Reviewer for Intermediate Accounting PDF

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REVIEWER IN INTERMEDIATE ACCOUNTINGProblem 169 (IAA)Vanity Company showed the following balance at year-end:Copyright 500, Deposit with advertising agency used to promote goodwill 400, Bond sinking fund 1,000, Excess of cost over fair value of identifiable net Assets of acquired subsidiary 4,000, Tr...

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REVIEWER IN INTERMEDIATE ACCOUNTING

Problem 169 (IAA) Vanity Company showed the following balance at year-end: Copyright Deposit with advertising agency used to promote goodwill Bond sinking fund Excess of cost over fair value of identifiable net Assets of acquired subsidiary Trademark

500,000 400,000 1,000,000 4,000,000 900,000

What total amount should be reported as intangible assets? a. 1,400,000 b. 4,500,000

c. 5,400,000 d. 5,800,000

Problem 170 (IAA) Alcaraz Company paid P5,000,000 to purchase intangible assets with the following fair value: Internet domain name Order backing In-process research and development Operating permit

1,500,000 1,200,000 2,400,000 900,000

In addition, the entity spent P2,000,000 to run an advertising campaign to boost its image in the local community. What amount should be recognized as cost of the in-process research and development? 89 a. 2,400,000 c. 2,800,000 b. 2,000,000 d. 0 Problem 171 (AICPA Adapted) Tobin Company incurred P1,600,000 of research and development costs to develop a product For which a patent was granted at the beginning of current year. Legal fee and other costs associated with registration of the patent totalled P300,000. At the year-end, the entity paid P450,000 for legal fees in a successful defense of the patent. What is the total amount that should be capitalized for the patent at year-end? a. b.

750,000 300,000

c. 2,050,000 d. 2,350,000

Problem 172 (IAA) Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six years on January 1,2014 for P5,400,000.

On January 1, 2016, a new patent is received for an improved version of the same drug. The new patent has a legal and useful life of twenty years.

What is the amortization expense for 2016? a. 900,000 b. 200,000

c. 180,000 d. 300,000

Problem 173 (IAA) Golden Company developed a new machine for manufacturing baseballs. Because the machine is considered very valuable, the entity had it patented. The following expenditures were incurred in developing and patenting the machine: Purchase of special equipment to be used solely for Development of the new machine Research salaries and fringe benefits for engineers And scientists Cost of testing prototype Legal cost for filing of patent Fees paid to government patent office Drawings required by patent office to be filed with Patent application

1,800,000 200,000 250,000 150,000 50,000 40,000

1. What amount should be capitalized as cost of patent? a. 240,000 b. 540,000

c. 740,000 d. 200,000

2. What amount of research and development cost should be expensed in the current year? a. 2,250,000 c. 2,490,000 b. 2,000,000 d. 1,800,000 90 Problem 174 (AICPA Adapted) On January 1, 2016, Boracay Company bought a trademark from Lamitan Company for P3,000,000. The entity retained an independent consultant who estimated the trademark’s life to be indefinite. The carrying amount of the trademark was P1,500,000 on the books of Lamitan Company. On December 31, 2016, what is the carrying amount of the trademark? a. 3,000,000 b. 1,500,000

c. 2,850,000 d. 0

Problem 175 (IAA) On January 1, 2016, Aim Company showed patent of P1,920,000 with related accumulated amortization of P240,000. The patent was purchased on January 1, 2014 at which date the legal life is 16 years. On January 1, 2016, the useful life of the patent was determined to be only 8 years from the date of acquisition. On January 1, 2016, in connection with the purchase of a trademark from Cat Company, the

parties entered into a noncompetition agreement and a consulting contract.

Aim Company paid Cat Company P800,000, of which three-fourths was for the trademark, and one-fourth was for the Cat Company’s agreement not to compete for a five-year period in the line of business covered by the trademark. Aim Company considered the life of the trademark to be indefinite. Moreover, Aim Company agreed to pay Cat Company P50,000 annually on January 1 of each year for 5 years. 1. What is the carrying amount of intangible assets on January 1, 2016? a. 2,280,000 b. 2,480,000

c. 1,880,000 d. 1,680,000

2. What is the total amortization of intangible assets for 2016? a. 280,000 b. 440,000

c. 320,000 d. 160,000

Problem 176 (AICPA Adapted) On January 1, 2016, Hart Company signed an agreement to operate as a franchisee of Ace Company for an initial franchise fee of P12,000,000. The same date, Hart Company paid P4,000,000 and agreed to pay the balance in four equal annual payments of P2,000,000 beginning January 1, 2017. Hart Company can barrow at 14% for a loan of this type. The present value factors at 14% are as follows: Present value of 1 at 14% for four periods

