MULTIPLE CHOICE.

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PROPERTY PLANT AND EQUIPMENT Acquisition on cash basis

1. LOQUACIOUS TALKATIVE Co. acquired a factory equipment overseas on cash basis for 400,000. Additional costs incurred include the following: commissions paid to brokers for the purchase of the equipment, 20,000; import duties of 100,000; non-refundable purchase taxes of 40,000; freight cost of transferring the equipment to LOQUACIOUS' premises, 4,000; costs of assembling and installing the equipment, 8,000; costs of testing the equipment, 6,000; administration and other general overhead costs, 16,800; and advertisement and promotion costs of the new product to be produced by the equipment, 15,200. The samples generated from testing the equipment were sold at 2,000. How much is the initial cost of the equipment?

a. 578,000 b. 594,800 c. 576,000 d. 592,800

Acquisition on account

2. PRECLUDE PREVENT Co. acquired an equipment for 448,000 on account with a credit term of 2/15, n/30. Any discount is computed based on the purchase price. The purchase price is inclusive of 12% value added tax (VAT). PRECLUDE Co. is VAT-registered and any input VAT paid is refundable through deduction from monthly output VAT remitted to the Bureau of Internal Revenue (BIR). Additional costs incurred include 40,000 cost of training staff who will be operating the equipment and 60,000 cost of relocating the equipment to a new location after it was installed in a location originally intended by management. How much is the initial cost of the equipment?

a. 400,000 b. 391,040 c. 491,040 d. 392,000

Deferred settlement - with cash price equivalent

3. On January 1, 20x1, SQUAMOUS SCALY Co. purchased furniture with an installment price of 520,000 and a cash price equivalent of 400,000 by paying 40,000 down payment and issuing a one-year noninterest-bearing note of 120,000 payable in equal semi-annual installments on July 1 and December 31, 20x1. How much is the initial cost of the furniture?

a. 520,000 b. 480,000 c. 400,000 d. 360,000

Deferred settlement - no cash price equivalent

4. On January 1, 20x1, REEDY SLENDER Co. purchased fixtures with an installment price of 520,000 by paying 40,000 down payment and issuing a three-year noninterest bearing note of 480,000 payable in three equal annual installments starting December 31, 20x1. The prevailing rate for the note as of January 1, 20x1 is 12%. How much is the initial cost of the fixtures?

a. 520,000 b. 480,000 c. 424,293 d. 360,000 Deferred settlement - no cash price equivalent

5. On January 1, 20x1 ABC Co. acquired a building for 380,000, including 20,000 nonrefundable purchase taxes. The purchase agreement provided for payment to be made in full on December 31, 20x1. Legal fees of 8,000 were incurred in acquiring the building and paid on January 1, 20x1. An appropriate discount rate is 10%. How much is the initial cost of the building?

a. 368,000 b. 388,000 c. 424,634 d. 353,456

Classes of PPE

6. ABC Co. had the following assets on December 31, 20x1. Land used as plant site 50,000 Land and building classified as held for sale 780,000 Building used as office 500,000 Building rented out under operating lease 420,000 Equipment being sold in the ordinary course of business 330,000 Office furniture 24,000 Fixtures and signage 10,000 Machinery 12,000 Automobiles (used by company officers) 350,000 Delivery trucks (used by the shipping department) 420,000 Computers 70,000 Aircraft rented out to various clients 690,000 Dairy cattle (held to produce milk that is sold to customers) 10,000 Harvested milk 3,000 Apple trees (held to bear fruits to that are sold to customers) 6,000 Harvested apples 2,000

How much is the total of assets classified as property, plant and equipment?

a. 2,132,000 b. 2,126,000 c. 2,142,000 d. 2,148,000

Acquisition on lump-sum price (building not razed)

Use the following information for the next two questions:

On April 1, 20x1, ESCULENT EDIBLE Co. purchased land and building by paying 40,000,000 and assuming a mortgage of 8,000,000. The land and building have appraised values of 20,000,000 and 40,000,000, respectively. The building will be used by ESCULENT Co. as its new office.

