Solution manual practical auditing by empleo (2013 ed ) practical auditing by empleo (chapter 7 non current operating assets

Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

1. B
6. A

2. B
7. A

MULTIPLE CHOICE - THEORIES
3. A
4. B
8. C
9. D

5. D
10. A

Problem 1
(Pine Company)
Land
25.8M x 8.4/28
Building
25.8M x 14/28
Equipment 25.8M x 5.6/28

Correct cost
P7,740,000
12,900,000
5,160,000

Adjusting Entries:

1.
Land
Building
Equipment
Other Operating Expenses
Salaries and Commission Expense
2.

Recorded Cost
Difference
P7,000,000
P 740,000
9,000,000
3,900,000
4,000,000
1,160,000
740,000
3,900,000
1,160,000

Depreciation Expense – Building
130,000
Depreciation Expense – Equipment
77,333
Accumulated Depreciation – Building
Accumulated Depreciation – Equipment
5% x 3,900,000 x 8/1 2 = P130,000
10% x 1,160,000 x 8/12 =
77,333

5,000,000
800,000

116,667
77,333

Problem 2
(Gay Company)
Discount on Notes Payable (5% x 850,000)
Equipment

42,500

42,500

Problem 3
Lakeside Company
a.

Machinery
Raw materials used in construction P176,000 – 4,000 P172,000
Labor
50,000
Cost of installation
10,000
Materials spoiled in trial runs
5,000
Incremental overhead due to machine construction
25,000
Decommissioning cost 40,000 x .56447

22,579
Purchase of machine tools
Correct Cost
P284,579

b. Adjusting entries:
Machinery
Loss on Disposal of Old Machine
Purchase Discounts
Profit on Construction
Machinery Tools
Accumulated Depreciation – Machinery (old)
Factory Overhead Control
Provision for Machine Dismantling
Machinery (old)

Machinery Tools

P15,000
P15,000

1,579
3,000
4,000
24,000
15,000
120,000
25,000
22,579
120,000

Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Depreciation Expense – Machinery
Accumulated Depreciation – Machinery
(284,579 x 10%) – 28,300 = 158
Problem 4
Emem Corporation

158

Land
Building
Organization Fees
Land site and old building
P8,150,000
Corporate organization costs
Title clearance fees
25,000
Cost of razing old building
220,000
Sale of scrap
( 25,000)
Salaries
Stock bonus to corporate promoters
Real estate tax
Cost of construction
Total correct cost

P8,370,000

158

Others
P50,000 Org’n Exp.
30,000 Org’n Exp

P18,000,000
P18,000,000

300,000 Salaries Exp
100,000 Org’n Exp. (or –
APIC)
25,000 Taxes Expense

Adjusting Entries
Land
Building
Organization Expenses
Taxes Expense
Miscellaneous Revenues
Administrative Salaries
Land, Buildings and Equipment

8,370,000
18,000,000
180,000
25,000
25,000

300,000
26,900,000

Problem 5
Electro Corporation
Correct cost:
Down payment
PV of future payments P100,000 x 3.6048
Total cost

P50,000
360,480
P410,480

Correct Depreciation 410,480 / 15 x ½

P13,683

Adjusting Entries:
Discount on Notes Payable (500,000 – 360,480)
Machine
Interest Expense
Discount on Notes Payable
360,480 x 12% x 10/12
Accumulated Depreciation
Depreciation Expense
13,683 – 18,333

139,520

139,520

36,048
36,048
4,650

4,650


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Problem 6
Flames Company
Accumulated Depreciation – Machine
Loss on Replacement of Machine Parts
Machinery

(40,000/10 x 5)

Machinery
Repairs Expense

20,000
20,000

40,000

50,000

Accumulated Depreciation

Depreciation Expense

7,000

Cost
Removed part
Replacement
Revised gross cost
Accumulated depreciation, 12/31/11
200,000/10 x 5
Removed accumulated depreciation
Carrying value after overhaul

