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Situation 1The following items are included in the Property, Plant and Equipment section of the audited statement of financial position of PSS CORP. as of December 31, 2019:Land P 3,450, Buildings 13,350, Leasehold improvements 9,900, Machinery and equipment 13,125,The following transactions occurre...

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Situation 1 The following items are included in the Property, Plant and Equipment section of the audited statement of financial position of PSS CORP. as of December 31, 2019: Land Buildings Leasehold improvements Machinery and equipment

P 3,450,000 13,350,000 9,900,000 13,125,000

The following transactions occurred during 2020: a) Land A was acquired for P12,750,000. In connection with the acquisition, PSS incurred the following expenditures; Commission to a real estate agent Legal fees, including fee for title search Delinquent property taxes assumed

P765,000 20,000 30,000

Costs of P525,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for P195,000. b) Land B with an old building was acquired for P7,500,000. On the acquisition date, the fair value of the land was P4,200,000 and the fair value of the building was P1,800,000. The old building was demolished at a cost of P615,000 shortly after acquisition. A new building to be used as an owner-occupied property was constructed for P4,950,000 plus the following costs: Excavation fees Architectural design fees Building permit fee Imputed interest on funds used during construction (stock financing) Interest cost on specific borrowing during construction

P570,000 165,000 37,500 127,500 40,000

The building was completed and occupied on December 30, 2020. c) Land C was acquired at a cost of P9,750,000 to be held for an undetermined use. d) During December 2020, costs of P1,335,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2022, and is not expected to be renewed. e) A group of machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was P1,305,000, freight costs were P49,500, Installation costs were

P36,000, and royalty payments for 2020 were P262,500. Cost of P50,000 was incurred to train the company personnel who will use the machines. Based on the preceding information, determine the balances of the following property, plant and equipment items as of December 31, 2020: 1. Land A. P24,795,000 B. P25,460,000

C. P23,190,000 D. P22,595,000

2. Building A. B. C. D.

P19,815,000 P19,727,500 P21,362,500 P21,937,500

3. Leasehold improvements A. P9,900,000 B. P0

C. P1,335,000 D. P11,235,000

4. Machinery and equipment A. P14,778,000 B. P14,515,500

C. P14,565,000 D. P14,430,000

5. Land C should be reported in the statement of financial position as of December 31, 2020 as A. РРЕ B. Inventory C. Investment property D. Non-current asset held for sale

Situation 2 BOOM, INC. is a manufacturer and retailer of household furniture. Your audit of the company's financial statements for the year ended December 31, 2020, discloses the following debt obligations of the company at the end of its reporting period. Boom's financial statements are authorized for issuance on March 6, 2021. 1. A P75,000 short-term obligation due on March 1, 2021. Its maturity could be extended to March 1, 2023, provided Boom agrees to provide additional collateral. On February 12, 2021, an agreement is reached to extend the loan's maturity to March 1, 2023.

2. A short-term obligation of P1,800,000 in the form of notes payable due February 5, 2021. The company issued 75,000 ordinary shares for P18 per share on January 25, 2021. The proceeds from the issuance, plus P450,000 cash, were used to fully settle the debt on February 5, 2021. 3. A long-term obligation of P1,250,000 due December 1, 2030. On November 10, 2020, Boom breaches a covenant on its debt obligation and the loan becomes payable on demand. An agreement is reached to provide a waiver of the breach on December 11, 2020. 4. A long-term obligation of P2,000,000. The loan is maturing over 4 years in the amount of P500,000 per year. The loan is dated September 1, 2020, and the first maturity date is September 1, 2021. 5. A debt obligation of P500,000 maturing on December 31, 2023. The debt is callable on demand by the lender at any time.

