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The Company's fixed assets as of December 31, 2020 were presented as follows: Class Building Machineries IT Equipment Furniture & Fixtures Tools & Spare parts Title TCT167899 TCT40837 Cost TCT94412 12,000,000 9,000,000 8,000,000 1,102,500 800,000 The Company also held the following as Investment Property as of December 31, 2021. The Company uses cost model in reporting property, plant and equipment and investment properties. Location Davao City Carcar City, Cebu Carmona, Cavite Acc. Dep'n Useful life 2,502,563 20 years 4,418,182 10 years 2,400,000 8 years 128,625 5 years Cost Depreciation method 150% declining method Sum-of-years digit Straight line Straight line Inventory method Remarks Received from shareholder as contribution, leased out to Borcelis Research Institute. P7,500,000 3,200,000 11,050,000 going Idle; to be used as research facility in 2023 Idle; construction of research facility on- Audit notes: A. At the beginning of 2021, a three-year old IT equipment which had an original cost of P3.2 million was traded in for a more advanced, high-power mainframe which had a cash purchase price of P8.5 million. The Company paid P6.0 million cash in the exchange. B. A new machinery was acquired on June 1, 2021 in exchange for 40,000, P100 par value ordinary shares of the Company. The machinery had no establish cash price while the shares, which are actively traded in the exchange market, were selling at P125. The Company incurred freight and installation costs totaling P100,000. During installation, additional labor and materials totaling P25,000 were incurred because of mishandling of the equipment. Prior to use, the machinery was tested incurring testing cost of P50,000. Products from the testing done were eventually sold for a total of P20,000. C. Additional tools and spare parts were acquired during the year totaling P600,000. An inventory count of tools and spare parts at year end revealed that there were P700,000 worth of tools left on hand. During the year, the Company disposed retired tools for a total cash proceeds of P50,000, at book value. D. In your review of minutes of BOD meetings, you noted that the Board resolved that the previously idle properties in Carcar and Carmona shall be the sites of the Company's research facilities.

The Company's fixed assets as of December 31, 2020 were presented as follows: Class Building Machineries IT Equipment Furniture & Fixtures Tools & Spare parts Title TCT167899 TCT40837 Cost TCT94412 12,000,000 9,000,000 8,000,000 1,102,500 800,000 The Company also held the following as Investment Property as of December 31, 2021. The Company uses cost model in reporting property, plant and equipment and investment properties. Location Davao City Carcar City, Cebu Carmona, Cavite Acc. Dep'n Useful life 2,502,563 20 years 4,418,182 10 years 2,400,000 8 years 128,625 5 years Cost Depreciation method 150% declining method Sum-of-years digit Straight line Straight line Inventory method Remarks Received from shareholder as contribution, leased out to Borcelis Research Institute. P7,500,000 3,200,000 11,050,000 going Idle; to be used as research facility in 2023 Idle; construction of research facility on- Audit notes: A. At the beginning of 2021, a three-year old IT equipment which had an original cost of P3.2 million was traded in for a more advanced, high-power mainframe which had a cash purchase price of P8.5 million. The Company paid P6.0 million cash in the exchange. B. A new machinery was acquired on June 1, 2021 in exchange for 40,000, P100 par value ordinary shares of the Company. The machinery had no establish cash price while the shares, which are actively traded in the exchange market, were selling at P125. The Company incurred freight and installation costs totaling P100,000. During installation, additional labor and materials totaling P25,000 were incurred because of mishandling of the equipment. Prior to use, the machinery was tested incurring testing cost of P50,000. Products from the testing done were eventually sold for a total of P20,000. C. Additional tools and spare parts were acquired during the year totaling P600,000. An inventory count of tools and spare parts at year end revealed that there were P700,000 worth of tools left on hand. During the year, the Company disposed retired tools for a total cash proceeds of P50,000, at book value. D. In your review of minutes of BOD meetings, you noted that the Board resolved that the previously idle properties in Carcar and Carmona shall be the sites of the Company's research facilities.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Case 1. Audit of Fixed Assets The Company's fixed assets as of December 31, 2020 were presented as follows: Class Building Machineries IT Equipment Furniture & Fixtures Tools & Spare parts Title TCT167899 TCT40837 Cost TCT94412 12,000,000 9,000,000 8,000,000 1,102,500 800,000 The Company also held the following as Investment Property as of December 31, 2021. The Company uses cost model in reporting property, plant and equipment and investment properties. Location Acc. Dep'n Davao City Carcar City, Cebu Carmona, Cavite Useful life 2,502,563 20 years 4,418,182 10 years 2,400,000 8 years 128,625 5 years Cost Depreciation method 150% declining method Sum-of-years digit Straight line Straight line Inventory method P7,500,000 3,200,000 11,050,000 Remarks Received from shareholder as contribution, leased out to Borcelis Research Institute. Idle; to be used as research facility in 2023 Idle; construction of research facility on- going Audit notes: A. At the beginning of 2021, a three-year old IT equipment which had an original cost of P3.2 million was traded in for a more advanced, high-power mainframe which had a cash purchase price of P8.5 million. The Company paid P6.0 million cash in the exchange. B. A new machinery was acquired on June 1, 2021 in exchange for 40,000, P100 par value ordinary shares of the Company. The machinery had no establish cash price while the shares, which are actively traded in the exchange market, were selling at P125. The Company incurred freight and installation costs totaling P100,000. During installation, additional labor and materials totaling P25,000 were incurred because of mishandling of the equipment. Prior to use, the machinery was tested incurring testing cost of P50,000. Products from the testing done were eventually sold for a total of P20,000. C. Additional tools and spare parts were acquired during the year totaling P600,000. An inventory count of tools and spare parts at year end revealed that there were P700,000 worth of tools left on hand. During the year, the Company disposed retired tools for a total cash proceeds of P50,000, at book value. D. In your review of minutes of BOD meetings, you noted that the Board resolved that the previously idle properties in Carcar and Carmona shall be the sites of the Company's research facilities.