50,000
7,000
P200,000
( 40,000)
50,000
P210,000

100,000
( 20,000)

2012 depreciation
130000/(10-5+5)
Recorded depreciaition
Adjustment

(80,000)
P130,000

P 13,000
20,000
P 7,000

Problem 7
Silver Company
Equipment
Balance, 1/01/12
6/01/12 Purchase of Machine 14 P15,000 + 3,500
09/01/12 Sold Machine 8
8,000 x 10% x 4
Depreciation for 2012
60,500 x 10%
Balances, December 31, 2012

P 50,000
18,500
( 8,000)
___
P60,500

Adjusting Entries:
Accumulated Depreciation
Loss on Sale of Equipment
Equipment 8,000 – (1,000 - 400)
Net proceeds P1,000 – 400
Carrying value P8,000 – 3,200
Loss on sale
Equipment

Repairs and Maintenance

3,200
4,200
7,400
P 600
4,800
P4,200
3,500
3,500

Accumulated
Depreciation
P 28,000
( 3,200)
__ 6,050
P 30,850


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Accumulated Depreciation – Equipment
Depreciation Expense – Equipment
6,440 – 6,050

390

390

Problem 8

Conquer Company

January 1 Balances
May 1 Acquisition P60,000 + P4,000
Oct. 1 Sale
20,000 x 10% x 2
Dec. 31 Depreciation
(223,000 – 20,000) x 10%
20,000 x 10% x ½
64,000 x 10% x ½
December 31, 2010 Balances

Equipment Accumulated
Depreciation
P 223,000
P 44,000
64,000
(20,000)
( 4,000)
P20,300
1,000
3,200

___
P267,000

24,500
P 64,500

Adjusting Entries

Equipment
Operating Expenses

4,000

Loss on Sale of Equipment
Accumulated Depreciation
Equipment

4,000
4,000

Accumulated Depreciation
Depreciation Expense
24,700 – 24,500

4,000

8,000
200

200

Problem 9
Berol Giant Corporation
Audit Adjusting Entries
Rent Expense (50,000 x 9/12)
Prepaid Rent
Finance Lease Liability
Machinery and Equipment

375,000
125,000
3,540,000

Profit on Construction
Building

150,000

Land Improvement
Land

500,000

4,040,000
150,000
500,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Accumulated Depreciation – Machinery and Equipment
2,880,000
Gain on Sale of Machinery
Machinery and Equipment 4,800,000 – 2,600,000
Cost
P4,800,000
Accumulated depreciation
480,000/10 x 6
2,880,000

Carrying value
P1,920,000
Proceeds
2,600,000
Gain on Sale of M and E
P 680,000
Land
Building
Unearned Income from Government Grant

6,000,000
24,000,000

Depreciation Expense – Building
511,667
Accumulated Depreciation – Building
Correct depreciation
Old P12,000,000/ 25
P480,000
Improvement 1,600,000/12 x ½
66,667
Donated 24,000,000/25 x ½
480,000
Correct depreciation
P1,026,667
Per client
515,000
Adjustment
P 511,667
Unearned Income from Government Grant

Income from Government Grant
30,000,000/25 x ½

680,000
2,200,000

600,000

Accumulated Depreciation – Machinery and Equipment
312,000
Depreciation Expense – Machinery and Equipment
Correct depreciation – Machinery and Equipment
(38,500,000 – 4,800,000)/10 = P3,370,000
4,800,000 / 10 x ½
240,000
Total
P3,610,000
Per client
3,922,000
Adjustment
P 312,000
Depreciation Expense – Land Improvements
Accumulated Depreciation – Land Improvements
500,000 / 10 x ½
= 25,000

