Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Problem 6 Flames Company

MULTIPLE CHOICE - THEORIES
1. B 2. B 3. A 4. B 5. D Accumulated Depreciation – Machine (40,000/10 x 6) 24,000
6. A 7. A 8. C 9. D 10. A Loss on Replacement of Machine Parts 16,000
Machinery 40,000

Problem 1 (Pretzy/ Pine Company) Machinery 50,000

Repairs Expense 50,000
Correct cost Recorded Cost Difference
Land 25.8M x 8.4/28 P7,740,000 P7,000,000 P 740,000 Accumulated Depreciation 5,750
Building 25.8M x 14/28 12,900,000 9,000,000 3,900,000 Depreciation Expense 5,750
Equipment 25.8M x 5.6/28 5,160,000 4,000,000 1,160,000
Cost P200,000
Adjusting Entries: Removed part ( 40,000)
1. Land 740,000 Replacement 50,000
Building 3,900,000 Revised gross cost P210,000
Equipment 1,160,000 Accumulated depreciation, 12/31/11
Other Operating Expenses 5,000,000 200,000/10 x 6 120,000
Salaries and Commission Expense 800,000 Removed accumulated depreciation ( 24,000) (96,000)
Carrying value after overhaul P114,000

2. Depreciation Expense – Building 130,000

Depreciation Expense – Equipment 77,333 2017 depreciation
Accumulated Depreciation – Building 116,667 114000/(10-6+4) P 14,240
Accumulated Depreciation – Equipment 77,333 Recorded depreciaition 20,000
5% x 3,900,000 x 8/1 2 = P130,000 Adjustment P 5,750
10% x 1,160,000 x 8/12 = 77,333
Problem 5 Ethan Corporation

Problem 2 (Gay Company) Land Building Others

Organization Fees P50,000 Org’n Exp.
Discount on Notes Payable (5% x 850,000) 42,500 Land site and old building P8,150,000
Equipment 42,500 Corporate organization costs 30,000 Org’n Exp
Title clearance fees 25,000
Problem 3 Dionella Company Cost of razing old building 220,000
Sale of scrap ( 25,000)
a. Machinery Machinery Tools Salaries 300,000 Salaries Exp
Raw materials used in construction P176,000 – 4,000 P172,000 Stock bonus to corporate promoters 100,000 Org’n Exp. (or –
Labor 50,000 APIC)
Cost of installation 10,000 Real estate tax 25,000 Taxes Expense
Materials spoiled in trial runs 5,000 Cost of construction P18,000,000
Incremental overhead due to machine construction 25,000 Total correct cost P8,175,000 P18,195,000
Decommissioning cost 40,000 x .56447 22,579
Purchase of machine tools P15,000
Correct Cost P284,579 P15,000 Adjusting Entries

b. Adjusting entries: Land 8,175,000

Machinery 1,579 Building 18,195,000
Loss on Disposal of Old Machine 3,000 Organization Expenses 180,000
Purchase Discounts 4,000 Taxes Expense 25,000
Profit on Construction 24,000 Miscellaneous Revenues 25,000
Machinery Tools 15,000 Administrative Salaries 300,000
Accumulated Depreciation – Machinery (old) 120,000 Land, Buildings and Equipment 26,900,000
Factory Overhead Control 25,000
Provision for Machine Dismantling 22,579
Machinery (old) 120,000 (NOTE TO THE TEACHER: The Philippine Interpretations Committee’s Interpretation on the
demolition cost of the building is applied. The net demolition cost is capitalized and charged
Depreciation Expense – Machinery 158 to the building account, since demolition is preparatory to construction of the building.
Accumulated Depreciation – Machinery 158
(284,579 x 10%) – 28,300 = 158

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Problem 6 Electro Corporation Problem 8 Conquer Company