Additional costs relating to the purchase include the following:

Legal cost of conveying and registering title to land 32,000

Payment to tenants to vacate premises 36,000

Option paid on the land and building 24,000

Option paid on similar land and building not acquired 12,000

Broker's fee on the land and building 60,000

Unpaid real estate taxes prior to April 1, 20x1 assumed by ESCULENT Co. - assessed on land 120,000

Real estate taxes after April 1, 20x1 80,000

Repairs and renovation costs before the building is occupied 160,000

Repair costs after the building is occupied 200,000

7. How much is the cost of the land?

a. 16,192,000 b. 17,292,000 c. 15,492,000 d. 14,592,000

8. How much is the cost of the building?

a. 23,420,000 b. 32,640,000 c. 32,240,000 d. 24,440,000

Acquisition on lump-sum price (building demolished)

Use the following information for the next four questions:

On April 1, 20x1, ABC Co. purchased land and building for a lump-sum price of 48,000,000.

The existing building will be demolished and a new building will be constructed.

Additional costs relating to the purchase include the following:

Title guarantee 80,000

Option paid for the land and old building acquired 24,000

Payments to tenants to vacate premises 48,000

Cost of razing the old building (demolition cost) 240,000

Proceeds from sale of salvaged materials 60,000

Fair value of materials salvaged from the old building and used in the new building 120,000

Construction cost of new building (completed) 34,000,000

9. The land and old building have fair values of 20,000,000 and 40,000,000, respectively. How much are the allocated costs of the land and the new building?

Land New building

a. 16,864,000 33,780,000

b. 16,104,000 34,180,000

c. 15,980,000 36,670,000

d. 16,014,000 34,810,000

10. The land and old building have fair values of 20,000,000 and 40,000,000, respectively. How much is charged as loss on initial recognition? a. 48,000 b. 32,000,000 c. 32,048,000 d. 0

11. The old building is unusable and has an insignificant fair value. How much are the allocated costs of the land and the new building?

Land New building

a. 46,640,000 33,780,000

b. 46,104,000 34,180,000

c. 48,152,000 34,180,000

d. 46,140,000 34,810,000

12. The old building is unusable and has an insignificant fair value. How much is charged as loss on initial recognition?

a. 48,000 b. 32,000,000 c. 32,048,000 d. 0

Cost of self-constructed asset

Use the following information for the next two questions:

LOATH HATE Co. purchased a lot for 8,000,000. Immediately after the purchase, LOATH started construction of a new building on the lot. The following were additional costs incurred by LOATH Co.

Legal cost of conveying land 40,000

Special assessment 20,000

Survey costs 60,000

Materials, labor, and overhead costs 22,000,000

Cash discounts on materials purchased not taken 120,000

Clerical and other expenses related to construction 56,000

Excavation costs 400,000

Architectural fees and building permit 240,000

Supervision by management on construction 48,000

Insurance premiums paid for workers 520,000

Payment for claim for injuries not covered by insurance 180,000

Saving on construction 800,000

Cost of changes to plans and specifications due to Inefficiencies 560,000

Paving of streets and sidewalks (not included in blueprint) 40,000

Income earned on a vacant space rented as parking lot during construction 36,000

13. How much is the cost of the land?

a. 8,160,000 b. 8,100,000 c. 8,120,000 d. 8,060,000

14. How much is the cost of the building? a. 23,144,000 b. 23,184,000 c. 23,264,000 d. 23,096,000

Cost of equipment - with decommissioning cost

15. BAWDY INDECENT Co. acquired an oil rig for 400,000,000. Installation and other necessary costs in bringing the equipment to its intended condition for use totaled 80,000,000. BAWDY is required by law to dismantle the equipment and restore the sitewhere it is installed after 20 years. The estimated decommissioning and restoration costs are 40,000,000. The imputed rate of interest is 12%.

How much is the initial cost of the equipment?

a. 480,000,000 b. 440,000,000 c. 484,146,672 d. 404,146,672

With fair value of asset given up

Use the following information for the next four questions:

FEEBLE Co. exchanged equipment with WEAK, Inc. Pertinent data are shown below:

FEEBLE Co. WEAK, Inc.