25,000

511,667

600,000

312,000

25,000

b. Adjusted balances:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

Land
Land Improvements
Accumulated Depreciation – Land Improvements
Buildings
Accumulated Depreciation – Buildings
Machinery and Equipment
Accumulated Depreciation – Machinery and Equipment
Unearned Income from Government Grant
Depreciation Expense – Land Improvements
Depreciation Expense – Buildings

Depreciation Expense – Machinery and Equipment
Amortized Income from Government Grant

30,000,000

P48,250,000
500,000
25,000
37,600,000
7,026,667
33,700,000
18,055,000
29,400,000
25,000
1,026,667
3,610,000
600,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Problem 10
Malabon Company
Schedule of Depreciation Expense
A. Building
Method – 150% declining balance
Depreciation rate = 1.5/25 = 6%
Old
(P12,000,000 – P2,654,000) x 6%
New P12,800,000 x 6%
2012 Depreciation – Building

P560,760
768,000
P1,328,760

B. Machinery and Equipment
Method – straight-line
Useful life – 10 years
Old including scrapped in December
P7,750,000/10
New P290,000/10 x 6/12
2012 Depreciation – Machinery
C. Automobiles and Trucks
Method
- 150% declining balance
Depreciation rate = 1.5/5 = 30%
Old (not sold)
(P13,200,000 – P8,620,000) =
P4,580,000 – (P810,000 + 235,200) x 30%
Sold
New P650,000 x 30% x 4/12
2012 Depreciation – Automobiles and Trucks

P775,000
14,500
P789,500

P4,580,000
P1,060,440
235,200

65,000
P1,360,640

D. Leasehold Improvements
Method – straight line
Useful life – 8 years
Lease term : original 6 years upon completion of the improvement
Remaining useful life = 8 – 3 = 5 years
Remaining lease term = 6 – 3 + 4 = 7 years
2012 Depreciation: (P2,210,000 – 1,105,000) / 5 =

P 221,000

E. Land Improvements
Method – straight-line
Useful life – 12 years
2012 Depreciation: P1,920,000 / 12 x 9/12
b. Adjusted Balances:
1. Land
2. Land Improvements
3. Accumulated Depreciation – Land Improvements
4. Building
5. Accumulated Depreciation – Buildings
6. Machinery and Equipment
7. Accumulated Depreciation – Machinery and Equipment
8. Automobiles and Trucks
9. Accumulated Depreciation – Automobiles and Trucks
10. Leasehold Improvements
11. Accumulated Depreciation – Leasehold Improvements

P 120,000
P16,200,000
1,920,000
120,000
24,800,000
3,892,760
7,870,000
2,611,250
5,258,750
3,059,360
2,210,000
1,326,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Problem 11
Adjusting Entries
a. Depreciation Expense – Machine A
Accumulated Depreciation
Cost
Acc. Depreciation 1/1/12
105,000 / 12 x 3
Carrying amount 1/1/12
78,750 / 5 =

15,750
P105,000
( 26,250)
P 78,750
P 15,750

b. Depreciation Expense – Machine B
Accumulated Depreciation – Machine B
P240,000 / 6 = P 40,000
Impairment Loss
Accumulated Depreciation – Machine B
Carrying value 12/31/12
P240,000 x 3.5/6
Recoverable amount
Impairment loss

40,000

40,000

15,000
15,000
P140,000
125,000
P 15,000

c. Depreciation Expense – Building A
Accumulated Depreciation – Building A
Carrying value 1/1/12
P6,300,000 x 15/20 = P4,725,000
2012 Depreciation =
P4,725,000 x 15/120 =
P 590,625

590,625

d. Retained Earnings
Accumulated Depreciation – Building B
Carrying value 12/31/11
P5,250,000 x
7/10 = P3,675,000
Recoverable amount
3,500,000
Impairment loss in 2011
P 175,000

175,000

Depreciation Expense – Building B
Accumulated Depreciation – Building B
3,500,000 / 7 = P 500,000

