Audit of PPE Comprehensive Quizzer (Auditing Problem) PDF

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Use the following information for the next two (2) questions: On April 1, 2022, Pacific Corporation purchased for P2,700,000 a tract of land, a warehouse and an office building. The following data were collected regarding the property. Appraised values Vendors’ book value Land 875,000 700, Warehouse...

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Use the following information for the next two (2) questions: On April 1, 2022, Pacific Corporation purchased for P2,700,000 a tract of land, a warehouse and an office building. The following data were collected regarding the property. Appraised values 875,000 375,000 1,000,000

Land Warehouse Office building

Vendors’ book value 700,000 400,000 975,000

1) What are the appropriate amounts that Pacific should record for the land, warehouse and office building, respectively? Land Warehouse Office building Land Warehouse Office building A. 700,000 400,000 900,000 C. 945,000 540,000 1,215,000 B. 875,000 375,000 1,000,000 D. 1,050,000 450,000 1,200,000 2) Assume an estimated useful life of 10 years for the warehouse & office building and an estimated salvage value of 10%, what is the depreciation expense for the warehouse and office building in 2022 under sum-of-years’ digits method? Warehouse Office building Warehouse Office building A. 81,818 218,182 C. 73,636 196,364 B. 61,364 290,909 D. 55,227 147,273 Use the following information for the next two (2) questions: On May 1, Black Racer Company purchased factory machinery having an installment price of P5,000,000 and a list price of P4,500,000. The company made a P1,000,000 down payment and issued a 4-year, P4,000,000 non interest bearing note payable P1,000,000 every May starting next year. The prevailing interest rate for similar note is at 6%. The present value factor of P1 ordinary annuity of 6% for 4 periods 3.4651 3) How much should be the factory machinery be initially recognized? A. 3,465,100 B. 4,465,100 C. 4,500,000

D.

5,000,000

4) Assuming an estimated useful life of 5-years with a 10% salvage value based on cost, what is the depreciation expense for the first year under the 150% declining balance method? A.

1,350,000

B.

1,339,530

C.

900,000

D.

893,020

5) Doug Airlines sold used jet aircraft to Adele Company for P800,000, accepting a five-year 6% note for the entire amount. Adele’s incremental borrowing rate was 14%. The annual payment of principal and interest on the note was to be P189,930. The aircraft could have been sold at an estimated cash price of P651,460. The present value of an ordinary annuity of P1 at 8% for five periods is 3.99. The air craft should be capitalized on Adele’s books at A.

949,650

B.

800,000

C.

757,820

D. 651,460

Use the following information for the next two (2) questions: Below is the information relative to an exchange of asset by Mimz Bernanz Company. The exchange has commercial substance in Case 1 and without commercial substance in Case 2: Old Equipment Case 1 Case 2

Book value 75,000 50,000

Fair value 85,000 75,000

Cash paid 15,000 7,000

6) Which of the following would be correct for Mimz Bernanz to record in Case 1? A. 7) B.

Record Equipment at 90,000 100,000

Record a gain or loss of Nil 10,000 gain

C. D.

Record Equipment at 75,000 90,000

Record a gain or loss of 5,000 loss 10,000 gain

Which of the following would be correct for Mimz Bernanz to record in Case 2? A

Record Equipment at 90 000

Record a gain or loss of Nil

C

Record Equipment at 75 000

Record a gain or loss of 5 000 loss

Use the following information for the next two (2) questions: On July 1, 2017, Banded Water Company traded in an old machine with a carrying amount of P10,000 for a similar new machine having a cash price of P32,000, and paid a cash difference of P19,000. 8) How much should the property be initially recognized? A. 32,000 B. 29,000

C.

22,000

D.

19,000

9) How much is the gain or loss from the trade in transactions? A. None B. 3,000 C.

7,000

D.

10,000

Use the following information for the next two (2) questions: On February 1, 2017, Exile Company traded in an old machine with a book value of P8,000 for a similar new machine having a cash price of P35,000 and a list price of P40,000. Exile paid P25,000 as a result of trade-in. The fair value of the asset given up is not determinable. 10) How much should the new machine be initially recognized? A.