6. What amount of current liabilities should be reported on the December 31, 2020, statement of financial position? A. P4,125,000 B. P2,875,000

C. P2,375,000 D. P1,875,000

7. What amount of noncurrent liabilities should be reported on the December 31, 2020, statement of financial position? A. P2,750,000 B. P1,500,000

C. Р3,250,000 D. P3,500,000

Situation 3 During May 2019, GUADALUPE, INC. issued 90,000 of its P10 par value ordinary shares for P990,000. Net income through December 31, 2019, was P37,500. On July 3, 2020, Guadalupe issued 150,000 of its ordinary shares for P1,875,000. A 5% share dividend was declared on October 2, 2020, and issued on November 6, 2020, to shareholders of record on October 23, 2020. The market value of the ordinary shares was P11 per share on the declaration date. Guadalupe's net income for the year ended December 31, 2020, was P105,000. During 2021, Guadalupe had the following transactions: a. In February, Guadalupe reacquired 9,000 of its ordinary shares for P9 per share. Guadalupe uses the cost method to account for treasury shares. b. In June, Guadalupe sold 4,500 of its treasury shares for P12 per share.

c. In September, each shareholder was issued (for each share held) one right to purchase two additional ordinary shares for P13 per share. The rights expire on December 31, 2021. d. In October, 75,000 rights issues were exercised when the market value of the ordinary share was P14 per share. e. In November, 120,000 rights issues were exercised when the market value of the ordinary share was P15 per share. f. On December 15, Guadalupe declared its first cash dividend to shareholders of P0.30 per share, payable on January 10, 2022, to shareholders of record on December 31, 2021. g. On December 21, in accordance with the applicable law, Guadalupe formally retired 3,000 of its treasury shares and had them revert to an unissued basis. The market value of the ordinary share was P16 per share on this date. h. Net income for 2021 was P240,000. 8. What are the balances of the following equity accounts on December 31, 2019? Ordinary Share Capital Share Premium Retained Earnings A P900,000 P90,000 P37,500 B P990,000 P0 P37,500 C P990,000 P37,500 P0 D P900,000 P37,500 P90,000 9. What are the balances of the following equity accounts on December 31, 2020? Ordinary Share Capital Share Premium Retained Earnings A P2,520,000 P465,000 P22,500 B P2,532,000 P465,000 P10,500 C P2,520,000 P477,000 P10,500 D P2,532,000 P477,000 P22,500 10. What are the balances of the following equity accounts on December 31, 2021? Ordinary Share Capital Share Premium Retained Earnings A P6,363,000 P1,660,500 P190,350 B P6,390,000 P1,663,500 P59,250 C P6,393,000 P1,657,500 P13,500 D P6,376,500 P1,650,000 P72,750 11. What amount should be charged to Retained earnings for the cash dividend declared on December 15, 2021? A. P191,250 B. P191,700

C. P189,900 D. P120,600

12. What is the treasury shares balance on December 31, 2021? A. P40,500 B. Р54,000

C. Р13,500 D. P81,000

Situation 4 GnaG Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. GnaG uses two sales promotion techniques warranties and premiums - to attract customers. Musical instruments and sound equipment are sold with a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on recorded music or sheet music. Customers may exchange 200 coupons and P20 for a guitar tuner. GnaG pays P34 for each guitar tuner and estimates that 60% of the coupons given to customers will be redeemed. GnaG's total sales for 2020 were P14,400,000 - P10,800,000 from musical instruments and sound reproduction equipment and P3,600,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled P328,000 during 2020. A total of 13,000 guitar tuners used in the premium program were purchased during the year and there were 2,400,000 coupons redeemed in 2020. The accrual method is used by GnaG to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2020, were as shown below: Inventory of Premium Guitar Tuners Estimated Premium Claims Outstanding Estimated Liability from Warranties

P 79,900 89,600 272,000

GnaG Music Emporium is preparing its financial statements for the year ended December 31, 2020. Determine the amounts that will be shown on the 2020 financial statements for the following: 13. Warranty expense A. P488,000 B. P216,000

C. P328,000 D. P160,000

14. Estimated liability from warranties A. Р160,000 B. P48,000

C. P272,000 D. P488,000

15. Premium expense A. P168,000 B. P113,900

C. P367,200 D. P151,200

16. Inventory of premium guitar tuners A. P168,000 B. P147,900

C. P151,200 D. P113,900

17. Estimated premium claims outstanding A. P106,400 B. P151,200

C. P56,000 D. P72,800

Situation 5 SABANTE MANUFACTURING COMPANY had several transactions during 2019 and 2020 concerning property, plant, and equipment. Several of these transactions are described below, followed by the entry or entries made by the company's accountant. EQUIPMENT Several used items were acquired on February 1, 2019, by issuing a P300,000 noninterestbearing note. The note is due one year from the date of issuance. No market value of the note or the equipment is available. Sabante's most recent borrowing rate was 8%. Feb. 1, 2019 Dec. 31, 2019