Equipment 4,000,000 8,000,000

Accumulated depreciation 800,000 3,200,000

Carrying amount 3,200,000 4,800,000

Fair value 3,800,000 4,400,000

Cash paid by FEEBLE Co. to WEAK, Inc. 600,000 600,000

16. How much is the initial cost of the equipment received by FEEBLE Co.?

a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,400,000

17. How much is the initial cost of the equipment received by WEAK Co.?

a. 3,800,000 b. 4,400,000 c. 5,000,000 d. 3,400,000

18. How much is gain (loss) on exchange recognized by FEEBLE Co.?

a. (600,000) b. 600,000 c. 1,200,000 d. 0

19. How much is gain (loss) on exchange recognized by WEAK Co.?

a. (400,000) b. 400,000 c. (1,000,000) d. 0

Fair value of asset given up is indeterminable

Use the fact pattern in the preceding problem except that FEEBLE Co. cannot determine the fair value of the equipment given up but is aware that the equipment that will be received from WEAK, Inc. has a fair value of 4,400,000.

20. How much is the initial cost of the equipment received by FEEBLE Co.?

a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,400,000

21. How much is gain (loss) on exchange recognized by FEEBLE Co.?

a. (600,000) b. 600,000 c. 1,200,000 d. 0 No commercial substance

Use the fact pattern in the preceding problem except that the exchange has no commercial substance.

22. How much is the initial cost of the equipment received by FEEBLE Co.?

a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,200,000

23. How much is gain (loss) on exchange recognized by FEEBLE Co.?

a. (600,000) b. 600,000 c. 1,200,000 d. 0

Trade-in

Use the following information for the next two questions:

TRANSCEND EXCEED Co. traded in an old machine for a new model.

Pertinent data are as follows:

Old equipment:

Cost 200,000

Accumulated depreciation 80,000

Average published retail value 24,000

New equipment:

List price 380,000

Cash price without trade in 280,000

Cash price with trade in 220,000

24. How much is the initial cost of the equipment received by TRANSCEND Co.?

a. 244,000 b. 280,000 c. 320,000 d. 184,000

25. How much is gain (loss) on exchange recognized by TRANSCEND Co.?

a. 60,000 b. 160,000 c. (60,000) d. 0

Acquisition through issuance of own equity instrument

Use the following information for the next four questions:

Fact pattern RESILIENT ELASTIC Co. acquired land with fair value of 4,000,000 by issuing 10,000 shares with par value of 40 per share and quoted price of 360 per share.

26. How much is the initial cost of the equipment received by RESILIENT Co.? a. 400,000 b. 4,000,000 c. 3,600,000 d. 180,000

27. How much is gain (loss) on exchange recognized by RESILIENT Co.? a. 3,200,000 b. 400,000 c. (400,000) d. 0

28. Use the fact pattern above except that the fair value of the land is indeterminable. How much is the initial cost of the equipment received by RESILIENT Co.? a. 400,000 b. 4,000,000 c. 3,600,000 d. 180,000

29. How much is gain (loss) on exchange recognized by RESILIENT Co.? a. 3,200,000 b. 400,000 c. (400,000) d. 0

Acquisition through issuance of bonds payable Use the following information for the next four questions:

Fact pattern On January 1, 20x1, LABYRINTH MAZE Co. acquired land with fair value of 3,800,00 by issuing a 3-year, 10%, 4,000,000 bonds. Principal is due on January 1, 20x4 but interest is due at each year-end. The prevailing market rate of interest for a similar instrument on January 1, 20x1 is12%. The present value of the future cash flows from the bonds discounted at 12% is 3,807,852.

