5-1

1. The following information relates to non-current investments that Dragon Company placed in trust as required by underwriter of its bonds: Bond sinking fund balance, January 1, 2018, P2,000,000; Additional investment during 2018, P500,000; Interest revenue, P20,000; Administrative costs, P15,000,Carrying value of bonds payable, P3,000,000. What amount should Dragon Company report in its December 31, 2018 balance sheet related to its non-current investment for bond sinking fund requirements?106

2. On January 1, 2015, Crane Company purchased a P4,000,000 ordinary life insurance policy on its president. Additional data for the year 1028 are: Cash surrender value, January 1, P200,000; Cash surrender value, December 31, P220,000; Annual insurance premium paid on January 1, 2018, P80,000; Dividend received August 1, P10,000. Crane Company is the beneficiary under the life insurance policy. Crane should report life insurance expense for 2018 of _______________.

6-1

1.The Julienne Company imported a new machine at a peso equivalent of P330,000. Thecompany has to pay additional cost of importing the asset such as P10,000 import dutiesand P15,000 a non-refundable purchase taxes. Cost of transporting the asset wasP5,000 and cost of preparing the asset for its intended use include P5,000 installations.

How much is the initial cost of the new machine?

2.On April 1, Rey Coorporation purchased for P855,000 a tract of land on which waslocated a warehouse and office building. The following data were collected concerning theproperty:

Current Assessed ValuationVendor's Original Cost

LandP300,000P280,000

Warehouse200,000180,000

Office Building400,000340,000

P900,000P800,000

What are the appropriate amounts that Rey should record for the land, warehouse, andoffice building, respectively?

3.Summer Corporation purchased a new machine on October 31, 2021. A P12,000 downpayment was made and three monthly installments of P36,000 each are to be madebeginning on November 30, 2021. The cash price would have been P116,000. Summerpaid no installations charges under the monthly payment plan but a P2,000 installationcharge would have been incurred with a cash purchase. The amount to be capitalized asthe cost of the machine on October 31, 2021 would be _______________.

4.Tracey Company purchased a new machinery on January 2, 2021 and incurred thefollowing:

Invoice price of machinery P1,500,000; Cash discount taken on the machinery, P75,000;Freight on the new machine, P25,000; Actual cost of removing an old machinery P2,500but the existing provision is P3,000; Installation cost of new machine, P25,000. Operatingcost during first month of regular use, P150,000. What is the cost of the new machinery?

5.On February 2, 2021 Mercy Company purchased a machine from Eldrin Corporation inexchange for a non-interest bearing note requiring eight payments of P80,000. The firstpayment is to be made on February 2, 2021 and others are due annually on February 2.At date of issuance, the prevailing rate of interesr for this type of note was 11%. Presentvalue (PV) factors are as follows:

PeriodPV of ordinary annuity of 1 at 11% PV of annuity in advance of 1 at 11%

74.7125.231

85.1465.712

What is initial carrying amount of the machine to be reported by youth Company onFebruary 2, 2021?

6.On October 1, 2021, Jessa Corporation purchases and industrial building by an issue of5,000,000 ordinary shares of P1 par each to the to the vendor. Jessa Corporation'sshares have been actively traded on the stock exchange but its quoted price has beenerratic, ranging from a low of P3.50 to a high of P13.50 for the year. On the date ofpurchase of the building, Jessa Corporations's shares are quoted at P8.80. The companypaid P220,000 transfer and legal cost in relation to the building. At the time of acquisitionthe industrial building has a fair value of P35,000,000, on the existing use basis. At whatamount should the building be initially recorded?

7.In June 2017 Raiza Company acquired a machine in exchange for another machine witha cost of P1,200.000 and an accumulated depreciation of P600,000 and paid a cashdifference of P160,000. The market value of the Raiza's machine was P650.000. If theexchange has commercial substance, what would be the cost of the new asset acquiredand the amount of gain to be recognized, respectively?

8.Gabby Inc. and Dana Company have an exchange with no commercial substance. Theasset given up by Gabby has a book value of P120,000 and a fair value of P135,000. Theasset given up by Dana has a book value of P220,000 and a fair value of P200,000. Bootof P65,000 is received by Dana.

Question 1: What amount should Gabby record for the asset received?

Question 2: The journal entry made by Dana to record the exchange will include

9.December 31, 2021. Troy Company purchased a P4.000.000 tract of land for a factorysite. Troy razed an old building on the property and sold the materials it salvaged fromthe demolition. Troy incurred additional costs and realized salvaged proceeds during

December 2021 as follows: Payments to tenants to vacate the premises.P200,000;Demolition of old building, P100,000; Legal fees for purchase contract and recordingownership. P50,000; Title guarantee insurance, P30,000;Proceeds from sale ofsalvaged materials, P10,000. In its December 31, 2021 balance sheet, Troy shouldreport a balance in the land account of

10.On February 1, 2021. Jery Company borrowed P1,000,000 which bears 12% specificallyto finance the construction of its qualifying asset. Construction of the building started onSeptember 1, 2021andcontinueswithoutinterruptionuntil the year end ofDecember 31, 2021.Duringtheperiodofconstructionthe entity incurs directlyattributable costs ofP100,000 in September and P250,000 in each month from Octoberto December (for simplicity it is assumed that these costs are incurred on the first day ofthe month). Each month the borrowings, less any amount that is to be expended for thebuildingworksinthat montharere-investedand earn interest at a rate of 5% perannum. During the year ended December 31, 2021,theenity incurs interest on theP1,000,000 loan totaling P110,000 and earns interest on the re-invested portion of theloan of P37,917. What amount of borrowing costs should Jery capitalized?