Zoro Corporation purchased a machine on July 1, 2016, for P750,000. The machine was estimated to have a useful life of 10 years with an estimated residual value of P42,000. During 2019, it became apparent that the machine would become uneconomical after December 31, 2023, and that the machine would have no scrap value. Accumulated depreciation on this machine as of December 31, 2018, was P177,000. What should be the charge for depreciation in 2019? Answer: P114,600 Luffy Inc. and Trafalgar Co. have an exchange with no commercial substance. The asset given up by Luffy Inc. has a book value of P12,000 and a fair value of P15,000. The asset given up by Trafalgar Co. has a book value of P20,000 and a fair value of P19,000. Boot of P4,000 is received by Trafalgar Co. What amount should Luffy Inc. record for the asset receive? Answer: P16,000 Chopper Company purchased a depreciable asset for P300,000 on April 1, 2016. The estimated residual value is P30,000, and the estimated total useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2019 when the asset is sold? Answer: P166,500 Sunny Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were P2,400,000 on March 1, P1,980,000 on June 1, and P3,000,000 on December 31. Sunny Company borrowed P1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, P2,400,000 note payable and an 11%, 4-year, P4,500,000 note payable. What is the weighted-average interest rate used for interest capitalization purposes? Answer:10.65% On January 1, 2019, in an effort to lure GG-Mart, a major discount retail chain to the area, the city of Sones agreed to provide the company with a P6,000,000 three-year, zero-interest bearing note. The prevailing rate of interest for a loan of this type is 10% and the present value of P6,000,000 at 10% for three years is P4,507,800. At the end of 2019, GG-Mart will recognize Answer: grant revenue of P450,780. Rico Company purchased land for a manufacturing facility for P1,100,000. The company paid P70,000 to tear down a building on the land. Salvage was sold for P10,500. Legal fees of P6,500 were paid for title investigation and making the purchase. Architect's fees were P40,500. Title insurance cost P4,500, and liability insurance during construction cost P13,500. Excavation cost P12,000. The contractor was paid P1,357,000. A one -time assessment made by the city for sidewalks was P7,500. Rico installed lighting and signage at a cost of P11,000. The cost of the land that should be recorded by Rico is Answer: P1,118,500 During 2019, Sooyoung Company incurred average accumulated expenditures of P3,200,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2019 was a P5,000,000, 7.5%, 6-year note payable dated July 1, 2018. What is the amount of interest that should be capitalized by Sooyoung during 2019? Answer: P240,000. On January 2, 2018, Yuri Echo Inc. began construction of a new processing plant. The automated plant was finished and ready for use on September 30, 2019. Expenditures for the construction were as follows: January 2, 2018 P200,000 September 1, 2018 600,000 December 31, 2018 600,000 March 31, 2019 600,000 September 30, 2019 400,000 Yuri Echo Inc. borrowed P1,100,000 on a construction loan at 12% interest on January 2, 2018. This loan was outstanding during the construction period. The company also had P4,000,000 in 9% bonds outstanding in 2018 and 2019. What were the weighted-average accumulated expenditures for 2018? Answer: P400,000 Sunny Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were P2,400,000 on March 1, P1,980,000 on June 1, and P3,000,000 on December 31. Sunny Company borrowed P1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, P2,400,000 note payable and an 11%, 4-year, P4,500,000 note payable. What is the avoidable interest for Sunny Company? Answer: P352,208 Ace Corporation, which has a calendar year accounting period, purchased a new machine for P40,000 on April 1, 2014. At that time Ace expected to use the machine for nine years and then sell it for P4,000. The machine was sold for P22,000 on Sept. 30, 2019. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be Answer: P2,000 Hyoyeon Company received an P1,800,000 subsidy from the government to purchase manufacturing equipment on January, 2, 2018. The equipment has a cost of P3,000,000, a useful life a six years, and no salvage value. Hyoyeon depreciates the equipment on a straight-line basis. If Hyoyeon chooses to account for the grant as deferred revenue, the amount of depreciation expense recorded in 2018 will be: . Answer: P500,000 On January 1, 2018, Kidd Company purchased a new machine for P2,100,000. The new machine has an estimated useful life of nine years and the residual value was estimated to be P75,000. Depreciation was computed on the sum-of-the-years'-digits method. What amount should be shown in Kidd's balance sheet at December 31, 2019, net of accumulated depreciation, for this machine? Answer:. P1,335,000 Below is the information relative to an exchange of assets by Yuri Company. The exchange lacks commercial substance. Old Equipment Case 1 book value 75,000 , fair value 85,000 . cash paid 15,000 Case II book value 50,000 , fair value 45,000 , cash paid 7,000 Which of the following would be correct for Yuri to record in Case II? Record Equipment at: Record a gain of (loss) of: a. P57,000 P5,000 b. P50,000 P2,000 c. P52,000 P(5,000) d. P50,000 P(2,000) Answer: P52,000 P(5,000) Below is the information relative to an exchange of assets by Yuri Company. The exchange lacks commercial substance. Old Equipment Case 1 book value 75,000 , fair value 85,000 . cash paid 15,000 Case II book value 50,000 , fair value 45,000 , cash paid 7,000 Which of the following would be correct for Yuri to record in Case I? a. P90,000 P0 b. P100,000 P10,000 c. P75,000 P(5,000) d. P90,000 P10,000 Answer: P90,000 P0 Totoro Corporation purchased a depreciable asset for P300,000 on January 1, 2016. The estimated residual value is P30,000, and the estimated useful life is 9 years. The straight-line method is used for depreciation. In 2019, Totoro changed its estimates to a total useful life of 5 years with a salvage value of P50,000. What is 2019 depreciation expense? Answer: P80,000 During 2019, Sabo Co. sold equipment that had cost P98,000 for P58,800. This resulted in a gain of P4,300. The balance in Accumulated DepreciationEquipment was P325,000 on January 1, 2019, and P310,000 on December 31. No other equipment was disposed of during 2018. Depreciation expense for 2019 was Answer: P28,500. On January 1, 2019, the Accumulated DepreciationMachinery account of a particular company showed a balance of P370,000. At the end of 2019, after the adjusting entries were posted, it showed a balance of P395,000. During 2019, one of the machines which cost P125,000 was sold for P60,500 cash. This resulted in a loss of P4,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2019? Answer: P85,500 Hyoyeon Company received an P1,800,000 subsidy from the government to purchase manufacturing equipment on January, 2, 2018. The equipment has a cost of P3,000,000, a useful life a six years, and no salvage value. Hyoyeon depreciates the equipment on a straight-line basis. If Hyoyeon chooses to account for the grant as deferred revenue, the grant revenue recognized will be: a. Zero in the first year of the grant's life. b. P300,000 per year for the years 2018-2023. c. P500,000 per year for the years 2018-2023. d. P1,800,000 in 2018. Answer: P300,000 per year for the years 2018-2023 On March 1, 2019, Yuna Company purchased land for an office site by paying P540,000 cash. Yuna began construction on the office building on March 1. The following expenditures were incurred for construction: March 1, 2019 P 360,000 April 1, 2019 504,000 May 1, 2019 900,000 June 1, 2019 1,440,000 The office was completed and ready for occupancy on July 1. To help pay for construction, P720,000 was borrowed on March 1, 2019 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2019 was a P300,000, 12%, 6-year note payable dated January 1, 2019. The actual interest cost incurred during 2019 was Answer: P90,000 Jessica Inc. and Tifanny Company have an exchange with no commercial substance. The asset given up by Jessica has a book value of P120,000 and a fair value of P135,000. The asset given up by Tifanny has a book value of P220,000 and a fair value of P200,000. Boot of P65,000 is received by Tifanny. What amount should Jessica record for the asset received? Answer: P185,000 Sunny Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were P2,400,000 on March 1, P1,980,000 on June 1, and P3,000,000 on December 31. Sunny Company borrowed P1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, P2,400,000 note payable and an 11%, 4-year, P4,500,000 note payable. What are the weighted-average accumulated expenditures? Answer: P3,155,000 Luffy Inc. and Trafalgar Co. have an exchange with no commercial substance. The asset given up by Luffy Inc. has a book value of P12,000 and a fair value of P15,000. The asset given up by Trafalgar Co. has a book value of P20,000 and a fair value of P19,000. Boot of P4,000 is received by Trafalgar Co. What amount should Trafalgar Co. record for the asset received? Answer: P15,000 On January 2, 2018, Yuri Echo Inc. began construction of a new processing plant. The automated plant was finished and ready for use on September 30, 2019. Expenditures for the construction were as follows: January 2, 2018 P200,000 September 1, 2018 600,000 December 31, 2018 600,000 March 