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CHAPTER 23PROPERTY, PLANT AND EQUIPMENTProblem 23-1 (IAA) Erica Company had the following property acquisitio during the current year: Acquired a tract of land in exchange for 50,000 ordinary shares with P100 par value and market price of P120 per share on the date of acquisition. The last property ...

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CHAPTER 23 PROPERTY, PLANT AND EQUIPMENT Problem 23-1 (IAA) Erica Company had the following property acquisitio during the current year: 1. Acquired a tract of land in exchange for 50,000 ordinary shares with P100 par value and market price of P120 per share on the date of acquisition. The last property tax bill indicated assessed value of P4,500,000 for the land. 2. Received land from a major shareholder as an inducement to locate a plant in the city. No payment was required but the entity paid P50,000 for legal expenses for land transfer. The land is fairly valued at P1,000,000. 3. Purchased for P5,500,000, including appraiser fee of P100,000 a warehouse building and the land on which it is located. The land had an appraised value of P2,000,000 and original cost of P1,400,000. The building had an appraised value of P3,000,000 and original cost of P2,500,000. 4. Purchased an office building and the land on which it is located for P7,500,000 cash and assumed an existing P2,500,000 mortgage. For realty tax purposes, the property is assessed at P9,600,000, 60% of which is allocated to building.

Required: Prepare journal entries to record the transactions for the current

year. Problem 23-2 (ACP) Credulous Company purchased equipment on January 1, 2020 under the following terms: a. P200,000 downpayment b. Five annual payments of P100,000, the first installmentnote to be paid on December 31, 2020. The same equipment was available at a cash price of P580,000. Required: Prepare journal entries for 2020 and 2021.

Problem 23-3 (ACP) On January 1, 2020, Enrich Company purchased a machine under the following terms: a. P100,000 downpayment b. Four annual payments of P200,000, the first installment note to be paid on December 31, 2020. The fair value of the machine is not clearly determinable on the date of acquisition. The prevailing rate of interest for this type of obligation is 10%. The present value factors at 10% for four periods are: Present value of 1 .683 Present value of ordinary annuity of 1 3.170 Required: Prepare journal entries for 2020 and 2021.

Problem 23-4 (IAA) Anson Company had the following machinery during the year: 1. Acquired a machine with an invoice price of P3,000,000 subject to a cash discount of 10% which was not taken. The entity incurred a cost of P50,000 in removing the ol machine prior to the installation of the new one supplies were acquired at a cost of P150,000. 2. During the early part of current year, the entity purchased a machine for P500,000 down and four-month installments of P1,250,000. The cash price of the machine was P4,700,000

3. At the beginning of current year, the entity purchased a machine for P2,000,000 in exchange for a noninterest-bearing note requiring four payments of P500,000. The first payment was made at the end of current year. The implicit rate of interest for this note at date of issuance was 10%. The present value of an ordinary annuity of 1 at 10% is 3.17 for four periods. The present value of an annuity of 1 in advance at 10% 18 3.49 for four periods. 4. At the beginning of current year, the entity acquired machine by issuing a four-year, noninterest-bearing for P2,000,000 The entity has an implicit 10% interest for the ty note. The present value of 1 at 10% for 4 years is 0.68. Required: Prepare journal entries to record the machinery acquisition and related interest.

Problem 23-5 (IAA) 1. Nutty Company made the following individual cash purchases: Land and building 6,000,000 Machinery and office equipment 1,800,000 Delivery equipment 500,000 An appraisal disclosed the following fair value: Land 1,000,000 Building 3,000,000 Machinery 800,000 Office equipment 400,000 Delivery equipment 350,000 2. Nutty Company acquired the assets of another entity with the following fair value: Land 1,000,000 Building 5,000,000 Machinery 2,000,000 The entity issued 60,000 shares with P100 par value in exchange. The share had a quoted price of P150 on the date of purchase of the property. 3. Received a parcel of land located in Davao City from a philanthropist as an inducement to locate a plant in the city. The land has a fair value of P1,500,000. 4. The entity paid cash for machinery, P900,000 subject to 2% cash discount, and freight on machinery, P35,000. 5. The entity acquired furniture and fixtures by issuing a P400.000 two-year noninterest-bearing note. In similar transactions, the entity has paid 12% interest. The present value of 1 at 12% for 2 years is .797, and the present value of an annuity of 1 at 12% for 2 years is 1.69.

Required: Prepare journal entries to record the transactions.