30. How much is the initial cost of the equipment received by LABYRINTH Co.? a. 3,800,000 b. 4,000,000 c. 3,807,852 d. 180,000

31. How much is gain (loss) on exchange recognized by LABYRINTH Co.? a. 192,148 b. (192,148) c. (200,000) d. 0

32. Use the fact pattern above except that the fair value of the land is indeterminable. How much is the initial cost of the equipment received by LABYRINTH Co.? a. 3,800,000 b. 4,000,000 c. 3,807,852 d. 180,000

33. How much is gain (loss) on exchange recognized by LABYRINTH Co.? a. 192,148 b. (192,148) c. (200,000) d. 0

Acquisition by donation

Use the following information for the next two questions: GROVEL Co. received donation of equipment from CRAWL, Inc., an unrelated foreign corporation. The equipment has a fair value of 4,000,000. Necessary costs incurred by GROVEL Co. to bring the asset to its intended condition for use amounted to 40,000.

34. The entry to record the receipt of the donation includes

a. a credit to share premium of 4,040,000 b. a credit to share premium of 3,960,000 c. a credit to income from donation of 4,040,000 d. a credit to income from donation of 3,960,000

35. Assuming the donor is a shareholder of GROVEL Co., the entry to record the receipt of the donation includes

a. a credit to share premium of 4,040,000 b. a credit to share premium of 3,960,000 c. a credit to income from donation of 4,040,000 d. a credit to income from donation of 3,960,000

GOVERNMENT GRANTS

Use the following information for the next four questions:

On January 1, 20x1, CHIDE SCOLD Co. received cash of 16,000,000 from a local government to be used in constructing a building. The construction was completed on December 31, 20x1 for a total cost of 40,000,000. The building will be depreciated over 20 years.

1. If CHIDE Co. uses the gross presentation of government grants, how much is the carrying amount of the deferred income from the government grant on December 31, 20x5?

a. 15,200,000 b. 12,800,000 c. 12,000,000 d. 0

2. If CHIDE Co. uses the net presentation of government grants, how much is the carrying amount of the deferred income from the government grant on December 31, 20x5?

a. 15,200,000 b. 12,800,000 c. 12,000,000 d. 0

3. If CHIDE Co. uses the gross presentation of government grants, how much is the carrying amount of the building on December 31, 20x1?

a. 40,000,000 b. 24,000,000 c. 38,000,000 d. 22,800,000

4. If CHIDE Co. uses the net presentation of government grants, how much is the carrying amount of the building on December 31, 20x1?

a. 40,000,000 b. 24,000,000 c. 38,000,000 d. 22,800,000

Grant related to income (Gross and Net presentation)

Use the following information for the next four questions:

On January 1, 20x1, MACABRE HORRIBLE Co. received cash of 16,000,000 from a local government to be used to defray safety and other hazard-related costs over a five-year period. It was estimated that such costs will total 32,000,000 over the next five years. In 20x1 and 20x2, actual costs of safety and other hazard-related costs amounted to 4,000,000 and 4,800,000, respectively.

5. If MACABRE Co. uses the gross presentation of government grants, how much is the carrying amount of the deferred income from the government grant on December 31, 20x1?

a. 14,000,000 b. 12,800,000 c. 12,000,000 d. 0

6. If MACABRE Co. uses the net presentation of government grants, how much is the carrying amount of the deferred income from the government grant on December 31, 20x1?

a. 14,000,000 b. 12,800,000 c. 12,000,000 d. 0

7. If MACABRE Co. uses the gross presentation of government grants, how much safety expense is recognized in 20x1?

a. 4,000,000 b. 2,400,000 c. 2,000,000 d. 0

8. If MACABRE Co. uses the net presentation of government grants, how much is safety expense is recognized in 20x1?

a. 4,000,000 b. 2,400,000 c. 2,000,000 d. 0

Grant related to non-depreciable asset

9. On January 1, 20x1, UNFLEDGED IMMATURE Co. received land from the government with the condition that a factory building should be constructed on it. The fair value of the land was estimated at 20,000,000. The construction of the factory building was completed on January 1, 20x2 for a total cost of 80,000,000. The building will be depreciated using SYD over a useful life of 10 years. The estimated residual value is 8,000,000. CHIDE Co. uses the gross presentation of government grants. How much is the carrying amount of the deferred income from the government grant on December 31, 20x2?

