Problem 1: Susan Company experienced the ff. transaction during the current year. 1. Purchased machinery for P500, 000 cash. 2. Purchased land and building for P5,500, 000 cash, including an appraiser’s fee of P100,000. An appraisal indicated fair value as follows. Land 2,000,000 8 Building 3,000,000 5,000,000 3. Invested in 5,000 shares of another entity at P100 per share. Subsequently, Susan Company exchanged the 5,000 shares for delivery equipment. At the time of exchange, the share is quoted at 120 and the equipment has a list price of P680,000. Motor vehicle registration has paid in the amount of P3,000. 4. A certain equipment was donated by a shareholder to Susan Company. An independent appraisal of the equipment placed the fair value at P1,000,000 and the residual value at P100,000. Attorney’s fees and other legal expenses amounted to P25,000. 5. Land and building acquired by issuing 60,000 shares of P100 par value. The share is quoted at P150 on the date of exchange and the asset acquired had the ff. fair value: Land 2,000,000 Building 5,000,000 Required: Prepare all the indicated entries to record the asset acquisition
Problem 1: Susan Company experienced the ff. transaction during the current year.
1. Purchased machinery for P500, 000 cash.
2. Purchased land and building for P5,500, 000 cash, including an appraiser’s fee of P100,000.
An appraisal indicated fair value as follows.
Land 2,000,000
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Building 3,000,000
5,000,000
3. Invested in 5,000 shares of another entity at P100 per share. Subsequently, Susan Company
exchanged the 5,000 shares for delivery equipment.
At the time of exchange, the share is quoted at 120 and the equipment has a list price of
P680,000. Motor vehicle registration has paid in the amount of P3,000.
4. A certain equipment was donated by a shareholder to Susan Company.
An independent appraisal of the equipment placed the fair value at P1,000,000 and the residual
value at P100,000. Attorney’s fees and other legal expenses amounted to P25,000.
5. Land and building acquired by issuing 60,000 shares of P100 par value.
The share is quoted at P150 on the date of exchange and the asset acquired had the ff. fair
value:
Land 2,000,000
Building 5,000,000
Required: Prepare all the indicated entries to record the asset acquisition
Problem 2: Anxious Company acquired two items of machinery as follows:
On December 31, 2019, Anxious company purchased a machine in exchange for a noninterest bearing note
requiring 10 payments of P500,000. The first payment was made on December 31, 2020, and the others are
due annually on December 31.
The prevailing rate of interest for this type of note at date of issuance was 12%. The present value of
ordinary annuity of 1 at 12% is 5.33 for the nine periods and 5.65 for ten periods.
On December 31, 2020, Anxious Company acquired use of machinery by issuing the seller a two year
noninterest bearing note for P3,000,000. In recent borrowing, Anxious Company has paid a 12% interest
for this type of note.
The present value of 1 at 12% for two years is .80 and the present value of an ordinary annuity of 1 at 12%
for two years is 1.69.
Required: Prepare all
Problem 3: On January 1, 2019, Magnanimous Company’s property, plant and equipment and
depreciation
Accumulated
Cost depreciation
Land 875, 000 ------
Building 7, 500, 000 1, 644, 500
Machinery and equipment 2, 250, 000 635, 000
Leasehold improvements 216, 000 108, 000
Depreciation method and useful life
Building- doubles declining balance, 25 years
Machinery and equipment- straight line, 10 years
Leasehold improvements- straight line
Land improvements- straight line
Transactions during 2019 and other information
a. On January 1, 2019, a plant facility consisting of land and building was acquired from King
Company in exchange for 25, 000 shares of Magnanimous Company.
b. On this date, the share had a market price of P50. Current assessed values of land and building for
property, tax purposes are P150, 000 and P600, 000, respectively.
c. On March 31, 2019, new parking lot, street and sidewalk at the acquired plant facility were
completed at a total cost of P192, 000. These expenditures had an estimated useful life of 12 years.
d. The leasehold improvement was completed on December 31, 2015, and had an estimated useful
life of 8 years. The related lease, which would have terminated on December 21, 2021, was
renewable for an additional four-year term. On April 30, 2019, Magnanimous Company exercised
the renewal option.
e. On July 1, 2019, machinery and equipment were purchased at a total invoice cost of P340, 000.
Additional cost of P10, 000 for delivery and P50, 000 for installation were incurred.
f. On November 1, 2019, Magnanimous Company purchased for P350, 000 at tract of land for
undetermined use.
g. On December 15, 2019, a machine with a cost of P170, 000 and carrying amount of P29, 750 at
date of disposition was scrapped without cash recovery.
Required: Determined the balances of the following for the year ended December 31, 2019.
1. Land, as a part of property, plant and equipment.
2. Depreciation of building.
3. Depreciation of machinery and equipment
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4. Depreciation of leasehold improvements
5. Depreciation of land improvements
Problem 4:
Rago Company takes a full year’s depreciation expense in the year of an assets acquisition, and no
depreciation expense in the year of disposition. The data relating to one of the
December 31, 2018 are as follows:
Acquisition year 2016
Cost 1,100,000
Residual Value 200,000
Accumulated Depreciation 720,000
Estimated useful life 5 years
Using the same depreciation method used in 2016, 2017 and 2018, what amount of depreciation expense
should Rago Company record in 2019 for the asset?
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