Problem 23-6 (AICPA Adapted) Cherish Company provided the following transactions: 1. Exchanged a car from inventory for a computer to be used as a long-term asset. Carrying amount of the car 300,000 Listed selling price of the car 450,000 Fair value of the computer 430,000 Cash difference paid by Cherish Company 50,000 2. Exchanged an old packaging machine which cost P240.000 and was 50% depreciated, for new machine and paid a cash difference of P30,000. The fair value of the old packaging machine is determined to be P110,000 and the list price of the new machine is P150,000. 3. Exchanged an old equipment costing P3,000,000 with

accumulated depreciation of P1,800,000 and fair value of P1,000,000 for another used equipment with fair value of P1,200,000. The exchange is nonmonetary. Required: Prepare journal entries to record the transactions.

Problem 23-7 (ACP) Smile Company exchanged used equipment for ano equipment of Frown Company. The following informar pertains to the exchange: SMILE FROWN Equipment 2,400,000 2,200,000 Accumulated depreciation 2,000,000 1,750,000 Fair value of equipment 500,000 500,000 Required: Prepare journal entry on the book of entry of Smile and Frown.

Problem 23-8 (AICPA Adapted) Lecherous Company traded a used equipment for a newer model with a dealer.

Old equipment: Original cost Accumulated depreciation Fair value - unknown New equipment: List price Cash price without trade in Cash payment with trade in

1,000,000 600,000

1,600,000 1,400,000 980,000

Required: Prepare journal entry to record the exchange transaction.

Problem 23-9 (IAA) Mellow Company acquired a delivery truck, making payment of P2,680,000, the payment being analyzed as follows: Price of truck Charge for extra equipment Value added tax Insurance for one year Motor vehiole registration Total Less: Trade in value allowed on old truck Cash paid

2,500,000 50,000 300,000 120,000 10,0000 2, 980,000 300,000 2, 680,000

The old truck cost P1,500,000 and has a carrying amount of P200,000, and fair value of P50,000. The value added tax is refundable or recoverable. Required: Prepare journal entry to record the exchange transaction.

Problem 23-10 (IAA) Gratitude Company provided the following information relation to the construction of a building during the year DIRECT LABOR MATERIALS OVERHEAD

TOTAL FINISHED GOODS 6,000,000 4,200,000 7,200,000 3,000,000 2,000,000 ?

BUILDING 1,800,000 4,000,000 ?

The following assumptions are made: 1. No overhead is to be assigned to the building. 2. Normal production of finished goods is 180,000 units Because of the construction of the building, finished goods production totaled only 135,000 units. The building is to be charged with the overhead which would have been charged to the 45,000 units which were not produced.

3. Overhead is to be apportioned in the ratio of direct labor. Required: Compute the cost of finished goods and building

Problem 23-11 (IAA) Acrophobia Company summarized construction activities for 2020:

MATERIALS DIRECT LABOR

FINISHED GOODS 3,000,000 4,000,000

the

following

manufacturing

and

BUILDING 500,000 1,000,000

Overhead for the prior year was 75% of the direct labor cost Overhead in 2020 related to both product manufacture an construction activities amounted to P3,600,000. Required: a. Calculate the cost of the machinery, assuming manufacturing activities are to be charged with over at the rate experienced in the prior year. b. Calculate the cost of the machinery if manufacturing construction activities are to be charged with overhea the same rate.

Problem 23-12 (IAA) During the year, Storm Company purchased a new machine. A P120.000 down payment was made and three monthly P1,160,000. installments of P360,000. The cash price would have been The entity paid no installation charges under the monthly payment plan but a P20,000 installation charge would have been incurred with a cash purchase. What amount should be capitalized as cost of the machine? a. 1,220,000 b. 1,200,000 c. 1,180,000 d. 1,160,000 Problem 23-13 (AICPA Adapted) Grey Company acquired a machine with a cash price of P2,000,000. Down payment 400,000 Note payable in 3 equal annual installments 1,200,000 20,000 shares of Grey Company at fair value 800,000 Prior to use, installation cost of P50,000 was incurred. The machine has a residual value of P100,000. DOWNPAYMENT NOTE PAYABLE IN 3 EQUAL ANNUAL INSTALLMENTS 20,000 SHARES OF GREY COMPANY AT FAIR VALUE What is the initial measurement of the new machine? a. 2,000,000 b. 2,400,000 c. 2,050,000 d. 2,450,000

400,000 1,200,000 800,000

Problem 23-14 (IAA) Corner Company puchased a van with a list price of P3,000,000. The dealer granted a 15% reduction in list price and an additional 10% cash discount on the net price if payment is made in 30 days. Irrecoverable taxes amounted to P40,000 and the entity paid an extra P30,000 to have a special horn installed. What amount should be recorded as initial cost of the van? a. 2,550,000 b. 2,335,500 c. 2,365,000 d. 2,325,000