Correct cost: Equipment Accumulated

Down payment P50,000 Depreciation
PV of future payments P100,000 x 3.6048 360,480 January 1 Balances P 500,000 P 225,000
Total cost P410,480 May 1 Acquisition (P160,000 x .98)+5,000 161,800
Oct. 1 Sale (100,000)
Correct Depreciation 410,480 / 15 x ½ P13,683 100,000 x 10% x 4 ( 40,000)
Dec. 31 Depreciation
Adjusting Entries: (500,000 – 100,000) x 10% P40,000
100,000 x 10% x ½ 5,000
Discount on Notes Payable (500,000 – 360,480) 139,520 161,800 x 10% x ½ 8,090 ___ 53,090
Machine 139,520 December 31, 2017 Balances P561,800 P 238,090

Interest Expense 36,048

Discount on Notes Payable 36,048 Adjusting Entries
360,480 x 12% x 10/12
Equipment 1,800
Accumulated Depreciation 4,650 Discounts Lost 3,200
Depreciation Expense 4,650 Repairs and Maintenance 5,000
13,683 – 18,333
Loss on Sale of Equipment 30,000
Accumulated Depreciation 40,000
Equipment 70,000
Problem 7 Silver Company
Accumulated Depreciation 9,910
Equipment Accumulated Depreciation Expense 9,910
Depreciation 63,000 – 53,090

Balance, 1/01/17 P 750,000 P300,000

6/01/17 Purchase of Asset 16 P200,000 + 7,000 207,000 Problem 9 Berol Giant Corporation
10/01/17 Sold Asset 10 ( 150,000) Note that IAS 17 is still applied in the solution, as IFRS 16 Leasing shall apply
150,000 x 10% x 5 ( 75,000) effective 2019.
Depreciation for 2015
807,000 x 10% ___ __ 80,700 Audit Adjusting Entries
Balances, December 31, 2017 P807,000 P 305,700
Rent Expense (50,000 x 9/12) 375,000
Prepaid Rent 125,000
Adjusting Entries: Finance Lease Liability 3,540,000
Machinery and Equipment 4,040,000
Accumulated Depreciation 75,000
Loss on Sale of Equipment 57,000 Profit on Construction 150,000
Equipment 8,000 – (1,000 - 400) 132,000 Building 150,000

Net proceeds P20,000 – 2,000 P 18,000 Land Improvement 500,000

Carrying value P150,000 – 75,000 75,000 Land 500,000
Loss on sale P 57,000
Accumulated Depreciation – Machinery and Equipment 2,880,000
Equipment 7,000 Gain on Sale of Machinery 680,000
Repairs and Maintenance 4,000 Machinery and Equipment 4,800,000 – 2,600,000 2,200,000
Freight In 3,000 Cost P4,800,000
Accumulated depreciation
Accumulated Depreciation – Equipment 12,500 480,000/10 x 6 2,880,000
Depreciation Expense – Equipment 12,500 Carrying value P1,920,000
80,700 – 93,200 Proceeds 2,600,000
Gain on Sale of M and E P 680,000

Land 6,000,000
Building 24,000,000
Unearned Income from Government Grant 30,000,000

Depreciation Expense – Building 511,667

Accumulated Depreciation – Building 511,667

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Correct depreciation C. Automobiles and Trucks

