SAINT COLUMBAN COLLEGE

COLLEGE OF BUSINESS EDUCATION

PAGADIAN CITY

1. The Orbeta Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-
sum price of P1,800,000. At the time of acquisition, Orbeta also paid P120,000 to have the assets
appraised. The appraisal disclosed the following values:
Land 1,200,000
Building 800,000
Equipment 400,000
Required: Compute for the cost to be assigned to land, building and equipment and prepare the journal
entry.

2. On January 1 of the current year, Khelvin Company acquired a machine with an invoice price of
P300,000 subject to a cash discount. The terms are 2/10 n / 30 Khelvin paid freight and insurance
during shipment of P8,000 and testing and installation cost of P12,000. On the same date, Khelvin
also incurred cost of P5,000 in removing the old machine prior to the installation of the new one. On
January 8, Khelvin paid the account.
Required:
1. Compute for the cost of the machinery.
2. Under gross method, prepare all the necessary entries during the year assuming the company
paid the account on
a. January 8
b. January 30
3. Under net method, prepare all the necessary entries during the year assuming the company paid
the account on
a. January 8.
b. January 30.

3. On January 1, 2016, John Company purchased a machine for P300,000 in exchange for a note. The
prevailing note of interest of type is 10%. The new machine was damaged during its installation and
the repair cost amounted to P30,000.
Case No. 1: Assume that the machine has an available cash price of P319,016. The note is bearing
interest at 12% rate while the prevailing rate of interest of a note of this type is 10%. (The present
value of the note using the prevailing interest rate for four years is also P319,016.)

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 Case No. 2: Assume instead that the machine has no available cash price and that the note is a
noninterest bearing requiring four equal annual payments of P75,000. The first payment was made on
December 31, 2016, and the others are due annually on December 31.

Case No. 3: Assume instead that the machine has no available cash price and that the note is a
noninterest bearing and the note will be paid on December 31, 2019.

4. Choy Co. acquired a tract of land with an existing building in exchange for 20,000 ordinary shares of
-P10 par value with a market price of 20 per share on the date of acquisition. The last property tax bill
indicated assessed value of P200,000 for the land and P120,000 for the building. However, the land
has a fair value of P550,000 and the building has no determinable fair value. Shortly after acquisition,
the building was razed at a cost of P9,000 in anticipation of a new building construction.

5. On January 1, Year 1, Marcus Co. acquired a machinery with fair value of P1,900,000 by issuing a 4-
year, 12%, P2,000,000 bonds. Principal is due on December 31, Year 3 but the interest is due annually
at the end of each year. The prevailing market rate of interest for a similar instrument on January 1,
Year 1 is 14%. The present value of the future cash flows from the bonds discounted at 10% is
P2,126,776.

6. Tenorio Company and Jason Company exchanged equipment. The following data are available on the
exchange:
Tenorio Jason
Equipment (cost) P 500,000 P 300,000
Accumulated depreciation 300,000 50,000
Fair value of equipment 180,000 220,000
Cash paid by Tenorio to Jason 40,000 40,000
The configuration (risk, timing and amount) of the cash flows of the equipment are determined to be
significantly different.
Required:
1) How much should Tenorio record the asset?
2) How much is the gain or loss on exchange of Tenorio?
3) Prepare the journal entry to record transaction in the books of Tenorio.
4) How much should Jason record the asset?
5) How much is the gain or loss on exchange of Jason?
6) Prepare the journal entry to record transaction in the books of Jason.

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7. On January 1 of the current year, Hadadi Company traded in an old machine for a newer model. Data
relative to the old and new machines follow:

Old Machine:
Original cost 1.000,000
Accumulated depreciation, January 1 of the current year 800,000
Average published retail value 270,000

New machine:
List price 1,200,000
Cash price without trade in 950,000
Cash price with trade in 800,000

Required:
1. How much should Hadadi record the asset?
2. How much is the gain or loss on trade in?
3. Prepare the journal entry to record the transaction.

8. A land is received from the corporation's president as an inducement to locate a plant in the city. No
payment was required but the corporation paid P80,000 for legal expenses for land transfer. The land
is fairly valued at P900,000.
Required: Prepare the journal entry to record the above transaction.

9. On January 1, 2016, Alapag Company received a grant of P15 million from the Local government of
Pagadian in order to defray safety and environmental costs within the area where the enterprise is
located. The safety and environmental costs are expected to be incurred over three years, respectively,
P2 million, P3 million, and P5 million.
a. How much income from the government grant should be recognized in 2016?
b. Provide the journal entries for the current year assuming the company uses:
a) Net Method.
b) Gross method

10. On January 1, 2016, Aguilar Company received a grant of P20 million from the DOST for the
construction of a building that will be used as a laboratory and research facility with an estimated cost
of P30 million and useful life of 10 years. The facility was completed in early 2017.
a. How much income from the government grant should be recognized in 2017?
b. Provide journal entries for 2016 and 2017 for the gross and net method.

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