Equipment Notes Payable Depreciation expense Accumulated depreciation- equipment

300,000 300,000 30,000 30,000

BUILDINGS A building was acquired on June 1, 2019, by issuing 300,000 shares of the company's P5 par value ordinary shares. The ordinary share is not widely traded; therefore no market price is available. The building's fair value on the transaction date was P1,950,000. June 1, 2019

Building Ordinary shares (P5 x 300,000) Dec. 31, 2019 Depreciation expense Accumulated depreciation- building INVENTORY/FIXTURES

1,500,000 1,500,000 60,000 60,000

Inventory and display fixtures were acquired for P375,000 cash on April 1, 2020, from a competitor who was liquidating her business. The estimated value of the inventory was P255,000 and the value of the fixtures was P165,000. April 1, 2020

MACHINERY

Inventory Display fixtures Cash Gain on acquisition of inventory and fixtures

255,000 165,000 375,000 45,000

On July 1, 2020, Sabante exchanged machines with Bongga Company. The following facts pertain to these assets. Original cost Accumulated depreciation Fair market value at date of exchange Cash paid by Sabante Cash received by Bongga

Sabante’s Machines P864,000 345,600 540,000 135,000

Bongga’s Machines P990,000 468,000 675,000 135,000

Although the fair values of the assets involved in the exchange had been reliably determined, certain cash flow calculations made by both companies proved that this exchange transaction lacks commercial substance. July 1, 2020

Machinery- new Cash

135,000 135,000

Additional information: Sabante uses straight-line depreciation, applied to all assets as follows: 1. A full year's depreciation taken in the year of acquisition and no depreciation taken in the year of disposal. 2. Estimated life: 25 years for buildings; 10 years on all other assets. (No salvage values are assumed.) The books for 2020 have not been adjusted or closed. 18. The adjusting entry on December 31,2020, to correct the 2019 equipment- related errors is (ignore the 2020 depreciation error) Interest expense Retained earnings Equipment A.

2,222 20,370

Interest expense Retained earnings Equipment B.

1,851 20,370

Retained earnings Equipment C.

22,221

22,592

22,221

22,221

Accumulated depreciation- equipment Interest expense Retained earnings Equipment D.

2,222 1,851 18,148 22,221

19. The adjusting entry on December 31, 2020, to correct the 2019 building-related errors is (ignore the 2020 depreciation error) Buildings Retained earnings Share premium Accumulated depreciation- buildings A.

450,000 18,000 450,000 18,000

Buildings Share premium B.

450,000 450,000

Retained earnings Accumulated depreciation- buildings C.

18,000 18,000

D. No adjusting entry is necessary. 20. The adjusting entry on December 31, 2020, to correct the inventory and fixtures- related errors is (ignore the 2020 depreciation error) Inventory Display fixtures Gain on acquisition of inventory and fixtures A.

27,321 17,679 9,642

Gain on acquisition of inventory and fixtures Inventory Display fixtures B.

45,000

Retained earnings Inventory Display fixtures C.

45,000

Gain on acquisition of inventory and fixtures Retained earnings D.

45,000

27,321 17,679

27,321 17,679

45,000

21. The adjusting entry on December 31, 2020, to correct the machinery- related errors is (ignore the 2020 depreciation error) Machinery- new Gain on exchange A.

518,400 518,400

Accumulated depreciation- machinery Loss on exchange Machinery- old B.

345,600 518,400 864,000

Machinery- new Accumulated depreciation- machinery Machinery- old C.

518,400 345,600 864,000

Machinery- new Accumulated depreciation- machinery Loss on exchange Machinery- old D.

464,400 345,600 54,000 864,000

22. The correct depreciation expense for 2020 is A. P229,050 B. P272,250

C. P149,497 D. P185,850

Situation 6 KETCAT COMPANY has a department that performs machining operations on parts that are sold to contractors. A group of machines had an aggregate carrying amount of P3,690,000 on December 31, 2020. This group of machinery has been determined to constitute a cash generating unit for purposes of applying PAS 36, Impairment of Assets. A cash generating unit as defined in this standard is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Presented below are data about future expected cash inflows and outflows based on the diminishing productivity expected of the machinery as it ages and the increasing costs that will be incurred to generate output from the machines. Year 2021 2022 2023 2024 Totals