Old P12,000,000/ 25 P480,000 Method - 150% declining balance
Improvement 1,600,000/12 x ½ 66,667 Depreciation rate = 1.5/5 = 30%
Donated 24,000,000/25 x ½ 480,000 Old (not sold)
Correct depreciation P1,026,667 (P13,200,000 – P8,620,000) = P4,580,000
Per client 515,000 P4,580,000 – (P810,000 + 235,200) x 30% P1,060,440
Adjustment P 511,667 Sold 235,200
New P650,000 x 30% x 4/12 65,000
Unearned Income from Government Grant 600,000 2017 Depreciation – Automobiles and Trucks P1,360,640
Income from Government Grant 600,000
30,000,000/25 x ½ D. Leasehold Improvements
Method – straight line
Accumulated Depreciation – Machinery and Equipment 312,000 Useful life – 8 years
Depreciation Expense – Machinery and Equipment 312,000 Lease term : original 6 years upon completion of the improvement
Correct depreciation – Machinery and Equipment
(38,500,000 – 4,800,000)/10 = P3,370,000 Remaining useful life = 8 – 3 = 5 years
4,800,000 / 10 x ½ 240,000 Remaining lease term = 6 – 3 + 4 = 7 years
Total P3,610,000
Per client 3,922,000 2017 Depreciation: (P2,210,000 – 1,105,000) / 5 = P 221,000
Adjustment P 312,000
E. Land Improvements
Depreciation Expense – Land Improvements 25,000 Method – straight-line
Accumulated Depreciation – Land Improvements 25,000 Useful life – 12 years
500,000 / 10 x ½ = 25,000
2017 Depreciation: P1,920,000 / 12 x 9/12 P 120,000
b. Adjusted balances:
b. Adjusted Balances:
1. Land P48,250,000 1. Land P16,200,000
2. Land Improvements 500,000 2. Land Improvements 1,920,000
3. Accumulated Depreciation – Land Improvements 25,000 3. Accumulated Depreciation – Land Improvements 120,000
4. Buildings 37,600,000 4. Building 24,800,000
5. Accumulated Depreciation – Buildings 7,026,667 5. Accumulated Depreciation – Buildings 3,892,760
6. Machinery and Equipment 33,700,000 6. Machinery and Equipment 7,870,000
7. Accumulated Depreciation – Machinery and Equipment 18,055,000 7. Accumulated Depreciation – Machinery and Equipment 2,611,250
8. Unearned Income from Government Grant 29,400,000 8. Automobiles and Trucks 5,258,750
9. Depreciation Expense – Land Improvements 25,000 9. Accumulated Depreciation – Automobiles and Trucks 3,059,360
10. Depreciation Expense – Buildings 1,026,667 10. Leasehold Improvements 2,210,000
11. Depreciation Expense – Machinery and Equipment 3,610,000 11. Accumulated Depreciation – Leasehold Improvements 1,326,000
12. Amortized Income from Government Grant 600,000

Problem 11
Problem 10 Malabon Company
Adjusting Entries
Schedule of Depreciation Expense
a. Depreciation Expense – Machine A 15,750
A. Building Accumulated Depreciation 15,750
Method – 150% declining balance Cost P105,000
Depreciation rate = 1.5/25 = 6% Acc. Depreciation 1/1/12
Old (P12,000,000 – P2,654,000) x 6% P560,760 105,000 / 12 x 3 ( 26,250)
New P12,800,000 x 6% 768,000 Carrying amount 1/1/12 P 78,750
2017 Depreciation – Building P1,328,760 78,750 / 5 = P 15,750

B. Machinery and Equipment b. Depreciation Expense – Machine B 40,000

Method – straight-line Accumulated Depreciation – Machine B 40,000
Useful life – 10 years P240,000 / 6 = P 40,000
Old including scrapped in December
P7,750,000/10 P775,000 Impairment Loss 15,000
New P290,000/10 x 6/12 14,500 Accumulated Depreciation – Machine B 15,000
2017 Depreciation – Machinery P789,500 Carrying value 12/31/17
P240,000 x 3.5/6 P140,000
Recoverable amount 125,000
Impairment loss P 15,000

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c. Depreciation Expense – Building A 590,625 depreciation 19,000,000 21,850,000 2,850,000

Accumulated Depreciation – Building A 590,625
Carrying value 1/1/17
P6,300,000 x 15/20 = P4,725,000 Balance of Revaluation Surplus at December 31, 2017 statement of financial position:
2017 Depreciation =
P4,725,000 x 15/120 = P 590,625 12/31/16 Balance Realized in 2017 New Revaluation 12/31/17 Final

d. Retained Earnings 175,000 Pertaining to land P5,000,000 ---------- P2,000,000 P7,000,000

Accumulated Depreciation – Building B 175,000 Pertaining to building 6,000,000 (300,000) 2,850,000 8,550,000
Carrying value 12/31/16 Total P11,000,000 P(300,000) P4,850,000 P15,550,000
P5,250,000 x 7/10 = P3,675,000
Recoverable amount 3,500,000
Impairment loss in 2016 P 175,000

Depreciation Expense – Building B 500,000

Accumulated Depreciation – Building B 500,000
3,500,000 / 7 = P 500,000 Problem 13 (Ecstacy Company)

