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HW # 3
ACT 123 MAY 1, 2017
INVENTORIES
EASY
1. Bulldog Company incurred the following costs:
Materials 800,000
Storage costs of finished goods 190,000
Irrecoverable purchase taxes 70,000
At what amount should the inventory be measures? P870,000
SOLUTION:
Materials 800,000
Irrecoverable purchase taxes 70,000
Total P 870,000
3. Eagle Company provided the following information for the current year.
SOLUTION:
Merchandise purchased for resale 6,000,000
Freight in 150,000
Purchase returns (28,000)
Inventoriable cost P 6,122,000
MODERATE
HARD
What is the total amount cost of inventory using FIFO on December 31,2016?
P 385,900
SOLUTION:
Cash, beg 200,000
Collection 50,000
Sales(SQUEEZE) 1,840,000 1,890,000
Payments:
OpEx 440,000
AP 943,400 (1,383,400)
DOMALAON, LORIE JAE E. HW # 3
ACT 123 MAY 1, 2017
Cash, end P706,600
INVESTMENTS
EASY
1. On January 1,2016, Melon Corp. purchased debt securities for cash P
765,540 to be held as financial assets at amortized cost. The securities
have a face value of P 600,000, and they mature in 15 years. The
securities carry fixed interest of 10% that is receivable semiannually,
on June 30 and December 31. The prevailing market interest rate on
these debt securities is 7% compounded semiannually.
The interest income to be reported for 2016 using the effective interest
rate method is? P 53,476
SOLUTION:
January 1 June 30 (P765,540 X 7% X ) 26,794
July 1 December 31 (766,334 X 7% X ) 26,682
Interest income for 2016 P 53,476
SOLUTION:
No unrealized holding gain/loss shall be recognized on financial assets
measured at amortized cost.
DOMALAON, LORIE JAE E. HW # 3
ACT 123 MAY 1, 2017
MODERATE
SOLUTION:
Total FV of the investment P 369,000.
HARD
5. Kitty Company purchased the following non-trading equity securities
during 2016:
Security Cost FV December 31,2016
X P 450,000 P 500,000
DOMALAON, LORIE JAE E. HW # 3
ACT 123 MAY 1, 2017
Y 500,000 800,000
At initial recognition, Kitty classified these securities as at fair value
through other comprehensive income. On July 28,2017, Kitty sold all
the shares of Security Y for a total of P 835,000. As of December 31,
2017 the shares of Security X had a fair value of P 200,000. No other
activity occurred during 2017 in relation to the non-trading equity
securities portfolio.
What total amount should be credited to retained earnings as a result
of the sale of Security Y in 2017? P335,000
SOLUTION:
Cash proceeds P835,000
CV of Y, December 31,2016 800,000
Unrealized gain (800,000-500,000) 300,000
Total amount to be credited to RE P335,000
PPE
EASY
SOLUTION:
Cost of new equipment (480,000 X 3.6048) 1,730,304
DOMALAON, LORIE JAE E. HW # 3
ACT 123 MAY 1, 2017
Note Payable (2,400,000)
Discount P 669,696
During its fiscal year ended May 31, 2017, Gate incurred P 400,000 for
interest expense in connection with the financing of these assets.
Purchase of machinery and equipment, land and buildings?
SOLUTION:
FV Fraction Allocated
Cost
Machinery and equipment P 2,500,000 25/125
P2,100,000
Land 4,000,000 40/125
3,360,000
Building 6,000,000 60/125
5,040,000
Totals P 12,500,000 P
10,500,000
MODERATE
SOLUTION:
Cash paid for equipment P 250,000
Cost of transporting machine-insurance and transport 9,000
Labor cost of installation by expert fitter 15,000
Labor cost of testing equipment 12,000
Cost of safety rails and platforms surrounding machine
18,000
DOMALAON, LORIE JAE E. HW # 3
ACT 123 MAY 1, 2017
Cost of water devices to keep machine cool
24,000
Cost of adjustments to machine during 2016 to make it
operate more efficiently 22,500
Total cost of the machine? P
350,500
HARD
SOLUTION:
Cost of materials to construct machine P210,000
Labor cost to construct machine 129,000
Allocated overhead cost 66,000
Allocated interest cost of financing machine
30,000
Cost of installation 36,000
Safety inspection cost prior to use 12,000
Total cost P 483,000
Baton company recorded the cost of the machine frame in one account at a
cost of P 176,400 and the motor was recorded in a second account at a cost
DOMALAON, LORIE JAE E. HW # 3
ACT 123 MAY 1, 2017
of P 52,200. Straight line method of depreciation is used with a useful life of
10 years for the frame and 4 years for the motor. Residual values are
immaterial and thus ignored in the computation of depreciation charges.