Revenues P2,250,000 2,400,000 1,950,000 600,000 P7,200,000

Cost, excluding Depreciation P 840,000 1,260,000 1,650,000 450,000 P4.200.000

The fair value of the machinery in this cash generating unit, net of estimated disposition costs, is determined to amount to P2,535,000. The company discounts the future cash flows of this cash generating unit by using a 5% discount rate. The following are lifted from the present value tables: Present value of 1 at 5% for: 1 period 2 periods 3 periods 4 periods 5 periods

0.95238 0.90703 0.86384 0.82270 0.78353

23. How much impairment loss should be recognized at December 31, 2020? A. P1,155,000 B. P0

C. P224,427 D. P930,573

Situation 7 In your audit of the December 31, 2020, financial statements of CHICKEN, INC., you found the following inventory-related transactions. a. Goods costing P25,000 are on consignment with a customer. These goods were not included in the physical count on December 31, 2020. b. Goods costing P8,250 were delivered to Chicken, Inc. on January 4, 2021. The invoice for these goods was received and recorded on January 10, 2021. The invoice showed the shipment was made on December 29, 2020, FOB shipping point. c. Goods costing P10,820 were shipped FOB shipping point on December 31, 2020, and were received by the customer on January 2, 2021. Although the sale was recorded in 2020, these goods were included in the 2020 ending inventory. d. Goods costing P4,320 were shipped to a customer on December 31, 2020, FOB destination. These goods were delivered to the customer on January 5, 2021, and were not included in the inventory. The sale was property taken up in 2021. e. Goods costing P4,300 shipped by a vendor under FOB destination term, were received on January 3, 2021, and thus were not included in the physical inventory. Because the related invoice was received on December 31, 2020, this shipment was recorded as a purchase in 2020. f. Goods valued at P25,500 were received from a vendor under consignment term. These goods were included in the physical count. g. Chicken, Inc. recorded as a 2020 sale a P32,150 shipment of goods to a customer on December 31, 2020, FOB destination. This shipment of goods costing P18,750 was received by the customer on January 5, 2021, and was not included in the ending inventory figure. Prior to any adjustments, Chicken, Inc.'s ending inventory is valued at P222,500 and the reported net income for the year is P824,000. 24. Chicken's December 31, 2020, inventory should be increased by A. P4,000 B. P20,000

C. P33,000 D. P30,820

25. Which of the errors described in "a to g" will not affect A. Item a B. Item g

C. Item e D. Item b

26. What is Chicken's adjusted net income for the year 2020? A. P782,900 B. P803,580

C. P807,900 D. P833,400

27. Purchase cutoff procedures test the cutoff and completeness assertions. A company should include goods in its inventory if it A. Has sold the goods. B. Holds legal title to the goods. C. Has physical possession of the goods. D. Has paid for the goods. 28. When title to merchandise in transit has passed to the audit client, the auditor engaged in the performance of a purchase cutoff will encounter the greatest difficulty in gaining assurance with respect to the A. Quantity B. Quality

C. Price D. Terms

Situation 8 CAMEROON CORP. has provided information on intangible assets as follows: 





A patent was purchased from Patintero Company for P6,000,000 on January 1, 2019. On the acquisition date, the patent was estimated to have a useful life of 10 years. The patent had a net book value of P6,000,000 when Patintero sold it to Cameroon. On February 1, 2020, a franchise was purchased from the Franchisor Company for P1,440,000. The contract which runs for 20 years provides that 5% of revenue from the franchise must be paid to Franchisor. Revenue from the franchise for 2020 was P7,500,000. The following research and development costs were incurred by Cameroon in 2020: Materials and equipment personnel Indirect costs Total

P426,000 567,000 306,000 P1,299,000

Because of recent events, Cameroon, on January 1, 2020, estimates that the remaining useful life of the patent purchased on January 1, 2019, is only 5 years from January 1, 2020. 29. On December 31, 2020, the carrying value of the patent should be A. P4,320,000 B. P6,000,000

C. P1,680,000 D. P0

30. The unamortized cost of the franchise at December 31, 2020, should be

A. P999,000 B. P1,356,250

C. P1,440,000 D. P1,374,000

31. How much should be charged against Cameroon's income for the year ended December 31, 2020? A. P2,280,000 B. P2,826,000

C. P2,820,000 D. P1,725,000

Situ...