Accumulated Depreciation – Building B 100,000 Adjusting Entries

Gain - Recovery of Previous Impairment 100,000
Carrying value, 12/31/17 Franchise 420,000
3,500,000 – 500,000 = P3,000,000 Prepaid Rent 280,000
Recoverable amount 3,100,000 Retained Earnings (54,000 + 150,000) 204,000
Increase in value P 100,000 Patents 750,000
Limit on recovery Research and Development Expense (1,000,000 – 90,000) 910,000
175,000 x 6/7 P 150,000 Formula (or Patent) 90,000
Legal Fees 80,000
e. Depreciation Expense – Building 300,000 Intangible Assets 2,734,000
Accumulated Depreciation – Building 300,000
12,000,000 / 20 x 6/12 Retained Earnings (3/24 x 280,000) 35,000
Rent Expense (1/2 x 280,000) 140,000
Investment Property – Land 8,000,000 Prepaid Rent 175,000
Investment Property – Building 12,000,000
Accumulated Depreciation – Building (PPE) (12M/20 x 4.5)2,700,000 Retained Earnings (6/60 x 420,000) 42,000
Land 6,500,000 Amortization Expense – Franchise 84,000
Building 12,000,000 Accumulated Amortization – Franchise 126,000
Revaluation Surplus 4,200,000
Amortization Expense – Patents 62,500
Investment Property – Land 500,000 Accumulated Amortization – Patents 62,500
Investment Property – Building 400,000 750,000 /10 x 10/12
Fair Value Gain on Investment Property 900,000

Problem 12 Gotham Company Problem 14 (Cheryl Corporation)

As of December 31, 2016
Based on Cost Based on Balance of Adjusting Entries
Revalued Amt. Revaluation
Surplus Research and Development Expense 940,000
Land P15,000,000 P20,000,000 P5,000,000 Patents 75,000
Building, net of accumulated Rent Expense (91,000 x 5/7) 110,000
depreciation 14,000,000 20,000,000 6,000,000 Prepaid Rent (91,000 – 65,000) 130,000
General and Administrative Expense 36,000
(a) Depreciation expense on the building for the year 2017: Discount on Bonds Payable 84,000
P20,000,000 / 20 years = P1,000,000 Advertising and Promotions Expenses 90,000
Other Operating Expenses 240,000
(b) Revaluation surplus transferred to Retained Earnings = P6,000,000 / 20 = P300,000 Share Premium – Ordinary Share 250,000
Intangible Assets 1,455,000
(c) Balance of revaluation surplus at December 31, 2017 statement of financial position =
Amortization of Patents 7,500
Based on Based on New Difference Accumulated Amortization – Patents 7,500
Previous Revalued Amt.
Revaluation
Land P20,000,000 P22,000,000 P2,000,000
Building, net of accumulated

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Problem 15 (Kookabar Enterprises) Retained Earnings 1,500

Cost of Goods Sold 1,500
Retained Earnings 525,000 Accumulated Depreciation – Leasehold Improvements 3,000
Patents 525,000 15,000/ 10 = 1,500
750,000 x 7/10 = 525,000
Retained Earnings 32,000
Patents 4,975,000 Organization Costs 32,000
Accumulated Amortization – Patents 4,975,000
To reinstate the gross cost of the patents and related
Accumulated Amortization
(5,500,000 – 525,000) ÷ 7/14
Total cost is therefore P9,950,000
Accumulated amortization =
9,950,000 x 7/14 = P4,975,000

Problem 17 Genuine Company

Cost of Goods Sold 910,714
Accumulated Amortization – Patents 910,714 (1) Audit Adjusting Entries
(P2,100,000 – 1,050,000) / 3 years =P 350,000
(P9,95,000 – 2,100,000) / 14 years = 560,714
2017 Amortization P 910,714 Patents 200,000
Accumulated Amortization – Patents 200,000
Selling and Administrative Expenses 450,000
Franchise Agreement 450,000 Professional Fees and Other Legal Expenses 120,000
Patents 120,000
Selling and Administrative Expenses 100,000
Accumulated Amortization – Franchise Agreement 100,000 Amortization of Patents 100,000
50,000 /5 = 10,000 Accumulated Amortization – Patents 100,000

