Property and Equipment

WALANG MAKAIN Company is in its first year of operation. WALANG MAKAIN was
organized on January 2 with 1,000,000 authorized shares of P10 par value common
stock. During the year, WALANG MAKAIN had the following capital transactions:

January 5 -- issued 750,000 shares at P14 per share

July 26 issued 220,000 shares for a parcel of land valued at P2,500,000
November 1 -- purchased 50,000 shares at P11 per share
December 19 sold all treasury share for P600,000

WALANG MAKAIN used the cash basis of accounting and presented the following cash
receipts and disbursement records for 2015:
Cash receipts
P384,000
Cash disbursements
(247,500)
P136,500
The management requested you to compute its income under accrual basis. The
following information are deemed relevant in your analysis:
Depreciation of plant assets for 2015 computed by straight-line method is
P31,500.
Prepaid insurance of P5,400, two-thirds of which relates to 2016, is included in
the 2015 cash disbursement figure. This amount was recognized as insurance
expense when it was paid.
WALANG MAKAIN Company received P36,000 in advance rent for space in its
building. The entire amount is included in the cash receipts figure and was
recognized as rent revenue when received. However, P21,000 of it was space
that will be provided in 2016.
Employees are due P8,400 at the end of 2015.
Interest amounting to P9,500 from bonds issued at the end of 2015.
You estimate that your 2015 fee for accounting services that have not been
billed will be P1,500.
1. Total liabilities to be reported as of December 31, 2015 is
a. 45,900
b. 40,400
c. 36,900
d. 30,900
2. How much is the outstanding ordinary share capital as of December 31, 2015?
a. 13,050,000
b. 13,650,000
c. 13,600,000
d. 9,700,000
3. Entry to record on the sale of treasury shares would include a
a. Credit Cash of P600,000
b. Credit to Treasury shares of P550,000
c. Debit to Share premium of P50,000
d. Credit to Gain on sale of treasury shares of P50,000
Transactions during 2015 of the newly organized BUSOG Corporation included the
following:
Jan. 2 Paid legal fees of P150,000 and stock certificate costs of P83,000 to complete
organization of the corporation.
15 Hired a clown to stand in front of the corporate office for 2 weeks and hound out
pamphlets and candy to create goodwill for the new enterprise. Clown cost,
P10,000; pamphlets and candy, P5,000.
Apr. 1 Patented a newly developed process with costs as follows:
Legal fees to obtain patent P 429,000
Patent application and licensing fees 63,500
Total
P 492,500
It is estimated that in 6 years other companies will have developed improved
processes, making the BUSOG Corporation process obsolete.
May 1 Acquired both a license to use a special type of container and a distinctive
trademark to be printed on the container in exchange for 6,000 shares of Pinks nopar common stock selling for P50 per share. The license is worth twice as much as
the trademark, both of which may be used for 6 years.

July 1 Constructed a shed for P1,310,000 to house prototypes of experimental models

