PROBLEM 1

On October 1, 2020, ABC Corporation purchased land and building at a basket price of P 30,000,000. A check was issued upon receipt of the land title. At the time of acquisition, the relative fair values of land and building are P 12,000,000 and 24,000,000, respectively.

1. What would be the journal entry to record the acquisition?

Account Names

Debit

Credit

Land

Building

Cash

PROBLEM 2

On October 1, 2020, Hello Company purchased equipment and furniture at a total cost of P 100,000. The relative sales values of these two properties at acquisition date are P 75,000 and P 50,000, respectively. Inward related costs paid by entity was P 20,000. Term of purchase is 3/10, n/90.

1. What would be the journal entry to record the acquisition?

Account Names

Debit

Credit

Equipment [(P 100,000 x 97%) +20,000] x75/125

Furniture [(P 100,000 x 97%) +20,000] x50/125

Accounts Payable (100,000 x 97%)

Cash

PROBLEM 3

On July 1, 2020, Manuel Corporation purchased machinery worth P 8,000,000. Terms: P 500,000 down payment, the balance on three equal annual payments every July 1 of each year. The cash price of the machinery is P 6,000,000. A promissory note is issued for the installment balance.

Required:

1. What would be the journal entry to record the acquisition of machinery?

Date

Account Names

Debit

Credit

7/1/2020

Machinery

Discount on Notes Payable

Notes Payable

Cash

1. What would be the journal entries to record the amortization at December 31, 2020?

Date

Account Names

Debit

Credit

12/31/20

Interest Expense

Discount on Notes Payable

PROBLEM 5 (Adapted from Auditing Textbook)

On January 1, 2020, Marcus Company acquired a machinery with a fair value of P 1,900,000 by issuing a 4-year, 12%, P 2,000,000 bonds. Principal is due on December 31, 2023 but the interest is due annually at the end of each year. The prevailing market rate of interest for a similar instrument on January 1, 2020 is 14%. The present value of the future cash flows from the bonds discounted at 10% is P 2,126,776.

1. What would be the journal entries to record the amortization at December 31, 2020?

Date

Account Names

Debit

Credit

1/1/2020

Machinery (at present value)

2,126,776

Premium on Bonds Payable

126,776

Bonds Payable

2,000,000

PROBLEM 6 (Adapted from Auditing Textbook)

On December 15, 2020, Tenorio Company amd Jason Company exchanged equipment. The following data are available on the exchange. The exchange is with commercial substance,

Tenorio

Jason

Equipment (cost)

500,000

300,000

Accumulated Depreciation

300,000

50,000

Fair value of Equipment

180,000

220,000

Cash paid by Tenorio to Jason

40,000

40,000

1. What is the journal entry to record the transaction in the books of Tenorio?

Date

Account Names

Debit

Credit

12/15/2020

Equipment - new

Accumulated Depreciation

Loss on Exchange

Equipment - old

Cash

2. What is the journal entry to record transaction in the books of Jason?

Date

Account Names

Debit

Credit

12/15/2020

Equipment - new

Accumulated Depreciation

Loss on Exchange

Cash

Equipment - old