Retained Earnings 440,000 Impairment Loss – Patents 169,288

Organization Costs 440,000 Accumulated Amortization – Patents 169,288
Carrying value before impairment P700,000
Retained Earnings (45,000 + 100,000) 145,000 Value in use = 140,000 x 3.7908 = 530,712
Goodwill 145,000 Impairment loss P169,288

Professional Fees and Other Legal Expenses 70,000

Problem 16 (Yuka Sato Corporation) Trademarks 70,000

Equipment 34,700 Amortization of Trademarks (150,000/2) 75,000

Patents 34,700 Accumulated Amortization – Trademarks 75,000

Cost of Goods Sold 5,500 Discount on Notes Payable 166,020

Accumulated Amortization – Patents 5,500 Franchise 166,020
93,500 / 17 = 5,500 Face value of the note P800,000
Present value when issued
Impairment Loss – Licensing Agreement No. 1 42,000 200,000 x 3.1699 633,980
Accumulated Impairment – Licensing Agreement 1 42,000 Initial discount P166,020
70% x 60,000 = 42,000
Retained Earnings 63,398
Licensing Agreement No. 2 4,000 Interest Expense 49,738 113,136
Unearned Revenue 4,000 Discount on Notes Payable
Date Periodic Payment Interest Principal Bal. of Principal
Selling and Administrative Expenses 6,000 1/1/16 P633,980
Accumulated Amortization – Licensing Agreement No. 2 6,000 12/31/16 P200,000 P63,398 P136,602 497,378
60,000 / 10 = 6,000 12/31/17 200,000 49,738 150,262 347,116

Retained Earnings 30,000 Franchise 16,602

Goodwill 30,000 Retained Earnings 16,602

Equipment 15,000 Franchise 83,398

Miscellaneous Receivables 6,100 Accumulated Amortization 83,398
Leasehold Improvements 21,100

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Amortization of Franchise 83,398 9. P14,499,000 31. B

Accumulated Amortization – Franchise 83,398 10. P144,990 32. C
Correct cost of franchise = 200,000 + 633,980 = 833,980 11. D 33. C
12. B 34. C
Recorded amortization ( 10 year life) 100,000 13. D 35. B
Correct amortization 833,980/10 83,398 14. D 36. A
Adjustment 16,602 15. C 37. B
16. C 38. C
Retained Earnings 40,000 17. B 39. C
Organization Costs 40,000 18. C 40. B
19. B 41. B
Goodwill (285,000/ 19 ) 15,000
20. C 42. D
Retained Earnings 15,000
21 C 43. A
22 B 44. C
Advertising Expense 165,000 45. D
Goodwill 165,000 46. C

(2.) Adjusted Balances

Supporting computations:
(a) Gross cost of patents ……………………………………………………………………….P1,000,000
(b) Carrying value of patents, December 31, 2016…………………………………….. 800,000 1. B P300,000/10 x 7/12 = P17,500
(c) Amortization of patents for 2017………………………………………………………. 100,000 (300,000 x 6/10) + 36,000 x 5/12
(d) Impairment loss on patents – 2017…………………………………………………… 169,288 8 11,250
(e) Amortization of patents for the year 2018 = 530,712/5 ……………………….. 106,142 Depreciation expense for 2016 P 28,750
(f) Total expenses relating to the Trademark =
70,000 + (1/2 x 150,000) ………………………………………….……………… 145,000 2. A Carrying value as of August 1, 2017 P180,000
(g) Correct cost of the franchise……………………………………………………………… 833,980 Overhaul costs 36,000
(h) Interest expense for 2017 relating to the Notes Payable………………………. 49,738 Depreciation – Aug. 1 – Dec. 31, 2017 ( 11,250)
(i) Discount on notes payable, 12/31/17 = 166,020 – 113,136…………………… 52,884 - January 1 – June 30, 2018
(j) Carrying value of the Franchise, 12/31/17 (833,980 – 166,796)……………… 667,184 216,000 / 8 x 6/12 ( 13,500)
(k) Initial cost of goodwill 285,000 ÷ 19/20 ………………………………………… 300,000 Carrying value, June 30, 2018 P191,250
(l) Goodwill on December 31, 2017………………………………………………………… 300,000 Proceeds from sale 185,000
(m)Net adjustment to Retained Earnings, 1/1/17……………………………………… 71,796 dr. Loss from sale P 6,250