500,000

Accumulated Depreciation – Building B
Gain - Recovery of Previous Impairment
Carrying value, 12/31/12
3,500,000 – 500,000 =
Recoverable amount
Increase in value
Limit on recovery
175,000 x 6/7

100,000

e. Depreciation Expense – Building
Accumulated Depreciation – Building
12,000,000 / 20 x 6/12

15,750

590,625

175,000

500,000

100,000

P3,000,000
3,100,000
P 100,000
P

150,000
300,000

300,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Investment Property – Land
8,000,000
Investment Property – Building
12,000,000

Accumulated Depreciation – Building (PPE) (12M/20 x 4.5)2,700,000
Land
Building
Revaluation Surplus
Investment Property – Land
Investment Property – Building
Fair Value Gain on Investment Property
Problem 12
Gotham Company
Based on Cost
Land
Building, net of accumulated
depreciation

P15,000,000
14,000,000

500,000
400,000

6,500,000
12,000,000
4,200,000

900,000

As of December 31, 2011
Based on
Balance of
Revalued Amt.

Revaluation
Surplus
P20,000,000
P5,000,000
20,000,000

6,000,000

(a) Depreciation expense on the building for the year 2012:
P20,000,000 / 20 years =
P1,000,000
(b) Revaluation surplus transferred to Retained Earnings = P6,000,000 / 20 = P300,000
(c) Balance of revaluation surplus at December 31, 2012 statement of financial position =

Land
Building, net of accumulated
depreciation

Based on
Previous
Revaluation
P20,000,000

Based on New
Revalued Amt.

Difference

P22,000,000

P2,000,000

19,000,000

21,850,000

2,850,000

Balance of Revaluation Surplus at December 31, 2012 statement of financial position:
12/31/11 Balance Realized in 2012 New Revaluation
Pertaining to land
P5,000,000
Pertaining to building 6,000,000
Total
P11,000,000

---------(300,000)
P(300,000)

P2,000,000
2,850,000
P4,850,000

12/31/12 Final
P7,000,000
8,550,000
P15,550,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Problem 13
(Ecstacy Company)
Adjusting Entries
Franchise
Prepaid Rent
Retained Earnings
Patents
Research and Development Expense (400,000+1,600,000)
Goodwill
Formula (or Patent)
Legal Fees
Intangible Assets

420,000
280,000
160,000
740,000
2,000,000
2,784,000
350,000
126,500

Retained Earnings (3/24 x 280,000)
Rent Expense (1/2 x 280,000)
Prepaid Rent

35,000
140,000

Retained Earnings (6/60 x 420,000)

Amortization Expense – Franchise
Accumulated Amortization – Franchise

42,000
84,000

Amortization Expense – Patents
Accumulated Amortization – Patents
740,000 /10 x 10/12

61,667

6,860,500

175,000

126,000
61,667

Problem 14
(Mandy Moore Corporation)
Adjusting Entries
Research and Development Expense
Patents
Rent Expense (91,000 x 5/7)
Prepaid Rent (91,000 – 65,000)
General and Administrative Expense / Share Premium
Discount on Bonds Payable
Advertising and Promotions Expenses
Other Operating Expenses

Share Premium – Ordinary Share
Intangible Assets

940,000
75,000
65,000
26,000
* 36,000
84,000
207,000
241,000

250,000
1,424,000

* If there is no share premium from the same transaction/ If share premium results from the
same transaction.


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Problem 14
(Kookabar Enterprises)
Retained Earnings
Patents
750,000 x 7/10 = 525,000

525,000
525,000

Patents

4,975,000
Accumulated Amortization – Patents
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
Cost of Goods Sold
910,714
Accumulated Amortization – Patents
(P2,100,000 – 1,050,000) / 3 years =P 350,000
(P9,95,000 – 2,100,000) / 14 years = 560,714
2012 Amortization
P 910,714
Selling and Administrative Expenses
Franchise Agreement

450,000

Selling and Administrative Expenses
Accumulated Amortization – Franchise Agreement
50,000 /5 = 10,000

