PROBLEM NO.

1 - White Corporation
Nondepreciable:
Land, 1/1/05
Cash paid on purchase of land
Mortgage assumed on the land bought, including interest at 16%
Realtors commission
Legal fees, realty taxes and documentation expenses
Amount paid to relocate persons squatting on the property
Cost of tearing down an old building on the land
Amount recovered from the salvage of the building demolished
Land, 12/31/05
Depreciable:
Land improvements
Balance, 1/1/05
Cost of fencing the property
Building
Balance, 1/1/05
Amount paid to a contractor for the building erected
Building permit fees
Excavation expenses
Architects fee
Machinery and equipment
Balance, 1/1/05
Invoice cost of machinery acquired
Freight, unloading, and delivery charges
Customs duties and other charges
Allowances, hotel accommodations, etc., paid to
foreign technicians during instillation and test run of
machines
Total depreciable PPE, 12/31/05

2,500,000
10,000,000
16,000,000
1,200,000
200,000
400,000
300,000
(600,000)
30,000,000

560,000
440,000

1,000,000

3,600,000
8,000,000
50,000
250,000
100,000

12,000,000

17,000,000
30,000,000

4
5

6,600,000
8,000,000
240,000
560,000

1,600,000

PROBLEM NO. 2 - Black Company

Entry made
a. Office equipment
Cash

400,000

Should be entry
Office equipment
400,000 Purchase disc. lost
Cash

392,000
8,000

Adjusting journal entry

Purchase disc. lost
Office equipment

8,000
8,000

400,000

*(P400,000 x 2%)

b. Machinery
Cash

140,000

(entry made reconstructed from the

depreciation information; P28,000 x 5)

Freight in
Cash
Depreciation exp
Acc. Dep.

4,000

28,000

Machinery
140,000 FC/Interest exp
Cash
Machinery
4,000
Cash
Depreciation exp
28,000
Acc. Dep.

(140,000/5 )

c. Machinery
Bonds payable

Depreciation exp
Acc. Dep.

128,000
12,000

FC/Interest exp
Machinery

12,000
12,000

140,000
4,000

26,400

Machinery
4,000
Freight in
Acc. Dep.
26,400
Depreciation exp

4,000
4,000
1,600
1,600

[(128,000+4,000)/5]

400,000

54,000

Machinery
400,000 Discount on BP
Bonds payable

360,000
40,000

Depreciation exp
54,000
Acc. Dep.

48,000

[(400,000-40,000)/5 *9/12]

Discount on BP
Machinery

40,000
40,000

400,000
Acc. Dep.
48,000
Depreciation exp

6,000

Interest exp
3,000
Discount on BP

3,000

Allowance for DA
Loss on exchange
Machinery

28,000
2,000

Machinery
110,000
Treasury stock

30,000

Equipment
450,000
Gain on exchange
50,000

50,000

6,000

[(36,000-4,000)/5 *9/12]

Interest exp
Discount on BP

3,000

3,000

[(40,000/10)*9/12]

d. Machinery
Accts receivable

Treasury stock
Machinery
e. Equipment
Investment in Tyler

f. Machinery
Cash

g. Machinery-new
Cash
Machinery-old

140,000

140,000

450,000

20,000

102,000

Machinery
140,000 Allowance for DA
Loss on exchange
Accts receivable

110,000
28,000
2,000

Treasury stock
140,000
Machinery

110,000

Equipment
450,000
Investment in Tyler
Gain on exchange

500,000

140,000

Machinery-new
20,000 Accumulated dep.
Machinery-old
Cash

140,000
280,000

Machinery-new
80,000 Loss on trade-in
22,000
Cash
Machinery-old

90,000
12,000

h. None

30,000

50,000

Machinery-new
Accumulated dep.
400,000
Machinery-old
20,000

120,000
280,000

Loss on trade-in
Machinery-new

12,000

400,000

12,000

80,000
22,000

Land
200,000
Building
400,000
APIC-donated capital
Depreciation exp
Acc. Dep.

30,000

Land
200,000
Building
400,000
600,000
APIC-donated capital

4,000
4,000

Depreciation exp
Acc. Dep.

600,000

4,000
4,000

[(P400,000/25)*3/12]

i. Building
Cash

4,000,000
4,000,000

Land
2,000,000
Deferred income-govt grant

Government grants are "assistance by government

Building
in the form of transfers of resources to an enterprise
Cash
in return for past or future compliance with certain
conditions relating to the operating activities of the
enterprise". Grants related to nondepreciable assets Depreciation exp
Acc. Dep.
requiring fulfillment of certain conditions should be
recognized as income over the periods which bear
(P4,000,000/25)
the cost of meeting the conditions.

