During 2008, Grant Industries, Inc. constructed a new manufacturing facility at a cost of P12,000,000. The weighted average accumulated expenditures for 2008 were calculated to be P5,400,000. The company had the following debt outstanding at December 31, 2008:

(a)	10 percent, five-year note to finance construction of the manufacturing facility, dated January 1, 2008, P3,600,000.
(b)	12 percent, 20-year bonds issued at par on April 30, 2004, P8,400,000.
(c)	8 percent, six-year note payable, dated March 1, 2007, P1,800,000.

Determine the amount of interest to be capitalized by Grant Industries for 2008.

6. The 2008 annual report of Bessemer Steel disclosed the following information relating to the companys construction projects, debt, and interest cost (in thousands of dollars):

	Construction in progress (relating to a component of property, plant, and equipment increased from P63,889 to P80,876 in 2008.
	Interest capitalized in 2008 of P5,674 was disclosed in the footnotes of the companies financial statements.
	Interest-bearing debt outstanding at the end of 2007: P190,000 of 9.5 percent notes, P135,000 of 11.125 percent notes, and P32,350 relating to a line of credit with an interest rate of 9%.

Required:

Based on the information provided in the annual report, estimate the amount of interest to be capitalized in 2008. Give reasons why your estimate differs from the amount reported by the company. Assume that the construction payments were made uniformly during the year.

7. On January 1, 2008, Sky Airlines contracted with Dover Aircraft to construct an aircraft to Skys specifications at a cost of P2,000,000. During 2008, Sky paid Dover P400,000 on January 1, and another P250,000 on September 30. On January 1, Sky borrowed P360,000 at 13% to partially finance the construction, an obligation still outstanding at the end of 2008. The remaining amount paid to Dover was financed from available working capital. Sky has approximately P1,600,000 of additional debt outstanding at an average interest cost of 12%.

Required:

What is the total capitalized cost of the aircraft under construction at the end of 2008?

8. Hearsa Manufacturing Inc. purchased a new machine on January 2, 2008, that was built to perform one function on its assembly line. Data pertaining to this machine are:

Acquisition cost P330,000

Residual value P30,000

Estimated service life:

Years 5

Service hours 250,000

Production output 300,000

Using each of the following methods, compute the annual depreciation rate and charge for the years ended December 31, 2008 and 2009:

(1)	Straight-line
(2)	Service hours (assume 32,000 hours for 2008 and 36,000 hours for 2009).
(3)	Productive-output (assume 31,000 units for 2008 and 37,000 units for 2009).

9. The Chase Company exchanged equipment costing P240,000 with accumulated depreciation of P90,000 for equipment owned by Jones Corporation. The Jones equipment cost P330,000 with accumulated depreciation of P120,000. The fair value of both pieces of equipment was P300,000.

Provide the necessary entries to record the transaction on both companies' books assuming:

(1)	The exchange lacks commercial substance.
(2)	The exchange has commercial substance.

10. Johnson Company purchased equipment 8 years ago for P1,000,000. The equipment has been depreciated using the straight-line method with a 20-year useful life and 10% residual value. Johnson's operations have experienced significant losses for the past 2 years and, as a result, the company has decided that the equipment should be evaluated for possible impairment. The management of Johnson Company estimates that the equipment has a remaining useful life of 7 years. Net cash inflow from the equipment will be P80,000 per year. The fair value of the equipment is P240,000.

(1)	Determine if an impairment loss should be recognized.
(2)	Determine the amount of the loss and prepare the journal entry to record the loss.
(3)	How would your answer to (1) change if the fair value of the building was P500,000?

The 2008 annual report of Bessemer Steel disclosed the following information relating to the company's construction projects, debt, and interest cost (in thousands of dollars): Required: Based on the information provided in the annual report, estimate the amosint of interest to be capitalized in 2008 . Give reasons why your estimate differs from the amount reported by the company. Assume that the construction payments were made uniformly during the year, On Janwary 1, 2008, Sky Airlines contracted with Dover Aireraft to construct an aircraft to Sky's specifications at a cost of P2,000,000. During 2008, Sky paid Dover P400,000 on January 1, and another P250,000 on September 30. On January 1. Sky botrowed P360,000 at 13\% to partially finance the construction, an obligation still outsianding at the end of 2008 . The renaining amount paid to Dover was financed from available working capital. Sky has approximately P1,600,000 of additional debt outstandiag at an average interest cost of 12%. Required: What is the total capitalized cost of the aircraft under construction at the end of 2008 ? Hearsa Manufacturing Inc, purchased a new machine on January 2, 2008, that was built to perform one function on its asserrbly line. Data pertaining to this machine are: Using each of the following methods, compute the annual depreciation rate and charge for the years ended December 31,2008 and 2009: The Chase Company exchanged equipment costing P240,000 with accumulated depreciation of p90,000 for equipment owned by Jones Comoration. The Jones equipment cost P330,000 with accumulated depreciation of P120,000. The fair value of both pieces of equipment was P300,000. Provide the necessary entries to record the transaction on both companies' books assuming: Johnson Company purchased equipment 8 years ago for P1,000,000. The equipment has been depreciated using the straight-line method with a 20 -year useful life and 10% residual value. Johnson's operations have experienced significant losses for the past 2 years and, as a result, the company has decided that the equipment should be evaluated for possible impairment. The management of Johnson Company estimates that the equipment has a remaining useful life of 7 years. Net cash inflow from the equipment will be P80,000 per year. The fair value of the equipment is 1240,000