Problem 18 3. C Correct depletion for 2017

P4,860,000 / 1,620,000 x (15,000 tons x 6 months) = P270,000
Amortization of Patents (1,200,000/12) 100,000 Recorded depletion 405,000
Accumulated Amortization – Patents 100,000 Overstatement in depletion P135,000

Amortization of Copyrights (1,400,000/10) 140,000 4. A Estimated useful life in years = 15 years

Accumulated Amortization – Copyrights 140,000 Estimated mining period = 1,620,000 / 15,000 = 108 months or 9 years
Use unit of output method, since mining period is shorter than life in years
Amortization of Computer Software (400,000/10 x 6/12) 40,000
Accumulated Amortization – Software 40,000 Correct depreciation = (P600,000 x 90%) / 1,620,000 x 90,000 tons P 30,000
Recorded depreciation 40,000
Share Premium 2,000,000 Overstatement in depreciation P 10,000
Intellectual Capital 2,000,000
5. C Remaining machines at December 31, 2017 = Machines 2 and 4 only
Retained Earnings 90,000 Cost allocated to Machine 2 P1,200,000 x 500,000/1,500,000 P 400,000
Amortization of Goodwill 90,000
Accumulated Amortization – Goodwill 180,000 Accumulated Depreciation of Machines 2 and 4

Multiple Choice Machine 2 400,000 x 5/10 = P200,000

Machine 4 500,000 / 10 x 6/12 = 25,000
1. B 23. B Total P225,000
2. A 24. C
3. C 25. D 6. B Depreciation Expense for 2017:
Machine 2 P400,000/10 P40,000
4. A 26. D
Machine 3 P480,000/10 x 6/12 24,000
5. C 27. A
Machine 4 P500,000/10 x 6/12 25,000
6. B 28. B
2014 Depreciation P 89,000
7. B 29. A
8. P16,830,000 30. D

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7. B Fair value of Machine 3 P500,000 – 200,000 P300,000 20. C Investment Property

Carrying value of machine 3 Land of P6,000,000 + Building, P7,800,000 = P13,800,000
Cost P480,000
Accumulated depreciation 48,000 x 4.5 216,000 264,000 21. C 7,500,000 + 8,500,000 = P16,000,000
Gain on sale P 36,000
22. B Carrying value
8. Land Building Cost P800,000
Cash paid P12,000,000 Accumulated depreciation
FV of shares issued 40,000 x 107 4,280,000 (P320,000 – P20,000) 300,000
Cost of removal of old buildings P 320,000 Carrying value P500,000
Legal cost to obtain title 150,000 Fair value less cost to sell (520,000 – 50,000) P 470,000
Legal work for construction contract 159,000
Insurance premium during period of construction Hence, the assets held for sale shall be measured at the lower amt. P470,000
240,000 x 2/24 20,000
Special tax assessment 400,000
Construction costs (6,000,000 + 4,o00,000 + 4,000,000) ________ 14.000,000 23. B Impairment loss 500,000 – 470,000 = P 30,000
Correct cost P16,830,000 P 14,499,000 24. C 1,500,000 + 1,800,000 P3,300,000
25. D 860,000 + 5,000,000 = P5,860,000
9. Correct cost of building P14,499,000
10. Depreciation for 2015 = P14,499,000 / 50 x 6/12 P 144,990 26. D 3,000,000 + 2,000,000 + 2,500,000 + 540,000 = P8,040,000

11 through 14 27. A Eggs P100,000 P 100,000

Audit Adjusting Entries:
28. B Machinery, December 31, 2015
Buildings and Equipment 10,000 12/31/14 P9,100,000
Accumulated Depreciation – Buildings and Equipment 30,000 01/03/2015 5,920,000
Gain on Exchange of Buildings and Equipment 10,000 08/28/2015 ( 4,300,000)
Buildings and Equipment 50,000 Balance 12/31/15 P10,720,000