0.59

Present value of an ordinary annuity of 1 at 14% for four periods

2.91

91 What is the acquisition cost of the franchise? a. 13,520,000 b. 12,000,000

c. 9,820,000 d. 8,720,000

Problem 177 (AICPA Adapted) Carr Company recently acquired that now has remaining legal life of 40 years. The copyright initially had a 30-year useful life. An analysis of market trend and consumer habit indicated that the copyrighted material will generate positive cash flows for approximately 25 years. What is the remaining useful life over which the entity can amortize the copyright? a. 25 b. 30

c. 40 d. 0

Problem 178 (IAA) Java Company purchased an entity for P6,000,000 cash at the beginning of the current year. The carrying amount and fair value of the assets of the acquire on the date of the acquisitions

are as follows: Carrying amount

Fair value

Cash Accounts receivable Patent Property, plant and equipment Property, plant and equipment

50,000 500,000 1,000,000 0 2,000,000

50,000 500,000 1,500,000 250,000 3,000,000

Total

3,550,000

5,300,000

In addition, the acquitee had liabilities totalling P2,000,000 at the time of acquisition. The acquire had no other separately identifiable intangible assets. What is the goodwill arising from the acquisition? a. 2,700,000 b. 2,450,000

c. 4,450,000 d. 700,000

Problem 179 (IAA) Casanova Company purchased another entity for P500,000 cash. The following carrying amount and fair value were associated with the items acquired in this business combination: Carrying amount

Fair value

Accounts receivable Inventory Government contract Equipment Short-term payable

2,000,000 1,000,000 0 400,000 (2,000,000)

2,000,000 500,000 1,000,000 500,000 (2,000,000)

Net Assets

1,400,000

2,000,000

The fair value associated with the acquired entity’s government contract is not based on any legal or contractual relationship. 92 In addition, for obvious reason, there is no open market trading for an intangible of this sort. What is the goodwill arising from the business combination? a. 3,000,000 b. 3,600,000

c. 4,000,000 d. 0

Problem 180 (IAA) Clever Company purchased for P4,000,000 cash all of the outstanding ordinary shares of Sun Company when Sun’s statement of financial position showed net assets of P3,200,000. On the date of acquisition, Sun’s assets and liabilities had fair value different from the carrying amount as follows:

Property, plant and equipment, net Other assets Long-term debt

Carrying amount

Fair value

5,000,000 500,000 3,000,000

5,750,000 0 2,800,000

What amount should be reported as goodwill in the consolidated statement of financial position of Clever Company and its wholly-owned subsidiary?

a. 350,000 b. 250,000

c. 750,000 d. 800,000

Problem 181 (IFRS) Brisbane Company has recently diversified by taking over the operations of Darwin Company at a cost of P10,000,000. Darwin manufactures and sells a cleaning cloth called the “Superswipe” which was developed by Darwin’s highly trained staff. The unique nature of the coating used on the “Superswipe” has resulted in Darwin Company a significant share of the South African market. As a result of the takeover, Brisbane Company acquired the following assets at fair value: Land and building Production machinery Inventory Accounts receivable

3,200,000 2,000,000 1,800,000 700,000

In addition, Darwin Company owned, but had not recognized, the following: 

Trademark – “Superswipe” with fair value of P1,000,000.



Patent – Formula for the special coating with fair valuew3 of P5000,000.

What amount of goodwill should be recognized on the date of acquisition? a. 2,300,000 b. 1,300,000

c. 1,800,000 d. 800,000 93

Problem 182 (IAA) At year-end, Bliss Company purchased the net assets of another entity for P6,000,000. On the date of the transaction, the acquire had P2,000,000 of liabilities. The assets of the acquire at fair value were P3,000,000 for current assets and P6,000,000 for noncurrent assets. How should the purchase be accounted for? a. Retained earnings should be credited for P1,000,000. b. Gain on bargain purchase should be credited for P1,000,000. c. The current assets should be reported at P3,000,000 and the noncurrent assets at P5,000,000. d. Negative goodwill should be credited for P1,000,000. Problem 183 (IAA) East Company is planning to sell the business to new interest. The cumulative net earnings for the past five years amounted to P5,500,00 including expropriation gain of P500,000.

