
(378,000-35,000)/ 5 yrs x 2yrs= 137,200
------------------------
Net Book Value 240,800
+ Overhaul cost of machine 80,000
-----------------------
Adjusted Net Book value, 08/01/2015 320,800
=============

Remaining life ( 5-2+2) 5 yrs

Revised Depreciation effective Aug 1 , 2015

(320,800 – 50,000)/5 yrs Php 54,160
==============
Depreciation expense Dec 31, 2015
Php54,160 x 5 (Aug to Dec)/12 mos. Php 22,567

Add: Depreciation from January 1 to

July 31, 2015 (378,000-35,000)/5 x 7/12 40,017
------------------------
Php 62,584
============

(b) What is the asset’s carrying value at December 31, 2016?

Final answer: ________ (1pt) Php244,073
Supporting computation: (5pts)
Adjusted CV at Aug 1, 2015 Php 320,800
Accumulated Depreciation
Aug 1 to Dec 2015 Php 22,567
2016 54,160
--------------------- 76,727
 ------------------------
Carrying Value (CV), Dec 31, 2016 Php 244,073
=============

OR
Original Cost (378,000 + 80,000) Php 458,000
Accumulated Depreciation
Aug 1, 2013 to Aug 1, 2015 137,200
Aug 1, 2015 to dec 31, 2015 22,567
Jan 1 2016 to dec 31, 2016 54,160
------------ 213,927
-----------------------
Carrying Value, Dec 31, 2016 Php 244,073
==============

10. On January 1, 2011, Chuchu Inc. purchased a machine for Php528,000 and depreciated it by the
straight-line method using an estimated life of eight years with no salvage value. During 2015, Chuchu
determined that the machine had a useful life of six years from the date of acquisition. An accounting
change was made in 2015 to reflect these additional data.
Required:
(a) What should be the depreciation expense on this machine for the year ended December 31,
2015?
Final answer: ________ (1pt)Php132,000
Supporting computation: (5pts)
Cost Php 528,000
Accumulated depreciation
2011: 528,000/8 yrs = 66,000
2012: 528,000/8 yrs = 66,000
2013: 528,000/8 yrs = 66,000
2014: 528,000/8 yrs = 66,000
---------- 264,000
-----------------------
Net Book Value, Jan 1, 2015 Php 264,000
=============
Remaining life (6-4) 2 yrs
=============
Revised Annual Depreciation
264,000/2 yrs Php 132,000
=============

(b) What is the accumulated depreciation balance of this machine at December 31, 2015?
Final answer: ________ (1pt) Php396,000
Supporting computation: (2pts)
264,000 + 132,000 = Php 396,000
(c) What is the accumulated depreciation balance of this machine at December 31, 2016?
Final answer: ________ (1pt) Php528,000
Supporting computation: (2pts)
396,000 + 132,000 = Php 528,000

(d) What is the accumulated depreciation balance of this machine at December 31, 2016?
Final answer: ________ (1pt)528,000
Supporting computation: (2pts)
528,000
(e) What is the asset’s carrying value at December 31, 2015?
Final answer: ________ (1pt) Php132,000
Supporting computation: (5pts)
528,000 – 396,000 = 132,000

(f) What is the asset’s carrying value at December 31, 2016?

Final answer: ________ (1pt) Php 0
Supporting computation: (5pts
528,000-528,000 = 0