100,000

4,975,000

910,714

450,000

Retained Earnings
Organization Costs

440,000

Retained Earnings (45,000 + 100,000)
Goodwill

145,000

100,000

440,000
145,000

Problem 16
(Yuka Sato Corporation)
Equipment
Patents
Cost of Goods Sold
Accumulated Amortization – Patents
93,500 / 17 = 5,500
Impairment Loss – Licensing Agreement No. 1
Accumulated Impairment – Licensing Agreement 1
70% x 60,000 = 42,000

34,700

34,700

5,500
5,500
42,000

Licensing Agreement No. 2
Unearned Revenue
(Correction: advance collection of 2013,
instead of 2011 revenue)

4,000

Selling and Administrative Expenses
Accumulated Amortization – Licensing Agreement No. 2
60,000 / 10 = 6,000

6,000

42,000

4,000

6,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Retained Earnings
Goodwill

30,000

Equipment
Miscellaneous Receivables
Leasehold Improvements

15,000
6,100

Retained Earnings
Cost of Goods Sold
Accumulated Depreciation – Leasehold Improvements
15,000/ 10 = 1,500

1,500
1,500

Retained Earnings
Organization Costs

32,000

30,000

21,100

3,000

32,000

Problem 17
Genuine Company
(1)

Audit Adjusting Entries

Patents
Accumulated Amortization – Patents

200,000

Professional Fees and Other Legal Expenses
Patents

120,000

Amortization of Patents
Accumulated Amortization – Patents

100,000

Impairment Loss – Patents
Accumulated Amortization – Patents
Carrying value before impairment P700,000
Value in use = 140,000 x 3.7908 =
530,712
Impairment loss
P169,288

169,288

200,000
120,000
100,000

Professional Fees and Other Legal Expenses
Trademarks

70,000

Amortization of Trademarks (150,000/3)
Accumulated Amortization – Trademarks

50,000

Discount on Notes Payable
Franchise
Face value of the note
Present value when issued
200,000 x 3.1699
Initial discount

166,020
P800,000
633,980
P166,020

169,288

70,000

50,000
166,020


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Retained Earnings
63,398
Interest Expense
49,738
113,136
Discount on Notes Payable
Date
Periodic Payment Interest Principal
Bal. of Principal
1/1/11
P633,980
12/31/11
P200,000
P63,398 P136,602
497,378
12/31/12
200,000
49,738
150,262
347,116
Franchise
Retained Earnings

16,602

Franchise
Accumulated Amortization

83,398

16,602

Amortization of Franchise
83,398
Accumulated Amortization – Franchise
Correct cost of franchise = 200,000 + 633,980 = 833,980
Recorded amortization ( 10 year life)
Correct amortization 833,980/10
Adjustment

83,398

100,000
83,398
16,602

Retained Earnings
Organization Costs

40,000

Goodwill (285,000/ 19 )
Retained Earnings

15,000

Advertising Expense
Goodwill

165,000

(2.)

83,398

40,000

15,000
165,000

Adjusted Balances
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)

Gross cost of patents ……………………………………………………………………….P1,000,000
Carrying value of patents, December 31, 2011…………………………………….. 800,000
Amortization of patents for 2012………………………………………………………. 100,000
Impairment loss on patents – 2012…………………………………………………… 169,288
Amortization of patents for the year 2013 = 530,712/5 ……………………….. 106,142
Total expenses relating to the Trademark = 70,000 + 50,000……………… 120,000
Correct cost of the franchise……………………………………………………………… 833,980
Discount on notes payable, 12/31/12 = 166,020 – 113,136……………………
52,884
Interest expense for 2012 relating to the Notes Payable……………………….
49,738
Carrying value of the Franchise, 12,31,12 (833,980 – 166,796)……………… 667,184
Initial cost of goodwill 285,000 ÷ 19/20 ………………………………………… 300,000
Net adjustment to Retained Earnings, 1/1/12………………………………………
71,796 dr.