Buildings and Equipment 10,000 29. A Accumulated Depreciation – Machinery 12/31/2015

Accumulated Depreciation – Buildings and Equipment 60,000 12/31/14 P4,820,000
Buildings and Equipment 70,000 08/28/15 (3,172,500)
12/31/15 Depreciation for 2015 2,394,000
Buildings and Equipment 240,000 12/31/15 Balance P 4,041,500
Loss on Exchange of Buildings and Equipment 80,000
Buildings and Equipment 320,000 30. D Vehicles 12/31/2015
12/31/2014 P 4,680,000
11. D Net decrease in cost of buildings and equipment P180,000 06/22/15 1,620,000
12/31/2015 P 6,300,000
12. B Net decrease in accumulated depreciation P 90,000
31. C Accumulated Depreciation – Vehicles
13. D Cost assigned to equipment received 12/31/2014 P 1,965,600
P20,000 carrying value + cash paid of P10,000 = P 30,000 12/31/2014 Depreciation for 2015
On beg. Bal. not sold
14. D Net gain on exchange (see audit adjustments) P830,000 (4,680,000 – 1965,600) x 40% = P 1,085,760
New = 1,620,000 x 40% x 6/12 324,000 1,409,760
P3,375,360
15. C Land as Property, Plant and Equipment
P8,000,000 + 4,000,000 + 7,000,000 = P19,000,000 32. C Depreciation Expense – Machinery (2015)
Machine 1 ( P4,300,000 – 250,000) / 5 x 8/12 = P 540,000
Machine 2 (4,800,000 – 300,000) / 6 = 750,000
16. C Building as Property, Plant and Equipment Machine 3 (5,920,000 – 400,000 ) / 5 = 1,104,000
P12,000,000 + P16,000,000 = P28,000,000 Total depreciation expense, machinery for 2015 P2,394,000

17. B Depreciation Expense – Investment Property 33. C Gain or loss on vehicle sold on May 25, 2016
(P8,000,000 / 20) x ½ = P 200,000 Cost of vehicle sold P2,340,000
Accumulated depreciation
18. C Equipment 12/31/2014 P982,800
P24,000,000 – 800,000 = P23,200,000 2015 depreciation 1,085,800 / 2 = 542,900
2016 depreciation 814,300 x 40% x 5/12 135,700 1,661,400
19. B Accumulated Depreciation – Equipment Carrying value P 678,600
P8,000,000 – 320,000 = P 7,680,000 Selling price 660,000
Loss on sale P 18,600

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Summative Exercise
34. C Accum. Depreciation – Building, Dec. 31, 2015
12/31/2014 P2,861,400 Elegant Builders
2015 and 2016 depreciation 903,600 x 2 years 1,807,200
Accumulated depreciation, building 12/31/2016 P4,668,600
Audit Adjustments:
35. B Depreciation Expense – Machine 2 (2017)
Cost of Machine 2 P4,800,000
Accumulated depreciation – 12/31/2016 Other Receivables 5,600
(4,800,000 – 300,000) / x 59 months/ 72 months = 3,687,500 Representation and Advertising 5,200
Carrying value 12/31/16 P1,112,500 Supplies Expense 3,054
Overhaul cost 1,200,000 Repairs and Maintenance 6,500
Carrying value after overhaul P2,312,500 Petty Cash Fund 20,354

Accounts Receivable – Current 84,200

Depreciation expense – 2017 Bank Charges 2,100
(P2,312,500 – 500,000) / 4 = P453,125 Cash 600
Trade Payables 86,900
36. A Carrying value of land, December 31, 2017 P8,100,000
Accounts Receivable 36,000
37. B Accumulated Depreciation – Land Improvements, Dec. 31, 2017 Allowance for Doubtful Accounts 36,000
(550,000/10) x 1.5 = P 82,500
Sales 35,000
38. C (100,000 X 98%) + 5,000 = P103,000 Accounts Receivable – current 35,000
39. C Carrying value = 180,000 – 180,000 x 10% x 7.5 P 45,000 Sales 20,000
Selling price 54,000
Accounts Receivable – current 20,000
Gain on sale P 9,000