31, 2019 600,000 September 30, 2019 400,000 Yuri Echo Inc. borrowed P1,100,000 on a construction loan at 12% interest on January 2, 2018. This loan was outstanding during the construction period. The company also had P4,000,000 in 9% bonds outstanding in 2018 and 2019. The interest capitalized for 2019 was: Answer: P118,305 Two independent companies, Mama Co. and Kaido Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other's land. They agree to exchange their land. An appraiser was hired, and from her report and the companies' records, the following information was obtained: Mama's Land Kaido's Land Cost and book value P192,000 P120,000 Fair value based upon appraisal 220,000 210,000 The exchange was made, and based on the difference in appraised fair values, Kaido paid P10,000 to Mama. The exchange has commercial substance. For financial reporting purposes, Mama should recognize a gain on this exchange of Answer: P28,000 Hyoyeon Company received an P1,800,000 subsidy from the government to purchase manufacturing equipment on January, 2, 2018. The equipment has a cost of P3,000,000, a useful life a six years, and no salvage value. Hyoyeon depreciates the equipment on a straight-line basis. If Hyoyeon chooses to account for the grant as an adjustment to the asset, the book value of the asset on the 2019 statement of financial position will be: Answer: P800,000 Two independent companies, Mama Co. and Kaido Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other's land. They agree to exchange their land. An appraiser was hired, and from her report and the companies' records, the following information was obtained: Mama's Land Kaido's Land Cost and book value P192,000 P120,000 Fair value based upon appraisal 220,000 210,000 The exchange was made, and based on the difference in appraised fair values, Kaido paid P10,000 to Mama. The exchange has commercial substance. The new land should be recorded on Kaido's books a Answer: 220,000 In an exchange with commercial substance, Taeyeon Company traded equipment with a cost of P8,200,000 and book value of P3,120,000 and gave P4,698,000 cash. The old machine had a fair value of P2,960,000. Which of the following journal entries would Taeyeon make to record the exchange? Answer: Equipment 7,658,000 Loss on Disposal 160,000 Accumulated Depreciation 5,080,000 Equipment 8,200,000 Cash 4,698,000 On January 2, 2018, Yuri Echo Inc. began construction of a new processing plant. The automated plant was finished and ready for use on September 30, 2019. Expenditures for the construction were as follows: January 2, 2018 P200,000 September 1, 2018 600,000 December 31, 2018 600,000 March 31, 2019 600,000 September 30, 2019 400,000 Yuri Echo Inc. borrowed P1,100,000 on a construction loan at 12% interest on January 2, 2018. This loan was outstanding during the construction period. The company also had P4,000,000 in 9% bonds outstanding in 2018 and 2019. The interest capitalized for 2018 was: Answer: P48,000 On March 1, 2019, Yuna Company purchased land for an office site by paying P540,000 cash. Yuna began construction on the office building on March 1. The following expenditures were incurred for construction: March 1, 2019 P 360,000 April 1, 2019 504,000 May 1, 2019 900,000 June 1, 2019 1,440,000 The office was completed and ready for occupancy on July 1. To help pay for construction, P720,000 was borrowed on March 1, 2019 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2019 was a P300,000, 12%, 6-year note payable dated January 1, 2019. Assume the weighted-average accumulated expenditures for the construction project are P870,000. The amount of interest cost to be capitalized during 2019 is Answer: P27,600 Whitebeard Products purchased a computer for P13,000 on July 1, 2018. The company intends to depreciate it over 4 years using the double-declining balance method. Residual value is P1,000. Depreciation for 2019 is Answer: P4,875 Jessica Inc. and Tifanny Company have an exchange with no commercial substance. The asset given up by Jessica has a book value of P120,000 and a fair value of P135,000. The asset given up by Tifanny has a book value of P220,000 and a fair value of P200,000. Boot of P65,000 is received by Tifanny. The journal entry made by Tifanny to record the exchange will include Answer: a debit to Loss on Exchange for P20,000 Hyoyeon Company received an P1,800,000 subsidy from the government to purchase manufacturing equipment on January, 2, 2018. The equipment has a cost of P3,000,000, a useful life a six years, and no salvage value. Hyoyeon depreciates the equipment on a straight-line basis. If Hyoyeon chooses to account for the grant as an adjustment to the asset, the amount of depreciation expense recorded in 2018 will be: Answer: P200,000