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Multiple Choice
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

12.
13.
14.
15.
16.
17.
18.
19.
20.

B
A
C
A
C
C
B
C
D
B
D
D
C
C
B
C
B
C
C
B

21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.

B
C
D
D

A
B
A
D
B
C
C
C
B
A
B
C
C
B
B
D
A
C
D
C

Supporting computations:
1. B

2. A

P300,000/10 x 7/12 =
(300,000 x 6/10) + 36,000
x 5/12
8

Depreciation expense for 2012
Carrying value as of August 1, 2012
Overhaul costs
Depreciation – Aug. 1 – Dec. 31, 2012
- January 1 – June 30, 2013
216,000 / 8 x 6/12
Carrying value, June 30, 2013
Proceeds from sale
Loss from sale

P17,500
11,250
P 28,750
P180,000
36,000
( 11,250)
( 13,500)
P191,250
185,000
P 6,250

3. C

Correct depletion for 2012
P4,860,000 / 1,620,000 x (15,000 tons x 6 months) =
Recorded depletion
Overstatement in depletion

4. A

Estimated useful life in years = 15 years
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

P270,000
405,000
P135,000

Correct depreciation = (P600,000 x 90%) / 1,620,000 x 90,000 tons
Recorded depreciation
Overstatement in depreciation

P 30,000
40,000
P 10,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
5. C

Remaining machines at December 31, 2010 = Machines 2 and 4 only
Cost allocated to Machine 2 P1,200,000 x 500,000/1,500,000

P 400,000

Accumulated Depreciation of Machines 2 and 4
Machine 2 400,000 x 5/10 =
Machine 4 500,000 / 10 x 6/12
Total
6. C

7. B
8. C

P200,000
25,000
P225,000

=

Land
Cash paid
P 800,000
FV of shares issued 8,000 x 107
856,000
Cost of removal of old buildings
98,000
Examination of title
13,000
Legal work for construction contract
Insurance premium during period of construction
22,800 x 2/24
Special tax assessment
40,000
Superintendent’s salary
Construction costs (600,000 + 400,000 + 400,000) ________
Correct cost
P1,807,000
Correct cost of building
Depreciation for 2012 = P1,462,500 / 50 x 6/12

Building

P 18,600
1,900
42,000
1,400,000
P 1,462,500
P1,462,500
P 14,625

9 through 12
Audit Adjusting Entries:
Buildings and Equipment
Accumulated Depreciation – Buildings and Equipment
Gain on Exchange of Buildings and Equipment
Buildings and Equipment

10,000
30,000
10,000

Buildings and Equipment
Accumulated Depreciation – Buildings and Equipment
Buildings and Equipment

10,000
60,000

Buildings and Equipment

Loss on Exchange of Buildings and Equipment
Buildings and Equipment

240,000
80,000

50,000

70,000

320,000

9. D Net decrease in cost of buildings and equipment

P180,000

10. B

Net decrease in accumulated depreciation

P 90,000

11. D Cost assigned to equipment received
P20,000 carrying value + cash paid of P10,000 =

P 30,000

12. D Net gain on exchange (see audit adjustments)

P830,000

13. C Land as Property, Plant and Equipment
P8,000,000 + 4,000,000 + 7,000,000

P19,000,000

=


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

14. C Building as Property, Plant and Equipment
P12,000,000 + P16,000,000 =

P28,000,000

15. B Depreciation Expense – Investment Property
(P8,000,000 / 20) x ½ =

P

16. C Equipment
P24,000,000 – 800,000 =

P23,200,000

17. B Accumulated Depreciation – Equipment
P8,000,000 – 320,000 =

P 7,680,000

18. C Investment Property
Land of P6,000,000 + Building, P7,800,000 =

P13,800,000

19. C 7,500,000 + 8,500,000 =

P16,000,000

20. B Carrying value
Cost
Accumulated depreciation
(P320,000 – P20,000)
Carrying value
Fair value less cost to sell (520,000 – 50,000)