to be developed in future research projects.
Dec. 31 Incurred salaries for an engineer and chemist involved in product development
totaling P1,750,000 in 2015.
4. Cost of licenses
a. P0
b. P200,000
c. P100,000
d. P150,000
5. Carrying amount of intangible assets
a. P712,604
b. P0
c. P697,604
d. P2,277,604
6. Total amount resulting from the foregoing transactions that should be expensed when
incurred?
a. P1,983,000
b. P0
c. P1,998,000
d. P4,100,500
7. Cost of patent
a. P429,000
b. P0
c. P492,500
d. P63,500
8. Cost of trademark
a. P200,000
b. P150,000
c. P100,000
d. P0
You requested a depreciation schedule for Semitrucks of KAIN PA MORE
Manufacturing Company showing the additions, retirements, depreciation and other
data affecting the income of the Company in the 4-year period 2011 to 2014, inclusive.
The Semitrucks account consists of the following as of January 1, 2011:
Truck No. 1 purchased Jan. 1, 2008, costP180,000
Truck No. 2 purchased July 1, 2008, cost220,000
Truck No. 3 purchased Jan. 1, 2010, cost300,000
Truck No. 4 purchased July 1, 2010, cost240,000
Total ............................................ P 940,000
The Semitrucks Accumulated Depreciation account previously adjusted to
January 1, 2011, and duly entered to the ledger, had a balance on that date of
P302,000(depreciation on the 4 trucks from respective date of purchase, based on fiveyear life, no salvage value). No charges have been made against the account before
January 1, 2011.
Transactions between January 1, 2011 and December 31, 2014, and their record
in the ledger were as follows:
July 1, 2011 Truck No. 3 was traded for larger one (No. 5), the agreed purchase price of
which was P340,000. KAIN PA MORE Mfg. Co. paid the automobile dealer
P150,000 cash on the transaction. The entry was debit to Semitrucks and a
credit to cash, P150,000.
Jan. 1, 2012 Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited
Semitrucks, P35,000.
July 1, 2013 A new truck (No. 6) was acquired for P360,000 cash and was charged at
that amount to Semitrucks account. (Assume truck No. 2 was not retired.)
July 1, 2013 Truck No. 4 was damaged in a wreck to such an extent that it was sold as
junk for P7,000 cash. KAIN PA MORE Mfg. Co. received P25,000 from the
insurance company. The entry made by the bookkeeper was a debit to cash,
P32,000, and credits to Miscellaneous Income, P7,000 and Semitrucks P 25,000.
Entries for depreciation had been made for the close of each year as follows: 2011,
P203,000; 2012, P211,000; 2013, P244,500; 2014, P278,000.
9. The 2014 depreciation expense is
a. P138,000
b. P140,000
c. P104,000
d. P184,000
10. The 2011 profit is overstated by
a. 0
b. P20,000
c. P9,000
d. P31,000
11. The carrying amount of Semitrucks as of December 31, 2014 is
a. P885,400
b. P354,000
c. P284,000
d. P504,000
12. The 2012 profit is understated by
a. P50,000
b. P16,000
c. 0
d. P51,000

13. The 2013 profit is understated by

a. 0
b. P23,500

c. P64,500

d. P94,500

In connection with your audit of the Josef Mining Corporation for the year ended
December 31, 2015, you noted that the company purchased for P10,400,000 mining
property estimated to contain 8,000,000 tons of ore. The residual value of the property
is P800,000.
Building used in mine operations costs P800,000 and have estimated life of fifteen
years with no residual value. Mine machinery costs P1,600,000 with an estimated
residual value P320,000 after its physical life of 4 years.
Following is the summary of the companys operations for first year of operations.
Tons mined
800,000 tons
Tons sold
640,000 tons
Unit selling price per ton
P4.40
Direct labor
640,000
Miscellaneous mining overhead
128,000
Operating expenses (excluding depreciation) 576,000
Inventories are valued on a first-in, first-out basis. Depreciation on the building is to
be
allocated as follows: 20% to operating expenses, 80% to production. Depreciation on
machinery is chargeable to production.
19. How much is the maximum amount that may be declared as dividevds at the end of
the companys first year of operations?
a. P1,494,400
b. P1,302,400
c. P1,319,476
d. P1,289,600
20. Total inventoriable depreciation for 2015?
a. P0
b. P400,000
c. P384,000
d. P362,667
21. How much is the Inventory as of December 31, 2015?
a. P438,400
b. P418,133
c. P425,600
d. P422,400
22. How much is the cost of sales for the year ended December 31, 2015?
a. P1,672,533
b. P1,689,600
c. P1,753,600
d. P1,702,400
23. How much is the depletion for 2015?
a. P768,000
b. P1,040,000
c. P192,000
d. P960,000
On January 1, 2014, KAIN KA NA CO. acquired two assets within the same class of plant
and equipment. Information on these assets is as follows:
Cost Useful Life
Machine A P 300,000 5 years
Machine B 180,000 3 years
The machines are expected to generate benefits evenly over their useful lives. The
class of plant and equipment is measured using the revaluation model.
At December 31, 2014, information about the assets is as follows:
Fair Value Useful Life
Machine A P 252,0004 years
Machine B 114,000 2 years
On July 1, 2015, machine B was sold for P87,000 cash. On the same day, KAIN acquired
machine C for P240,000 cash. Machine C has an expected useful life of four years.
At December 31, 2015, information on the machine is as follows:
Fair Value Useful Life
Machine AP 168,000 3 years
Machine C 205,500 1.5 years