a. 20,000,000 b. 16,363,636 c. 13,090,908 d. 0

Compensation for losses incurred (Financial aid)

10. On January 1, 20x1, various properties of ABOMINATE DISLIKE Co. were destroyed due to flood. It was estimated that the cost of the destroyed properties amounted to 60,000,000. On July 1, 20x1, ABOMINATE received 8,000,000 from the government as a financial aid. ABOMINATE Co. estimates that it would take about 5 years before it can recover from the loss. How much is the income from government grant recognized in 20x1?

a. 8,000,000 b. 1,600,000 c. (52,000,000) d. 0

Forgivable loans

11. On January 1, 20x1, because of an exemplary accomplishment that brought international recognition to the community, the government waived the repayment of CONGEAL TO THICKEN Co.'s loan payable with a carrying amount of 800,000 and remaining term of 4 years. How much income from government grant is recognized in 20x1?

a. 800,000 b. 200,000 c. 400,000 d. 0 Loans at below market-interest rate

12. On January 1, 20x1, BREEZY LIVERLY Co. was granted by the government a 3-year, zerointerest loan of 4,000,000 payable on December 31, 20x3. Prevailing interest rate for this type of loan is 10%. How much is the income from government grant recognized in 20x1?

a. 3,005,260 b. 400,000 c. 300,526 d. 0

Repayment of grant related to income

13. On January 1, 20x1, SIBILATE HISS Co. received cash of 16,000,000 from the government to be used to defray safety and other hazard-related costs over a five-year period. It was estimated that such costs will accumulate to 32,000,000 over the next five years. In 20x1 and 20x2, actual costs of safety and other hazard-related costs amounted to 4,000,000 and 4,800,000, respectively. On January 1, 20x3, the government demanded repayment of the 16,000,000 given as grant in 20x1. How much is the loss on repayment of government grant recognized in 20x3? a. 4,400,000 b. 3,800,000 c. 2,800,000 d. 0

Repayment of grant related to asset

14. On January 1, 20x1, DREARY DISMAL Co. received cash of 16,000,000 from the government to be used in constructing a building. The construction was completed on December 31, 20x1 for a total cost of 40,000,000. The building is depreciated over 20 years. On January 1, 20x4, the government demanded repayment of the 16,000,000 grant given as grant in 20x1. How much is the loss on repayment of government grant recognized in 20x4?

a. 2,800,000 b. 1,800,000 c. 1,600,000 d. 0

BORROWING COST

Specific borrowing

1. On January 1, 20x1, HOMILY SERMON Co. borrowed 20 million to finance the construction of a new building. Interest is payable on the loan at 8%. Stage payments were due throughout the construction period and therefore excess funds were invested during thatperiod. By the end of the project on December 31, 20x1, investment income of 600,000 had been earned. How much is the capitalizable borrowing cost?

a. 1,600,000 b. 1,000,000 c. 600,000 d. 0

General borrowing

2. On January 1, 20x1, ENERVATE TO WEAKEN Company had the following borrowings made for general purposes and a part of the proceeds was used to finance the construction of a qualifying asset.

Principal

12% short-term note 40,000,000

14% bank loan (3-year) 72,000,000

16% note payable (5-year) 88,000,000

The construction of the qualifying asset was started on immediately and expenditures incurred on the qualifying asset were as follows:

Jan. 1 19,200,000

Mar. 31 8,800,000

July 30 14,000,000

October 1 21,600,000

December 31 1,200,000

How much is the capitalizable borrowing cost?

a. 28,960,000 b. 7,556,423 c. 5,362,428 d. 0

General borrowing (expenditures incurred evenly)

3. On January 1, 20x1, MAGISTERIAL AUTHORITATIVE Company had the following borrowings made for general purposes and a part of the proceeds was used to finance the construction of a qualifying asset.