200,000

P800,000
300,000
P500,000
P 470,000

Hence, the assets held for sale shall be measured at the lower amt. P470,000
21. B Impairment loss 500,000 – 470,000 =

P 30,000

22. C 1,500,000 + 1,800,000

P3,300,000

23. D 860,000 + 5,000,000 =

P5,860,000

24. D 3,000,000 + 2,000,000 + 2,500,000 + 540,000 =

P8,040,000

25. A Eggs

P100,000

P 100,000

26. B Machinery, December 31, 2010
12/31/09
01/03/2010
08/28/2010
Balance 12/31/10

P9,100,000
5,920,000
( 4,300,000)
P10,720,000

27. A Accumulated Depreciation – Machinery 12/31/2010
12/31/09

08/28/10
12/31/10 Depreciation for 2010
12/31/10 Balance

P4,820,000
(3,172,500)
2,394,000
P 4,041,500

28. D Vehicles 12/31/2010
12/31/2009
06/22/10
12/31/2010

P 4,680,000
1,620,000
P 6,300,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
29. C Accumulated Depreciation – Vehicles
12/31/2009
12/31/2010 Depreciation for 2010
On beg. Bal. not sold
(4,680,000 – 1965,600) x 40% =
New = 1,620,000 x 40% x 6/12

P 1,965,600
P 1,085,760
324,000

30. C Depreciation Expense – Machinery (2010)
Machine 1 ( P4,300,000 – 250,000) / 5 x 8/12 =
Machine 2 (4,800,000 – 300,000) / 6 =
Machine 3 (5,920,000 – 400,000 ) / 5 =
Total depreciation expense, machinery for 2010
31. C Gain or loss on vehicle sold on May 25, 2011
Cost of vehicle sold
Accumulated depreciation
12/31/2009
2010 depreciation 1,085,800 / 2 =
2011 depreciation 814,300 x 40% x 5/12
Carrying value
Selling price
Loss on sale

1,409,760
P3,375,360
P 540,000
750,000
1,104,000
P2,394,000
P2,340,000

P982,800
542,900
135,700

32. C Accum. Depreciation – Building, Dec. 31, 2011
12/31/2009

2010 and 2011 depreciation 903,600 x 2 years
Accumulated depreciation, building 12/31/2011
33. B Depreciation Expense – Machine 2 (2012)
Cost of Machine 2
Accumulated depreciation – 12/31/2011
(4,800,000 – 300,000) / x 59 months/ 72 months =
Carrying value 12/31/11
Overhaul cost
Carrying value after overhaul
Depreciation expense – 2012
(P2,312,500 – 500,000) / 4 =
34. A Carrying value of land, December 31, 2012

1,661,400
P 678,600
660,000
P 18,600
P2,861,400
1,807,200
P4,668,600
P4,800,000
3,687,500
P1,112,500
1,200,000
P2,312,500
P453,125
P8,100,000

35. B Accumulated Depreciation – Land Improvements, Dec. 31, 2010
(550,000/10) x 1.5 =

P 82,500

36. C (100,000 X 98%) + 5,000 =

P103,000

37. C Carrying value = 180,000 – 180,000 x 10% x 7.5
Selling price
Gain on sale

P 45,000
54,000
P 9,000

38. B 2012 Depreciation
(500,000 – 180,000) x 10% =
180,000 x 10% x 9/12 =
103,000 x 10% x 9/12 =
Total

P 32,000
13,500
7,725
P 53,225


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
39. B 500,000 – 180,000 + 103,000