26. The depreciation expense for 2015 is

a. P 160,000
b. P 123,000
c. P 114,500
d. P 121,500
27. Ignoring income tax, the December 31, 2014 statement of financial position of Khaen
should show revaluation surplus at
a. 0
b. P 6,000
c. P 12,000
d. P 18,000
28. The depreciation expense for 2014 is
a. P 123,000
b. P 165,000
c. P 120,000
d. P 88,400
29. The gain (loss) that should be recognized on the sale of machine B on July 1, 2015, is
a. 0
b. P (27,000)
c. P 1,500
d. P 30,000
30. The amount of revaluation loss to be reported on Khaen's income statement for the
year ended December 31, 2015 is
a. a. 25,500
b. P 16,500
c. P 9,000
d. P 4,500
At December 31, 2013, KAINAN Company's plant asset and accumulated depreciation
and amortization accounts had balances as follows:
Category
Plant AssetAccumulated Depreciation
Land ................................ P 1,750,000...............................P
0
Buildings.............................15,000,000........................3,289,000
Machinery and equipment. .11,250,000........................3,175,000
Automobiles and trucks........1,720,000........................1,003,250
Leasehold improvements......2,160,000........................1,080,000
Land improvements............................0.......................................0
Depreciation methods and useful lives:
Buildings - 150% declining balance; 25 years
Machinery and equipment - Straight line; 10 years
Automobiles and trucks - 150% declining balance; 5 years, all acquired after 2010
Leasehold improvements - Straight line
Land improvements - Straight line
Depreciation is computed to the nearest month and residual values are immaterial.
Transaction during 2014 and other information:
a) On July 6, 2014, a plant facility consisting of land and building was acquired from
Kong Corp. in exchange for 250,000 shares of Concord's common stock. On this
date, Concord's stock had market price of P50 a share. Current assessed values
of land and building for property tax purposes are P1,875,000 and P5,625,000,
respectively.
b) On March 25, 2014, new parking lots, streets, and sidewalks at the acquired
plant facility were completed at a total cost of P1,920,000. These expenditures
had an estimated useful life of 12 years.
c) The leasehold improvements were completed on December 31, 2010, and had
an estimated useful life of eight years. The related lease, which would terminate
on December 31, 2016, was renewable for an additional four-year term. On April
29, 2014, Concord exercised the renewal option.
d) On July 1, 2014, machinery and equipment were purchased at a total invoice
cost of P3,250,000. Additional costs of P100,000 for delivery and P500,000 for
installation were incurred.
e) On August 30, 2014, Concord purchased a new automobile for P125,000
f) On September 30, 2014, a truck with a cost of P240,000 and a carrying amount
of P91,000 on date of sale was sold for P115,000. Depreciation for the nine
months ended September 30, 2014, was P26,500.
g) On December 20, 2014 a machine with a cost of P170,000 and a carrying
amount of P29,750 at date of disposition was scrapped without cash recovery.
Based on the processing information, calculate the 2014 depreciation expense on each
of the following;
36.

Land improvements
a. P 106,670

b. P 120,000

37. Leasehold improvements

c. P 149,170

d. P 160,000

a. P 360,000

b. P 270,000

38. Machinery and equipment

a. P 1,510,000
b. P 1,125,000
39. Automobiles and trucks
a. P 192,275
b. P 218,775
40. Buildings
a. P 890,160
b. P 983,910

c. P 216,000

d. P 154,285

c. P 1,316,080

d. P 1,317,500

c. P 226,725

d. P 182,025

c. P 702,660

d. P 1,265,160