35,000

B.

40,000

C.

60,000

D. 25,000

C.

7,000

D. 17,000

11) How much is the gain or loss from the trade in transaction? A.

Nil

B.

2,000

Use the following information for the next three (3) questions: On July 1, 2017, Bonnie Bailey Incorporated accepted several office equipment from a shareholder with original cost of P2,000,000. On the same date, the items had aggregate market value totaling to P1,500,000. No entry has been made by Bonnie Bailey since no consideration was given up for these items. Moreover, cost incurred to recondition the donated items amounted to P100,000 and were charged to operations during the period. 12) How much should the property be initially recognized? A.

0

B.

1,500,000

13) The entries to record the donation involves a net credit to: A. Donated capital at P2,000,000 B. Donated capital at P1,400,000

C.

1,600,000

D. 2,000,000

C. D.

Donated capital at P1,500,000 Gain from grants at P1,500,000

14) Assuming an estimated useful life of 5 years with a 10% salvage value, what is the depreciation expense for the first year under SYD? A.

240,000

B.

225,000

C.

250,000

15) A schedule of plant assets owned by Bobtail Corporation is presented below: Cost Residual Value Depreciable cost Building 2,200,000 200,000 2,000,000 Machinery 800,000 80,000 720,000 Equipment 160,000 --160,000 Total 3,160,000 280,000 2,880,000

D. 266,666 Useful life 20 years 15 years 5 years

Annual Depreciation 100,000 48,000 32,000 180,000

Bobtail computes depreciation on the straight line method. The composite life of the asset should be: A. 19.80 B. 18.00 C. 17.56 D. 16.00 16) On January 1, 2017, Wirehair Company signed an eight-year lease for office space. Wirehair has the option to renew the lease for an additional six-year period on or before January 1, 2023. During January 2017, Wirehair incurred the following costs: General improvement to the lease premises with useful life of 10 years 5,400,000 Office furniture and equipment with useful life of 8 years 2,400,000 Moveable assembly line equipment with useful life of 5 years 1,800,000 At December 31, 2017, Wirehair’s intention as to the exercise of the renewal option is uncertain. A full year depreciation of leasehold improvement is taken for year 2017. In Wirehair’s December 31, 2017 statement of financial position, accumulated depreciation of leasehold improvement should be: A. 1,200,000 B. 540,000 C.

1,300,000

D. 900,000

Use the following information for the next two (2) questions: The cost of leasehold amounting to P1,000,000 was recorded initially on January 1, 2015. The original lease term is 8 years while the leasehold improvements were completed on December 31, 2016 amounting to P500,000 with an estimated useful life of 10 years. The related lease, which would have expired on December 31, 2022, was renewable for an additional 6-year term. You noted that the cost of leasehold was considered to be material. 17) Assuming the renewable option is highly probable/certain, how much is the correct depreciation expense to be recognized for the year 2017? A.

35,714

B.

62,500

C.

50,000

D.

41,667

18) Assuming the renewal option is uncertain, how much is the depreciation expenses to be recognized for the year 2017? A. 62,500 B. 83,333 C. 50,000 D. 41,667 19) On January 1, 2018, Bengal Company purchased machinery for P4,000,000. On the date of installation,

it

was

estimated that the machinery has a 10-year useful life and P400,000 residual value. At the beginning of 2022, Bengal revised its useful life to 8 years from acquisition date and increased the residual value by P60,000. What is the depreciation of the machinery in 2022? A. 360,000 B. 450,000

C.

525,000

D. 900,000

20) Birman Company purchased equipment on January 1, 2020 for P9,000,000. The equipment had a useful life of 5 years and residual value of P600,000. The company’s policy is to depreciate the assets using the 200% declining balance method for the first two years and then switch to straight life. In its December 31, 2022 balance sheet, what amount should Birman report as accumulated depreciation? A.

6,640,000

B.

6,384,000

C.