Transcribed Image Text:Case 1. Audit of Fixed Assets The Company's fixed assets as of December 31, 2020 were presented as follows: Class Building Machineries IT Equipment Furniture & Fixtures Tools & Spare parts Title TCT167899 TCT40837 Cost TCT94412 12,000,000 9,000,000 8,000,000 1,102,500 800,000 The Company also held the following as Investment Property as of December 31, 2021. The Company uses cost model in reporting property, plant and equipment and investment properties. Location Acc. Dep'n Davao City Carcar City, Cebu Carmona, Cavite Useful life 2,502,563 20 years 4,418,182 10 years 2,400,000 8 years 128,625 5 years Cost Depreciation method 150% declining method Sum-of-years digit Straight line Straight line Inventory method P7,500,000 3,200,000 11,050,000 Remarks Received from shareholder as contribution, leased out to Borcelis Research Institute. Idle; to be used as research facility in 2023 Idle; construction of research facility on- going Audit notes: A. At the beginning of 2021, a three-year old IT equipment which had an original cost of P3.2 million was traded in for a more advanced, high-power mainframe which had a cash purchase price of P8.5 million. The Company paid P6.0 million cash in the exchange. B. A new machinery was acquired on June 1, 2021 in exchange for 40,000, P100 par value ordinary shares of the Company. The machinery had no establish cash price while the shares, which are actively traded in the exchange market, were selling at P125. The Company incurred freight and installation costs totaling P100,000. During installation, additional labor and materials totaling P25,000 were incurred because of mishandling of the equipment. Prior to use, the machinery was tested incurring testing cost of P50,000. Products from the testing done were eventually sold for a total of P20,000. C. Additional tools and spare parts were acquired during the year totaling P600,000. An inventory count of tools and spare parts at year end revealed that there were P700,000 worth of tools left on hand. During the year, the Company disposed retired tools for a total cash proceeds of P50,000, at book value. D. In your review of minutes of BOD meetings, you noted that the Board resolved that the previously idle properties in Carcar and Carmona shall be the sites of the Company's research facilities.
Activities to prepare the research facility in Carmona commenced in the first quarter of 2021. Construction of research facility in Carcar is expected to commence in late 2023. E. Expenditures relating to the Carmona facility are as follows: Date B 31-Mar-21 30-Jun-21 30-Sep-21 31-Dec-21 C The project engineers estimate that facility is 80% complete, and is expected to be completed in the second quarter of 2022. To finance the acquisition of the same, the Company obtained a four- year, P30 million 9% loan with Mogol Bank in February 1, 2021 specifically for the construction of Carmona and Carcar facilities. Total financing costs charged against profit or loss is P2,475,000. Since the construction of Carcar facility is deferred until 2023, the Board resolved to invest some of the proceeds of the loan to a portfolio of blue-chip stocks. See Case 3 for details. D 1. What entry will you propose for the capitalization of borrowing cost? Description Debit PAJE A Construction in Progress Gain on sale of investments Interest Expense Construction in Progress Gain on sale of investments Dividend income Interest Expense Construction in Progress Gain on sale of investments Dividend income Progress Billings P Interest Expense P Construction in Progress Dividend income Interest Expense 3,000,000 2,500,000 3,750,000 7,500,000 16,750,000 2. How much is the gain or loss on trade-in of IT Equipment? A. P500,000 gain B. P700,000 loss 1,305,000 1,170,000 872,000 1,170,000 433,000 422,000 1,170,000 433,000 1,592,000 433,000 Credit 4. How much is the cost of machinery acquired in June 1, 2021? A. P4,155,000 B. P4,130,000 C. P5,130,000 2,475,000 2,475,000 2,025,000 2,025,000 C. P1,700,000 gain D. no gain or loss 3. How much is the reclassification from investment property to owner-occupied property in 2021? A. P11,050,000 B. P14,250,000 C. -0- D. P27,800,000 D. P5,155,000 5. How much is the depreciation on tools and spare parts? A. P700,000 B. P650,000 C. P750,000 6. How much is the Construction in Progress as of December 31, 2021? A. P18,342,000 B. P18,055,000 C. P17,622,000 7. How much is the total depreciation expense for 2021? A. P5,864,399 B. P4,984,853 . C. P4,934,853 8. How much is the total property, plant and equipment to be reported in the Statement of Financial Position? A. P60, 120,277 B. P59,190,731 ● ● C. P60,070,277 Estimated cost of restoration: O O Case 2. Wasting Assets In the middle of your audit