On December 31, 2020, Scarce Company showed the followine account for machinery that it has assembled for own use.

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Problem 26-22 (IAA)
On December 31, 2020, Scarce Company showed the following
account for machinery that it has assembled for own use.
Machinery
Cost of dismantling old machine 20,000 Cash proceeds from sale
Raw materials used
Labor in construction
Cost of installation
Materials spoiled in trial run
Profit on construction
Purchase of machine tools
of old machine
14,000
600,000
400,000 Depreciation for 2020
60,000
30,000
100,000
90,000
10% of P1,286,000 128,600
An analysis of the details in the account disclosed the following:
1. The old machine, which was removed in the installation of
the new one had been fully depreciated.
2. The discount received on the payment of materials used in
construction totaled P40,000 and this was reported in the
purchase discount account.
3. The factory overhead account shows a balance of P2,500,000
for the year ended December 31, 2020. This balance exceeds
normal overhead on plant activities by Pl150,000 and is
attributable to machine construction.
4. A profit was recognized on construction for the difference
between cost incurred and the price at which the machine
could have been purchased.
5. Machine tools have a useful life of 3 years.
6. Machinery has a useful life of 10 years and was used for
production beginning September 1, 2020.
Required:
a. Determine the cost of the machinery.
b. Prepare journal entries to adjust the machinery account on
December 31, 2020.
Transcribed Image Text:Problem 26-22 (IAA) On December 31, 2020, Scarce Company showed the following account for machinery that it has assembled for own use. Machinery Cost of dismantling old machine 20,000 Cash proceeds from sale Raw materials used Labor in construction Cost of installation Materials spoiled in trial run Profit on construction Purchase of machine tools of old machine 14,000 600,000 400,000 Depreciation for 2020 60,000 30,000 100,000 90,000 10% of P1,286,000 128,600 An analysis of the details in the account disclosed the following: 1. The old machine, which was removed in the installation of the new one had been fully depreciated. 2. The discount received on the payment of materials used in construction totaled P40,000 and this was reported in the purchase discount account. 3. The factory overhead account shows a balance of P2,500,000 for the year ended December 31, 2020. This balance exceeds normal overhead on plant activities by Pl150,000 and is attributable to machine construction. 4. A profit was recognized on construction for the difference between cost incurred and the price at which the machine could have been purchased. 5. Machine tools have a useful life of 3 years. 6. Machinery has a useful life of 10 years and was used for production beginning September 1, 2020. Required: a. Determine the cost of the machinery. b. Prepare journal entries to adjust the machinery account on December 31, 2020.
Problem 26-15 (IAA)
During the current year, Sacrosanct Company purchased a
second-hand machine at a price of P3,200,000.
A cash payment of P500,000 was made and a two-year,
noninterest bearing note was issued for the balance.
Recent transactions involving similar machinery indicate that
the used machine has a fair value of P2,400,000. A new machine
would cost P4,000,000.
The following costs were incurred during the year:
Cost of removing old machine that is replaced
Cash proceeds from sale of the old machine
replaced
General overhaul and repairs to recondition
machine prior to use
Cost of spare parts to cover breakdowns
Cost of installation
Cost of testing machine prior to use
Cost of hauling machine from vendor to entity
premises
Cost of repairing damage to machine caused
when machine was dropped during installation 30,000
Repairs incurred during first year of operations
Safety device added to the machine
Cost of training workers to operate the machine
30,000
10,000
150,000
200,000
80,000
110,000
10,000
90,000
250,000
20,000
What total amount should be capitalized as cost of the second
hand machine?
a. 3,000,000
b. 2,750,000
c. 3,200,000
d. 3,800,000
Transcribed Image Text:Problem 26-15 (IAA) During the current year, Sacrosanct Company purchased a second-hand machine at a price of P3,200,000. A cash payment of P500,000 was made and a two-year, noninterest bearing note was issued for the balance. Recent transactions involving similar machinery indicate that the used machine has a fair value of P2,400,000. A new machine would cost P4,000,000. The following costs were incurred during the year: Cost of removing old machine that is replaced Cash proceeds from sale of the old machine replaced General overhaul and repairs to recondition machine prior to use Cost of spare parts to cover breakdowns Cost of installation Cost of testing machine prior to use Cost of hauling machine from vendor to entity premises Cost of repairing damage to machine caused when machine was dropped during installation 30,000 Repairs incurred during first year of operations Safety device added to the machine Cost of training workers to operate the machine 30,000 10,000 150,000 200,000 80,000 110,000 10,000 90,000 250,000 20,000 What total amount should be capitalized as cost of the second hand machine? a. 3,000,000 b. 2,750,000 c. 3,200,000 d. 3,800,000
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