Principal

12% short-term note 40,000,000

14% bank loan (3-year) 72,000,000

16% note payable (5-year) 88,000,000

The construction started on January 1 and was completed on December 20x1. The total cost of construction was 72,000,000 which was incurred evenly during the year. How much is the capitalizable borrowing cost?

a. 28,960,000 b. 5,212,800 c. 5,362,428 d. 0

Specific and General borrowing

4. On January 1, 20x1, OMNIPRESENT PRESENT EVERYWHERE EVERYTIME Co. contracted for the construction of a building for 80,000,000 on a land that it had previously purchased. The building was completed on December 20x1. The following payments were made to the contractor:

Payment date Amount

January 1, 20x1 8,000,000

March 31, 20x1 24,000,000

September 30, 20x1 40,000,000

December 31, 20x1 8,000,000

The following represents the borrowings of OMNIPRESENT Co. as of December 31, 20x1.

10%, 28,000,000, 4-year note dated January 1, 20x1 with simple interest payable annually, specifically borrowed to finance the construction project. Interest income earned on the temporary investment of the proceeds is 480,000.

12.5%, 40,000,000, 10-year note dated January 1, 20x1 with interest payable annually

10%, 60,000,000, 10-year note dated December 31, 19x9 with interest payable annually

How much is the capitalizable borrowing cost?

a. 13,320,000 b. 3,200,000 c. 2,867,343 d. 0

Specific borrowing used for general purposes

5. UBIQUITOUS WIDESPREAD Co. started construction of a new office building on January 1, 20x1. Funds borrowed specifically for the construction the building is 8,000,000 accruing interest at 10% annually. However, a part of the borrowing is used for other business requirements during the year. Investment income earned on temporary investments of proceeds from the borrowing amounted to 48,000 which was received in cash on September 1, 20x1. Expenditures on the building amounted 7,200,000 which was incurred evenly during the year. How much is the capitalizable borrowing cost?

a. 358,400 b. 324,800 c. 289,600 d. 0

Limit on average expenditures

6. RETRENCH Co. started construction of a qualifying asset for CUT DOWN, Inc. on January 1, 20x1. The following were expenditures incurred on the construction.

Date Expenditures

January 1, 20x1 4,000,000

May 1, 20x1 1,800,000

December 1, 20x1 2,880,000

• Included in the January 1, 20x1 expenditures is cost of materials purchased on account for 400,000. The account was settled on July 1, 20x1.
• Included in the May 1, 20x1 expenditures is 40,000 cost of materials obtained in exchange for old equipment.

Progress billings during the year are as follows:

Date of billing Amount billed Date billings were collected

April 1, 20x1 800,000 June 1, 20x1

September 1, 20x1 2,400,000 November 1, 20x1

• Payments on billings are subject to 10% withholding by CUT DOWN, Inc.
• RETRENCH Co. determined the capitalization rate to be 10%.

How much is the capitalizable borrowing cost?

a. 646,000 b. 546,000 c. 446,000 d. 0

Extended period of construction

Use the following information for the next four questions:

CONVALESCE Co. started construction of a qualifying asset for RECOVER, Inc. on January 1, 20x1. The following were expenditures incurred on construction.

Date Expenditures

Year 20x1

January 1, 20x1 4,000,000

May 1, 20x1 1,800,000

December 1, 20x1 2,880,000

Year 20x2

January 1, 20x2 3,600,000

August 30, 20x2 1,200,000

Year 20x3

July 1, 20x3 2,400,000

COVALESCE Co. determined the capitalization rate to be 10%. The construction of the qualifying asset was substantially completed on September 30, 20x3.

7. How much is the capitalizable borrowing cost in 20x1?

a. 430,000 b. 445,0000 c. 544,000 d. 645,000

8. How much is the capitalizable borrowing cost in 20x2?

a. 1,233,400 b. 1,322,400 c. 1342,400 d. 1,440,400

9. How much is the capitalizable borrowing cost in 20x3?

a. 1,210,980 b. 1,233,400 c. 1,435,980 d. 1,580,980

10. How much is the total cost of the constructed qualifying asset on September 30, 20x3?

a. 18,957,830 b. 19,776,830 c. 13,765,380 d. 18,957,380