The fair value of net assets of East Company was P7,500,000. The goodwill is determined by capitalizing average net earnings at 10%.

1. What is the purchase price of the business? a. 10,000,000 b. 12,500,000

c. 15,000,000 d. 7,500,000

2. What is the amount to be paid for goodwill? a. 3,500,000 b. 7,500,000

c. 2,500,000 d. 5,000,000

Problem 184 (AICPA Adapted) On January 1, 2014, Wayne Company signed an eight-year lease for office space. The entity has the option to renew the lease for an additional four-year period on or before January 1, 2021. During January 2016, two years after occupying the leased premises, the entity made general improvement costing P3,600,000 and having a useful life of ten years. On December 31, 2016, the entity’s intention as to exercise of the renewal option is uncertain. What is the depreciation of leasehold improvement for 2016? a. 300,000 b. 360,000

c. 450,000 d. 600,000

Problem 185 (AICPA Adapted) On January 1, 2016, Ames Company signed an eight-year lease for office space. The entity has the option to renew the leave for an additional four-year period on or before January 1, 2023. During January 2016, the entity incurred the following costs: 

P1,200,000 for general improvement to the leased premises with an estimated useful life of ten years. 94



P500,000 for office furniture and equipment with an estimated useful life of ten years.



P400,000 for moveable assembly line equipment with useful life of 5 years.

On December 31, 2016, the entity’s intention as to exercise of the renewal option is uncertain. What is the accumulated depreciation of leasehold improvement on December 31, 2016? a. 292,500 c. 170,000 b. 150,000 d. 212,500 Problem 186 (AICPA Adapted) On January 1, 2014, Nobb Company signed a 12-year lease for warehouse space. The entity has an option to renew the lease for an additional 8-year period on or before January 1, 2018. During January 2016, the entity made substantial improvement to the warehouse. The cost of the improvement was P540,000 with an estimated useful life of 15 years. On December 31, 2016, the entity intended to exercise the renewal option.

On December 31, 2016, what is the carrying amount of the leasehold improvement? a. 486,000

c. 510,000

b. 504,000 Problem 187 (AICPA Adapted)

d. 513,000

On January 1, 2015, Bay Company acquired a land lease for 21 years with no option to renew. The lease required the lessec to construct a building in lieu of rent. The building, completed on January 1, 2016, at a cost of P8,400,000, is depreciated using the straight line method. At the end of the lease, the building’s estimated fair value is P4,200,000. The useful life of the building is 25 years. What is the carrying amount of the building on December 31, 2016? ANSWER: A a. 7,980,000 b. 8,064,000

c. 8,190,000 d. 8,232,000

Problem 188 (IAA) At the beginning of current year, Explicable Company acquired a 5-year lease on land and building from another entity at an annual rental of P1,200,000. On same date, the entity paid P2,400,000 representing rental for the first year and an advance rental for one year which will be applied for the last year of the lease contract. Moreover, the entity paid P2,000,000 upon signing of the contract to obtain right to the lease. Improvement and alteration were made on the building at a cost of P500,000. 1. What is the rent expense for the current year? a. 1,200,000 b. 2,400,000

c. 3,600,000 d. 1,800,000

95

2. What is the amortization of leasehold for the current year? a. 500,000 b. 400,000

c. 200,000 d. 0

3. What is the depreciation of leasehold improvement for the current year? a. 500,000 b. 900,000

c. 100,000 d. 0

Problem 189 (IAA) At the beginning of the current year, Alpha Company signed a contract whereby the entity was to pay P3,000,000 cash plus P300,000 per month rent for an office building. The contract is for 10 year and renewable for another 10 years at a monthly rental od P400,000. Prior to occupancy, the lease spent P1,000,000 in improving the building. In addition, the parking lot was improved, new pavement and lighting were made at a cost of

P400,000. It is estimated that such improvement will be usable for 5 years. 1. What is the amortization of leasehold for the current year?

a. 600,000 b. 300,000

c. 700,000 d. 0

2. What is the depreciation of leasehold improvement for current year? a. 480,000 b. 280,000

c. 180,000 d. 140,000

Problem 190 (AICPA Adapted) Ward Company incurred the following research and development costs in the current year: Equipment acquired for use in various R and D projects Depreciation on the above equipment Materials used Compensation costs of personnel Outside consulting fees Indirect costs appropriately allocated