5,400,000

D. 5,040,000

21) On January 1, 2020, Japanese Bobtail Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated residual value of P50,000. The depreciation applicable to this equipment was P240,000 for 2022 computed under the sum-of-years’ digit. What was the acquisition cost of the equipment? A.

1,650,000

B.

1,700,000

C.

2,400,000

D. 2,450,000

Use the following information for the next two (2) questions: On June 1, Thick Company acquired a real property by issuing 35,360 shares of its P100 par value ordinary shares. The shares were selling on the same date at P125. A mortgage of P4,000,000 was assumed by Thick on the purchase. Moreover, the company paid P180,000 of real property taxes in the prior years. Twenty percent of the purchase price should be allocated to the land and the balance to the building. In order to make the building suitable for the use of Thick, remolding costs had to be incurred in the amount of P900,000. This however necessitated the demolition of a portion of the building, which resulted in recovery of salvage material sold for P30,000. Parking lot cost the company a total of P320,000 while repairs in the main hall were incurred at P45,000 prior to its use. 22) The correct cost of the land should be A. 1,664,000 B. 1,720,000

C.

2,040,000

D. 2,400,000

C.

7,750,000

D. 7,570,000

23) The correct cost of the building should be A.

6,330,000

B.

7,795,000

Use the following information for the next two (2) questions: Beastheart Corporation incurred the following expenditures which it had charged to property, plant and equipment account at the beginning of 2022: Cash paid on purchase of land Demolition of a building erected on the purchased land Legal fees for the land acquisition Interest on loan for construction Labor and materials for construction of the building Architect’s fees for the building Excavation expense Fixed overhead charged to the building Cost of temporary safety fence Insurance on building during the construction Payment to squatters to vacate the premises Mortgage assumed on the land purchased Cost of temporary quarters for construction crew Property taxes on land covering the period 2019 – 2022 Mortgage assumed on the land purchased Special assessments Cost of option paid to buy the land Landscaping cost Cost of paving driveway and parking lot Proceeds from sale of salvage materials Profit on construction, equal to the difference between the appraised value and actual construction costs

220,000 100,000 25,000 27,000 500,000 37,000 45,000 100,000 50,000 10,000 30,000 80,000 50,000 80,000 140,000 25,000 15,000 40,000 20,000 30,000 120,000

24) What is the correct land balance for 2022? A.

565,000

B.

585,000

C.

605,000

D. 625,000

C.

869,000

D. 819,000

25) What is the correct building balance for 2022? A.

919,000

B.

949,000

26) Balinese Inc. acquired an asset that had a cost of P130,000. The asset is being depreciated over a 5-year period using sum-of-years’ digit method. It has a salvage value estimated at P10,000. The loss/gain if the asset is sold for P38,000 at the end of third year is A.

4,000 gain

B.

20,000 loss

C.

68,000 loss

D. 92,000 loss

Use the following information for the next three (3) questions: Marissa incurred the following cost during the current year in relation to the property, plant and equipment: Cash paid for purchase of land Mortgage assumed on the land purchased, including interest accrued Realtor 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 to make room for construction of new building Salvage value of the old building demolished Cost of fencing the property after completion of construction Amount paid to the contractor for the building constructed Building permit fee Excavation fee Architect fee Interest that would have been earned had the money used during the period of constructed been invested Invoice cost of machine acquired Freight unloading and delivery charges Custom duties and other charges Allowances and hotel accommodation, paid to foreign technicians during installation and test run of machine

2,500,000 1,000,000 300,000 50,000 100,000 200,000 50,000 110,000 5,000,000 50,000 50,000 200,000 150,000 2,000,000 60,000 140,000 400,000

27) What amount should be capitalized as cost of land? A.

3,950,000

B.

4,100,000

28) What amount should be capitalized as cost of building A. 5,300,000 B. 5,410,000

C.

3,850,000

D.

3,800,000

C.

5,450,000

D.

5,560,000

C.

2,200,000

D.

2,560,000

29) What amount should be capitalized as cost of machine? A.

2,600,000

B.

