MULTIPLE CHOICE

Select the correct answer and show your solution.

On August 1, 2004, Witten Corporation purchased a new machine on a deferred payment basis. A down payment of P6,000 was made and 4 annual installments of P9,000 each are to be made beginning on September 1, 2004. The cash equivalent price of the machine was P38,000. Due to an employee strike, Witten could not install the machine immediately, and thus incurred P500 of storage costs. Costs of installation (excluding the storage costs) amounted to P1,200. The amount to be capitalized as the cost of the machine is

a.

P38,000.

b.

P39,700.

c.

P42,000.

d.

P39,200.

Taylor Company buys a lift truck with a list price of P40,000. The dealer grants a 15% reduction in list price and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes amount to P500 and the company paid an extra P400 to have a special horn installed. What should be the recorded cost of the truck?

a.

P33,820.

b.

P34,220.

c.

P33,320.

d.

P34,160.

BAKAL Company acquired a welding machine with an invoice price of P3,000,000 subject to a cash discount of 5% which was not taken. BAKAL incurred freight and insurance during shipment of P50,000 and testing and installation cost of P200,000. BAKAL also incurred cost of P20,000 in removing the old welding machine prior to the installation of the new one. Welding supplies were acquired at a cost of P100,000. The VAT on the acquisition is P300,000. The cost of the new welding machine should be

a.

3,220,000

b.

3,400,000

c.

3,250,000

d.

3,100,000

In December 2005, SHOWEE Company exchanged an old machine, with a cost P6,000,000 and 50% depreciated, for a dissimilar used machine and paid a cash difference of P1,500,000. The fair value of the old machine was determined to be P2,000,000. SHOWEE should record the machine at

a.

2,000,000

b.

3,500,000

c.

3,000,000

d.

6,000,000

Osage County owned an idle parcel of real estate consisting of land and a factory building. Osage gave title to this realty to Norris Co. as an incentive for Norris to establish manufacturing operations in the County. Norris paid nothing for this realty, which had a fair market value of P250,000 at the date of the grant. Norris should record this nonmonetary transaction as a

a.

memo entry only.

b.

credit to extraordinary income for P250,000.

c.

credit to Contribution Revenue for P250,000.

d.

credit to Donated Capital for P250,000