P423,000

40. D 2,000,000 x 9/10 x 1/5 =

P 360,000

41. A 42,000 + 100,000 + 102,000 =

P 244,000

42. C Cost = 180,000 + (336,000/112%) =
(P480,000 /10 )
Carrying value of franchise, 12/31/2012

P480,000
( 48,000)
P432,000

43. D 125,000 + 48,000 + 27,000 =

P200,000

44. C 300,000 + (36,000 x 9/12 ) =

P 327,000

Summative Exercise

Elegant Builders

Audit Adjustments:
Other Receivables
Representation and Advertising
Supplies Expense
Repairs and Maintenance
Petty Cash Fund

5,600
5,200
3,054
6,500

Accounts Receivable – Current
Bank Charges
Cash
Trade Payables

84,200
2,100
600

Accounts Receivable
Allowance for Doubtful Accounts

36,000

Sales

35,000

20,354

86,900

36,000

Accounts Receivable – current
Sales

35,000
20,000

Accounts Receivable – current

20,000

Accounts Receivable
Advances from Customers

14,000

Other Non-current Financial Assets
Accounts Receivable

120,000
120,000

Sales

145,000

145,000

Accounts Receivable – current

14,000


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

Purchases
Trade Payables
Doubtful Accounts Expense
Allowance for Doubtful Accounts
Inventory, end
Cost of goods sold
Net Purchases
Inventory, beginning
Other Operating Income
Trading Securities – PS Bank

60,000
60,000
162,364
162,364
2,693,200\
5,887,200
6,555,000
2,025,400
86,400
86,400

Trading Securities – SM
Gain on Sale of Trading Securities

8,000

Trading Securities – PS Bank
Trading Securities – SM
Unrealized Gains on Trading Securities

93,600
50,000

Equipment
Transportation Expense
Repairs and Maintenance

14,600

Depreciation and Amortization
Accumulated Depreciation – Equipment
14,600 / 8 = 1,825

8,000

143,600

3,600
11,000
1,825

1,825

Accumulated Depreciation – Leasehold Improvements 19,333
Depreciation and Amortization
19,333
Utilities Expense
Salaries Expense
Repairs and Maintenance
Trade Payables and Accrued Expenses

44,400
26,350
3,820

Interest Expense
Interest Payable

12,205

74,570

12,205

Other Operating Income
Additional Paid in Capital
Land

1,040,000

Retained Earnings

Dividends Payable

1,650,000

Income Tax Expense
Income Tax Payable

1,000,000
40,000

1,650,000
142,354
142,354


Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27
28
29.
30.
31.
32.
33.
34
35
36
37
38.
39.
40.

D
A

A
D
B

375,250 – 84,200 = 291,050
546,750 – 226,000 – 900 = 319,850
6 years which is 12 – 6; shorter than 10 – 6 + 6
see audit adjustments

Petty cash fund
Cash in bank
Trading securities, at cost
Trading securities, at market
Unrealized gain or loss on trading securities
Accounts receivable
Allowance for doubtful accounts
Other Receivables – current
Merchandise inventory
Prepaid expenses
Land
Equipment
Accumulated Depreciation – Equipment
Net book value of leasehold improvements
Other Non-current Financial Assets
Trade Payables and Accrued Expenses
Notes Payable and Accrued Interest
Dividends Payable
Income Tax Payable
Additional Paid in Capital
Retained Earnings

Net Sales
Net Purchases
Salaries and Commissions
Repairs and Maintenance
Supplies Expense
Bank Charges
Interest Expense
Other Operating Income
Transportation Expense
Depreciation and Amortization
Doubtful Accounts Expense
Representation & Advertising
Ordinary Share Capital
Profit

Answer
4,646
3,471,200
650,000
793,600
143,600 gain
4,614,200
352,284
30,600
2,693,200
60,920
5,960,000
934,600
691,825
193,333

120,000
1,681.475
912,205
1,650,000
142,354
1,950,000
482,161
9,000,000
5,887,200
1,226,350
59,320
73,054
14,100
76,205
151,600
1,400
135,492
162,364
325,200
11,000,000
332,161