Problem 23-15 (AICPA Adapted) On December 31, 2020, Bart Company purchased a machine in exchange for a noninterest bearing note requiring eight payments of P200,000. The first payment was made on December 31, 2020 and the others are due annually on December 31. At date of issuance, the prevailing rate of interest for this type of note was 11%. PV of an ordinary annuity of 1 at 11% for 8 periods 5.146 PV of an annuity of 1 in advance at 11% for 8 periods 5.712 1. What amount should be recorded as initial cost of the machine? a. 1,600,000 b. 1,029,200 c. 1,400,000 d. 1,142,400 2. What is the discount on note payable on December 31, 2020? a. 657,600 b. 457,600 c. 570,800 d. 0 3. What is the interest expense for 2021? a. 125,664 b. 103,664 c. 113,212

d. 176,000 4. What is the carrying amount of note payable on December 31, 2021? a. 942,400 b. 846,064 c. 742,400 d. 742,412

Problem 23-16 (IAA) At the beginning of current year, Allison Company purchased a new machine on a deferred payment basis. A down payment of P200,000 was made and four annual installments of P600,000 each are to be made every year-end. The cash equivalent price of the machine was P2,300,000. Due to an employee strike, the entity could not install the machine immediately and thus incurred P30,000 of storage cost. Cost of installation excluding the storage cost amounted to P80,000. What is the initial amount to be capitalized as the cost of the machine? a. 2,300,000 b. 2,380,000 c. 2,410,000 d. 2,600,000

Problem 23-17 (IAA) Lax Company recently acquired two items of equipment. * Acquired a press at an invoice price of P3,000,000 subject to a 5% cash discount which was taken. Costs of freight and insurance during shipment were P50,000 and installation cost amounted to P200,000. * Acquired a welding machine at an invoice price of P2,000,000 subject to a 10% cash discount which was not taken. Additional welding supplies were acquired at a cost of P100,000. What is the total increase in the equipment account as a result of the transactions? a. 4,900,000 b. 5,000,000 c. 5,100,000 d. 5,200,000

Problem 23-18 (AICPA Adapted) At the beginning of the current year, Hallmark Co exchanged an old packaging machine, which cost P13 and was 50% depreciated, for a used machine and paid difference of P160,000. The fair value of the old packaging machine was determined to be P700,000. 1. What is the cost of the new asset acquired? a. 700,000 b. 860,000 c. 660,000 d. 600,000

2. What is the gain on exchange? a. 540,000 b. 100,000 c. 60,000

d. 0

Problem 23-19 (AICPA Adapted) At the beginning of the current year, Junk Company traded in an old machine having a carrying amount of P1,680,000 and paid a cash difference of P600,000 for a new machine with a cash price of P2,050,000. 1. What is the cost of the machine acquired in exchange. a. 1,680,000 b. 2,050,000 c. 1,450,000 d. 1,080,000

2. What amount of loss should be recognized on exchange? a. 600,000 b. 230,000 c. 370,000 d. 0

Problem 23-20 (AICPA Adapted) Amiable Company exchanged a truck with a carrying amount of P1,200,000 and a fair value of P2,000,000 for a truck and P200,000 cash. The fair value of the truck received was P1,800,000. The cash flows from the new truck are not expected to be significantly different from the cash flows of the old truck. 1. At what amount should the truck received in the exchange be recorded? a. 2,000,000 b. 1,400,000 c. 1,000,000 d. 1,800,000

2. What is the gain on exchange? a. 800,000 b. 600,000

c. 200,000 d. 0

Problem 23-21 (AICPA Adapted) During the current year, Lethal Company paid P100,000 and exchanged inventory which has a carrying amount of P2,000,000 and a fair value of P2,100,000 for other inventory in the same line of business with fair value of P2,200,000. 1. What is the initial measurement of the new inventory received in exchange? a. 2,000,000 b. 2,100,000 c. 2,200,000 d. 2,300,000

2. What is the gain on exchange? a. 100,000 b. 200,000 c. 300,000 d. 0 Problem 23-22 (AICPA Adapted) Yola Company and Zaro Company are fuel oil distributors. To facilitate the delivery of oil to their customers. Company and Zaro Company exchanged ownership of 12 barrels of oil without physically moving the oil. Yola Company paid Zaro Company P300,000 to compensata for a difference in the grade of oil. The configuration of cash flows from the asset received not expected to be significantly different from the configuration of the cash flows of the asset exchanged. On the date of exchange, cost and market value of the oil were as follows: YOLA COMPANY ZARO COMPANY Cost 1,000,000 1,400,000 Market Value 1,200,000 1,500,000 1. What is initial measurement of the oil inventory received in exchange by Yola Company? a. 1,000,000

b. 1,200,000 c. 1,300,000 d. 1,500,000

2. What is the initial measurement of the oil inventory received in exchange by Zaro Company? a. 1,400,000 b. 1,500,000 c. 1,100,000 d. 1,200,000