2,000,000

2,000,000

4,000,000
4,000,000
160,000

80,000
Income from govt. grant

160,000

Depreciation exp
Acc. Dep.

160,000
160,000

(P4,000,000/25)

80,000
Income from govt. grant

Deferred income-govt g

Deferred income-govt g
(P2,000,000/25)

Land
2,000,000
Deferred income-govt grant

80,000

(P2,000,000/25)

80,000

Page 1 of 4

PROBLEM NO. 3 - Blue Corporation

1) Land [(10,000 shares x P120) +P98,000]
Land and building
Additional paid in capital
2) Land
Land and building

1,298,000
1,098,000
200,000
60,000
60,000

3) Organization expenses
Land
Building
Land and building

9,500
4,000
1,500
15,000

4) Building
Land and building

700,000

5) Building
Land and building

600,000

700,000

600,000

6) Insurance expense (26,000 x 1/2)

Prepaid insurance
Land and building

13,000
13,000
26,000

7) Building
Land and building

200,000

8) Retained earnings
Land and building

500,000

Adjusted balances
Land
AJE no. 1
AJE no. 2
AJE no. 3

200,000

500,000

1,298,000
60,000
4,000

Building
AJE no. 3
AJE no. 4
AJE no. 5
AJE no. 7

1,362,000
9) Land and building
Depreciation expense
Accumulated depreciation
Should be depreciation (1,501,500 / 25 x 6/12)
Recorded depreciation
Overstatement in depreciation expense
Land and building account
Unadjusted balance
AJE no. 1
AJE no. 2
AJE no. 3
AJE no. 4
AJE no. 5
AJE no. 6
AJE no. 7
AJE no. 8
AJE no. 9

1,500
700,000
600,000
200,000
1,501,500

31,990
1,960
30,030
30,030
31,990
1,960

3,167,010
(1,098,000)
(60,000)
(15,000)
(700,000)
(600,000)
(26,000)
(200,000)
(500,000)
31,990
-

PROBLEM NO. 4 - Green Company

Adjusted bal.
Machine 1 - sold 8/31
Machine 2 - destroyed 12/1
Machine 3 - traded in 9/30
Machine 4
Machine 5
Machine 6
Machine 7
Machine 8
Total

90,000
198,000
108,000
216,000
216,000
828,000

Orig. cost

Months

90,000 remaining
90,000
11
90,000
9
90,000
12
198,000
4
108,000
3
216,000
1
216,000
1

Depreciation
5,625
20,625
16,875
22,500
16,500
6,750
4,500
4,500
97,875

PROBLEM NO. 5 - Red Company

Question No. 1 - B

Buildings (150% declining balance)

Balance, 1/1/05
Depreciation for 2005:
Book value, 1/1/05 (P30,000,000 - P6,577,500)
150% declining balance rate (1/25 x 150%)

6,577,500
6,577,500
23,422,500
6%

1,405,350
7,982,850

Accumulated dep - Buildings, 12/31/05

Question No. 2 - D

Machinery and Equipment (Straight line)

Balance, 1/1/05
Depreciation for 2005:
M & E balance, 1/1/05
Less machine destroyed by fire
Remainder of beginning balance
Depreciation rate (1/10 years)
Depreciation on remainder of beginning bal.
Depreciation on machine destroyed by fire
(P575,000 x 10% x 3/12)
Depreciation on machine purchased on 7/1/05
[(P7,000,000+P125,000+P625,000) x 10% x 6/12]

6,250,000
22,500,000
575,000
21,925,000
10%
2,192,500
14,375
387,500

2,594,375
(287,500)
8,556,875

Machine destroyed by fire (P575,000 x 5/10)

Accumulated dep - Machinery & Equip., 12/31/05
Question No. 3 - B

Delivery equipment (SYD)

Balance, 1/1/05
Depreciation for 2005:
Depreciation on 1/1/05 balance (see info (e))
Less depreciation on truck traded-in
(P450,000 x 2/10*)
Depreciation on remainder of beginning bal.
Depreciation on truck purchased on 1/2/05
(P600,000 x 4/10*)
Truck traded-in (P450,000 - P135,000)
Accumulated dep - Delivery Equip., 12/31/05

2,115,000
450,000
90,000
360,000
240,000

600,000
(315,000)
2,400,000

* SYD = (4+3+2+1) = 10
Question No. 4 - A

Leasehold improvements (Straight line)

Depreciation for 2004 (P4,200,000 x 8/80*)
Remaining lease term (5/1/04 to 12/31/10)
Useful life (8 years x 12)
Shorter - remaining lease term

420,000
80 months
96 months
80 months

Question No. 5 - C

Machine destroyed by fire:

Amount recovered from insurance company
Less book value of machine:
Cost
Accumulated depreciation (see above)
Gain on machine destroyed by fire
Truck traded-in:
Trade-in value (P600,000 - P500,000)
Less book value of truck traded-in
Loss on truck traded-in
Net gain on asset disposals

387,500
575,000
(287,500)

287,500
100,000
100,000
135,000
(35,000)
65,000

PROBLEM NO. 6 - Josef, Inc.