2,000,000

30) On January 1, 2021, Viaja Company took out a loan of P26,000,000 in order to finance the renovation of a building. The renovation work started on the same date. The loan carried interest at 10%. Work on the building was substantially completed on October 31, 2021. The loan was repaid on December 31, 2021 and P180,000 investment income was earned in the period to October 31 on those parts of the loan not yet used for the renovation. According to PAS 23 – Borrowing costs, total amount of borrowing costs to be included in the cost of the building is A. 2,600,000 B. 2,420,000 C. 2,166,667 D.

1,986,667

31) All-American Rejects Company had the following borrowings during 2022. The borrowings were made for general purposes but the proceeds were used in part to finance the construction of a new building: Principal 10,000,000 20,000,000

12% bank loan 15% long-term loan

Interest 1,200,000 3,000,000

The construction began on Jan. 1, 2022 and was completed on Dec. 31, 2022. Expenditures on the building were: January 1 8,000,000 June 30 8,000,000 December 31 4,000,000 The capitalized borrowing cost is A.

1,680,000

B.

1,400,000

C.

4,200,000

D.

1,620,000

Use the following information for the next two (2) questions: Arclight Company self-constructed an asset for its own use. Construction started on January 1, 2017 and the asset was completed on December 31, 2017. The company had a two-year, 18% loan of P500,000, specifically obtained to finance the asset construction. Funds not yet needed during the construction were temporarily invested in a short-term debt securities yielding a P10,000 interest revenue. The company also had a general borrowings amounting to P600,000, 5-year term with interest of 20% and P1,000,000, 10-year term with interest of 18% were used in part in the self-construction. Cost incurred during the year were as follows: January 1 – P400,000 August 1 – P480,000

April 1 – P500,000 December 1 – P180,000

32) What is the average accumulated expenditures for the self-constructed asset? A.

1,560,000

B.

990,000

C.

870,000

D.

780,000

C.

80,000

D.

91,875

300,000

D.

135,000

33) How much is the total capitalized interest? A.

171,875

B.

165,000

34) How much interest should be recognized as interest expense? A. 0 B. 208,125 C.

35) During 2017, Reticulated Company constructed a new manufacturing facility at a cost of P30,000,000. The expenditures for this building, which was finished late in 2017, were incurred evenly during the year. The entity had the following loans outstanding at December 31, 2017. •

• •

10% note to finance specifically construction of the manufacturing facility, dated January 1, 2017, P10,000,000. Unpaid as of December 31, 2017. Investments were made on the proceeds from this loan and P100,000 was realized in 2017. 12%, 20-years bonds payable issued at face value on April 30, 2016, P30,000,000.

income

of

8%, 5-years payable, dated March 1, 2016, P10,000,000.

What amount of interest is capitalized as cost of the new building? A.

1,550,000

B.

1,450,000

C.

1,400,000

D.

1,500,000

Use the following information for the next two (2) questions: Dumb Company constructed its own factory building. The company had a P1,000,000 two-year 12% loan

specifically

obtained to finance the asset construction. The construction began on January 1, 2021 and the building was completed on December 30, 2022. Expenditures on the building were made as follows: January 1, 2021 – P800,000

April 30, 2021 – P300,000

March 1, 2022 – P600,000 Dumb has the following outstanding loans: General borrowings:

November 1, 2021 – P600,000

September 30, 2022 – P400,000

10% note issued prior to construction of new building; term, 10 years 12% note issued prior to construction of new building; term, 15 years

1,500,000 2,500,000

36) How much is total initial cost of the building? A.

2,992,266

B.

2,112,266

C.

2,112,266

D. 3,224,766

37) How much is the finance cost that should be recognized in profit or loss for the year 2022? A.

288,984

B.

408,984

C.

528,984

D. 0

38) Maker Company purchased a varnishing machine for P450,000 on January 1, 2023. The company received a government grant of P40,500 in respect of this asset. Company policy was to depreciate the asset over 4 years on a straight line basis and to treat the grant as deferred income. Under PAS 20 – Government Grant and Government Assistance, what should be the carrying amount of the machine and the deferred income balance at December 31, 2024 of Maker Company? A. B.

CA of Machine 225,000 337,500

Balance of Grant 2...