Problem 23-23 Multiple choice (PAS 16) 1. Which is not a characteristic of property, plant and equipment? a. The property, plant and equipment are tangible assets. b. The property, plant and equipment are used in business. c. The property, plant and equipment are expected to be used over a period of more than one year. d. The property, plant and equipment are subject to depreciation. 2. What valuation model should an entity use to neasure property, plant and equipment? a. The revaluation model or the fair value model b. The cost model or the revaluation model c. The cost model or the fair value through OCI d. The cost model or the fair value model 3. The cost of property, plant and equipment comprises all of the following, except a. Purchase price b. Import duties and nonrefundable purchase taxes c. Any cost directly attributable in bringing the asset to the location and condition for the intended use d. Initial estimate of the cost of dismantling the asset for which the entity has no present obligation. 4. Costs directly attributable to the asset include all, except a. Initial operating loss b. Cost of site preparation c. Initial delivery and handling cost d. Installation and assembly cost 5. Which cost should be expensed immediately?

a. Cost of opening a new facility b. Cost of introducing a new product or service, including cost of advertising and promotional activities c. Cost of conducting business in a new location d. All of these are expensed immediately Problem 23-24 Multiple choice (IAA) 1. A nonmonetary exchange is recognized at fair value asset exchanged unless a. Exchange has commercial substance b. Fair value is not determinable c. The assets are similar in nature d. The assets are dissimilar 2. In an exchange with commercial substance a. Gain or loss is recognized entirely. b. Gain or loss is not recognized. c. Only gain should be recognized. d. Only loss should be recognized. 3. The cost of property, plant and equipment acquired in an exchange is measured at the a. Fair value of the asset given plus cash payment. b. Fair value of the asset received plus cash payment. c. Carrying amount of the asset given plus cash payment. d. Carrying amount of the asset received plus the cash payment. 4. Which exchange has commercial substance? a. Exchange of assets with no difference in future cash flows. B. Exchange by entities in the same line of business. C. Exchange of assets with difference in future cash flows. d. Exchange of assets that causes the entities to remain essentially the same economic position. 5. For a nonmonetary exchange, the configuration of cashflow includes which of the following? a. The implicit rate, maturity date of loan and amous loan b. The risk, timing and amount of cash flows of the assets c. The entity-specific value of the asset d. The estimated present value of the assets exchange

Problem 23-25 Multiple choice (AICPA Adapted)

1. When property is acquired by issuing equity shares, which of the following is the best basis for establishing the historical cost of the acquired asset? a. Historical cost of the asset to the seller B. Historical cost of a similar asset c. Fair value of the asset received d. Fair value of shares issued 2. When a plant asset is acquired by deferred payment, which condition generally does not indicate the need to consider the imputation of interest? a. The interest rate stated on the deferred obligation is significantly different from market interest rate. b. The cash price of the plant asset is significantly different from the deferred obligation. c. The instrument representing the deferred obligation is noninterest bearing. d. The face amount of the deferred obligation is equal to the fair value of the plant asset exchanged.

3. If the present value of a note issued in exchange for a plant asset is less than the face amount, the difference is a. Included in the cost of the asset b. Amortized as interest expense over the life of the note c. Amortized as interest expense over the life of the asset d. Included in interest expense in the year of issuance 4. An entity purchased a machinery that it does not have to pay until after three years. The total payment on maturity will include both principal and interest. The cost of the machine would be the total payment multiplied by what time value of money concept? a. Present value of annuity of 1 b. Present value of 1 C. Future amount of annuity of 1 d. Future amount of 1

CHAPTER 26 LAND, BUILDING AND MACHINERY Capital and Revenue Expenditure Problem 26-1 At the beginning of current year, Bastard Company sed for P4,500,000 a tract of land as a factory site. An existing building on the property was razed and ruction began on a new factory building which was completed at year-end. Cost of razing old building 300,000 Title insurance and legal fees to purchase land 200,000 Architect fee 950,000 New building construction cost 8,000,000 1. What is the cost of factory building? a. 9,250,000 b. 9,450,000 c. 8,950,000 d. 9,150,000

2. What is the cost of the land? a. 4,700,000 b. 5,000,000 c. 4,500,000 d. 4,800,000

Problem 26-2 (AICPA Adapted) Chameleon Company purchased a P4,000,000 t...