975,000 135,000 200,000 500,000 150,000 250,000

What total amount of research and development costs should be recognized as expense for the current year? a. 850,000 b. 1,085,000

c. 1,235,000 d. 1,825,000

Problem 191 (IAA) Courage Company incurred the following costs in the current year: R and D with useful life of four years in Various R and D projects Start-up costs incurred when opening a new plant Advertising expense to introduce a new product Engineering costs incurred to advance a product to full Production stage but economic viability is not yet achieved

1,800,000 4,200,000 2,100,000 96 1,200,000

What amount should be recorded as research and development expense? a. 1,650,000 b. 2,220,000

c. 3,000,000 d. 3,420,000

Problem 192 (IAA) Metal Company incurred the following costs during the current year: Laboratory research aimed at discovery of New knowledge Design of tools, jigs, molds and dies involving New technology Quality control during commercial production, Including routine testing Equipment acquired two years ago, having an estimated useful life of five years with no residual value, used in various R and D projects Research and development services performed by

750,000 220,000 350,000

1,500,000

Stone Company for Metal Company Research and development services performed by Metal Company for Kaye Company

230,000 20,000

What amount of research and development expense should be reported in the current year? a. 1,200,000 c. 1,870,000 b. 1,500,000 d. 2,170,000 Problem 193 (AICPA Adapted) Brunson Company, a major winery, begun construction of a new facility in Mindanao. The following costs are incurred in conjunction with the with the start-up activities of the new facility. Production equipment Travel costs of salaried employees License fees Training of local employees for production and Maintenance operations Advertising costs

8,150,000 400,000 140,000 1,200,000 850,000

What portion of the organization costs should be expensed? a. 9,750,000 b. 1,600,000

c. 1,390,000 d. 0

Problem 194 (AICPA Adapted) During the current year , Pitt Company incurred the following costs to develop and produce a computer software product: Completion of detailed program design Costs incurred for coding and testing to Establish technological feasibility Other coding costs after establishment Of technological feasibility Other testing costs after establishment Of technological feasibility Costs of producing product masters for training materials Duplication of computer software and Training materials from product masters Packaging product

1,300,000 1,000,000 2,400,000 97 2,000,000 1,500,000 2,500,000 900,000

1. What amount should be reported as inventory? a. 2,500,000 b. 3,400,000

c. 4,000,000 d. 4,900,000

2. What total amount of the costs incurred should be expensed immediately? a. 8,200,000 b. 2,300,000

c. 6,700,000 d. 4,400,000

3. What amount should be capitalized as software cost? a. 5,400,000 b. 5,700,000

c. 5,900,000 d. 6,900,000

Problem 195 (AICPA Adapted)

Yellow Company spent P12,000,000 during the current year developing a new software package. Of this amount, P4,000,000 was spent before it was at the application development stage and the package was only to be used internally. The package was completed during the year and expected to have a four-year useful life. The entity has a policy of taking a full year amortization in the first year. After the development stage, an amount of P50,000 was spent on training employees to use the program. What total amount should be reported as an expense for the current year? a. 6,012,500 b. 6,050,000

c. 1,600,000 d. 2,000,000

Problem 196 (AICPA Adapted) On January 1, 2016, Bitter Company had capitalized cost of P5,000,000 for a new computer software product with an economic life 5 years. Sales for 2016 amounted to P3,000,000. The total sales of software over the economic life are expected to be P10,000,000. The pattern of future sales cannot be measured reliably. On December 31,2016, the software had a fair value less cost of disposal of P4,500,000. What is the carrying amount of the computer software on December 31, 2016? a. 5,000,000 b. 3,500,000

c. 4,500,000 d. 4,000,000

Problem 40 (IAA) Greece Company provided the following data for the current year: Inventory – January 1: Cost Net realizable value Net purchases Inventory – December 31: Cost Net realizable value

3,000,000 2,800,000 8,000,000 4,000,000 3,700,000

What amount should be reported as cost of goods sold? a. b. c. d.

7,000,000 7,100,000 7,300,000 7,200,000

Problem 41 (IAA) At year-end, Julie Company reported ending inventory at P3,000,000, and the allowance for

inventory write down before any adjustment at P150,000.

Historical cost Replacement cost Sales price Net realizable value Normal profit

28 Product 1

Produ...