40. B 2015 Depreciation

(500,000 – 180,000) x 10% = P 32,000 Accounts Receivable 14,000
180,000 x 10% x 9/12 = 13,500 Advances from Customers 14,000
103,000 x 10% x 9/12 = 7,725
Total P 53,225 Other Non-current Financial Assets 120,000
Accounts Receivable 120,000
41. B 500,000 – 180,000 + 103,000 P423,000
Sales 145,000
42. D 2,000,000 x 9/10 x 1/5 = P 360,000
Accounts Receivable – current 145,000
43. A 42,000 + 100,000 + 102,000 = P 244,000

44. C Cost = 180,000 + (336,000/112%) = P480,000 Purchases 60,000

(P480,000 /10 ) ( 48,000) Trade Payables 60,000
Carrying value of franchise, 12/31/2017 P432,000
Doubtful Accounts Expense 162,364
45. D 125,000 + 48,000 + 27,000 = P200,000 Allowance for Doubtful Accounts 162,364
46. C 300,000 + (36,000 x 9/12 ) = P 327,000 Inventory, end 2,693,200\
Cost of goods sold 5,887,200
Net Purchases 6,555,000
Inventory, beginning 2,025,400

Other Operating Income 86,400

Trading Securities – PS Bank 86,400

Trading Securities – SM 8,000

Gain on Sale of Trading Securities 8,000

Trading Securities – PS Bank 93,600

Trading Securities – SM 50,000

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Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Unrealized Gains on Trading Securities 143,600 29. Salaries and Commissions 1,226,350
30. Repairs and Maintenance 59,320
Equipment 14,600 31. Supplies Expense 73,054
Transportation Expense 3,600 32. Bank Charges 14,100
33. Interest Expense 76,205
Repairs and Maintenance 11,000
34 Other Operating Income 151,600
35 Transportation Expense 1,400
Depreciation and Amortization 1,825 36 Depreciation and Amortization 135,492
Accumulated Depreciation – Equipment 1,825 37 Doubtful Accounts Expense 162,364
14,600 / 8 = 1,825 38. Representation & Advertising 325,200
39. Ordinary Share Capital 11,000,000
Accumulated Depreciation – Leasehold Improvements 19,333 40. Profit 332,161
Depreciation and Amortization 19,333

Utilities Expense 44,400

Salaries Expense 26,350
Repairs and Maintenance 3,820
Trade Payables and Accrued Expenses 74,570

Interest Expense 12,205

Interest Payable 12,205

Other Operating Income 1,040,000

Additional Paid in Capital 1,000,000
Land 40,000

Retained Earnings 1,650,000

Dividends Payable 1,650,000

Income Tax Expense 142,354

Income Tax Payable 142,354
1. D 375,250 – 84,200 = 291,050
2. A 546,750 – 226,000 – 900 = 319,850
3. A
4. D 6 years which is 12 – 6; shorter than 10 – 6 + 6
5. B see audit adjustments

Answer
6. Petty cash fund 4,646
7. Cash in bank 3,471,200
8. Trading securities, at cost 650,000
9. Trading securities, at market 793,600
10. Unrealized gain or loss on trading securities 143,600 gain
11. Accounts receivable 4,614,200
12. Allowance for doubtful accounts 352,284
13. Other Receivables – current 30,600
14. Merchandise inventory 2,693,200
15. Prepaid expenses 60,920
16. Land 5,960,000
17. Equipment 934,600
18. Accumulated Depreciation – Equipment 691,825
19. Net book value of leasehold improvements 193,333
20. Other Non-current Financial Assets 120,000
21. Trade Payables and Accrued Expenses 1,681.475
22. Notes Payable and Accrued Interest 912,205
23. Dividends Payable 1,650,000
24. Income Tax Payable 142,354
25. Additional Paid in Capital 1,950,000
26. Retained Earnings 482,161
27 Net Sales 9,000,000
28 Net Purchases 5,887,200

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