Question No. 1 - B
Acquisition cost
Less residual value
Depletable cost
Total estimated reserves
Depletion rate
Tons mined
Depletion for 2005

10,400,000
800,000
9,600,000
8,000,000
1.20
800,000
960,000

Question No. 2 - D
Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 80%]
Depreciation - Machinery [(P1,600,000-P320,000/4]
Total

64,000
320,000
384,000

Question No. 3 - B
Depletion (see no. 1)
Direct labor
Depreciation (see no. 2)
Miscellaneous mining overhead
Total available for sale
Divide by tons mined
Cost per ton
Unsold tons (800,000 - 640,000)
Inventory, 12/31/05

960,000
640,000
384,000
128,000
2,112,000
800,000
2.64
160,000
422,400

Question No. 4 - A
Cost of sales (640,000 tons x P2.64)

1,689,600

Question No. 5 - C
Sales (640,000 x P4.4)
Less cost of sales (see no. 4)
Gross profit
Operating expenses
Depreciation - Building [(P800,000/8,000,000 tons) x 800,000 tons x 20%]
Net income
Realized depletion (640,000 tons x P1.2)
Maximum amount that may be declared as dividends

2,816,000
1,689,600
1,126,400
(576,000)
(16,000)
534,400
768,000
1,302,400

PROBLEM NO. 7 - Pink Corporation

Journal entries for 2005:
1/2 Organization expenses
Cash
1/15 Advertising expense

233,000
233,000
15,000

Cash
4/1 Patents

15,000
492,500

Cash
5/1 Licences (P300,000 x 2/3)

Trademark
Common stock (6,000 x P50)
7/1 Building

492,500
200,000
100,000
300,000
1,310,000

Cash
12/31 Research and Development expense

1,310,000
1,750,000

Cash

1,750,000

Question no. 1 - A
See journal entry for April 1.
Note: Cost of internally developed patent includes only the licensing and
other related legal fees in securing the patent rights.
Question no. 2 - B
See journal entry for May 1.
Question no. 3 - C
See journal entry for May 1.
Question no. 4 - C
Cost
Patent
Licences
Trademark
Less amortization
Patent (P492,500/6 x 9/12)
Licences (P200,000/6 x 8/12)
Trademark (P100,000/6 x 8/12)
Carrying value, 12/31/04

492,500
200,000
100,000
61,563
22,222
11,111

792,500

94,896
697,604

Question no. 5 - C
Organization expenses (Jan. 2 transaction)
Advertising expense (Jan. 15 transaction)
R and D expense (Dec. 31 transaction)
Total

233,000
15,000
1,750,000
1,998,000

PROBLEM NO. 8 - Silver Corporation

Question No. 1 - A
Trademark*
Goodwill*
Customer list (P220,000/3)
Total amortization

73,333
73,333

*The useful life is indefinite, so no amortization expense is recognized.

Question No. 2 - B
Trademark:
Carrying value
Recoverable amount (P10,000/0.06)
Goodwill*:
Carrying value of Hayo Manufacturing unit
(P2,700,000 + P1,500,000 - P1,800,000)
Recoverable amount (P250,000 x 12.0416)
Customer list
Carrying value (P220,000 - P73,333)
Recoverable amount:
2006: (P120,000 x 0.9434)
2007: (P80,000 x 0.8900)
Total impairment loss

300,000
166,667

133,333

2,400,000
3,010,400

146,667
113,208
71,200

184,408

133,333

*Since goodwill does not generate cash flows independently from other assets or group
of assets, the recoverable amount of goodwill as an individual asset cannot be
determined. Therefore, the recoverable amount is determined for the cash
generating unit to which goodwill belongs.

Question No. 3 - C
Cost
Less impairment loss
Carrying value, 12/31/05

300,000
133,333
166,667

Question No. 4 - A
Since goodwill is not amortized and is not impaired as of 12/31/05,
the carrying value is P1,500,000.
Question No. 5 - B
Cost
Less amortization for 2005
Carrying value, 12/31/05
PROBLEM NO. 9
1B
2B
3D
4A
5C
6A
7A
8D
9D
10 D

220,000
73,333
146,667

11
12
13
14
15
16

D
B
A
A
D
A