engagement with Eagle Laboratories, you went on a field work in a remote mountain village in Surigao to look into the wasting asset account of Gold Digger Mining Corporation, a newly-incorporated company engaged of mining. Based on your inquiries and inspection of records, you have obtained the following from the client: D. P2,050,000 The Gold Digger Mining Corporation acquired a land with natural resources in June 021. The obtained the necessary permits in August 2021 to operate for a period of five years and started extraction thereafter. In October 2021, environmentalists filed cases against the client. The client engaged services of an external legal counsel to handle the case, thus incurring litigation costs. The case was dismissed in early January 2022 due to lack of merit. Ms. Katrina Cortes, the finance manager, provided you with the following accounting information: Cost of land, P18,000,000 D. P17,172,000 D. P4,284,853 9. How much is the capitalized cost of the wasting asset? A. P24,168,899 B. P20,268,899 D. P60,770,277 C. P19,668,899 To be incurred after four years, P500,000 To be incurred after five years, upon completion of extraction activities, P1,500,000 Appropriate discount rate is 12% O Government permits, P500,000 Litigation costs incurred in relation to the case stated above, P600,000 Mining equipment without alternative use after completion of extraction activities, estimated useful life is eight years, P4,500,000 Estimated fair value of land after restoration, P2,000,000 Engineers estimate that output during the five-year extraction period is 1,000,000 metric tons. In the first year of operations, a total of 160,000 metric tons were extracted. 140,000 metric tons were sold. D. P20,500,000 10. How much is the book value of the wasting asset as at December 31, 2021? A. P20,621,875 B. P17,345,875 C. P16,841,875 D. P17,540,000
Transcribed Image Text:Activities to prepare the research facility in Carmona commenced in the first quarter of 2021. Construction of research facility in Carcar is expected to commence in late 2023. E. Expenditures relating to the Carmona facility are as follows: Date B 31-Mar-21 30-Jun-21 30-Sep-21 31-Dec-21 C The project engineers estimate that facility is 80% complete, and is expected to be completed in the second quarter of 2022. To finance the acquisition of the same, the Company obtained a four- year, P30 million 9% loan with Mogol Bank in February 1, 2021 specifically for the construction of Carmona and Carcar facilities. Total financing costs charged against profit or loss is P2,475,000. Since the construction of Carcar facility is deferred until 2023, the Board resolved to invest some of the proceeds of the loan to a portfolio of blue-chip stocks. See Case 3 for details. D 1. What entry will you propose for the capitalization of borrowing cost? Description Debit PAJE A Construction in Progress Gain on sale of investments Interest Expense Construction in Progress Gain on sale of investments Dividend income Interest Expense Construction in Progress Gain on sale of investments Dividend income Progress Billings P Interest Expense P Construction in Progress Dividend income Interest Expense 3,000,000 2,500,000 3,750,000 7,500,000 16,750,000 2. How much is the gain or loss on trade-in of IT Equipment? A. P500,000 gain B. P700,000 loss 1,305,000 1,170,000 872,000 1,170,000 433,000 422,000 1,170,000 433,000 1,592,000 433,000 Credit 4. How much is the cost of machinery acquired in June 1, 2021? A. P4,155,000 B. P4,130,000 C. P5,130,000 2,475,000 2,475,000 2,025,000 2,025,000 C. P1,700,000 gain D. no gain or loss 3. How much is the reclassification from investment property to owner-occupied property in 2021? A. P11,050,000 B. P14,250,000 C. -0- D. P27,800,000 D. P5,155,000 5. How much is the depreciation on tools and spare parts? A. P700,000 B. P650,000 C. P750,000 6. How much is the Construction in Progress as of December 31, 2021? A. P18,342,000 B. P18,055,000 C. P17,622,000 7. How much is the total depreciation expense for 2021? A. P5,864,399 B. P4,984,853 . C. P4,934,853 8. How much is the total property, plant and equipment to be reported in the Statement of Financial Position? A. P60, 120,277 B. P59,190,731 ● ● C. P60,070,277 Estimated cost of restoration: O O Case 2. Wasting Assets In the middle of your audit engagement with Eagle Laboratories, you went on a field work in a remote mountain village in Surigao to look into the wasting asset account of Gold Digger Mining Corporation, a newly-incorporated company engaged of mining. Based on your inquiries and inspection of records, you have obtained the following from the client: D. P2,050,000 The Gold Digger Mining Corporation acquired a land with natural resources in June 021. The obtained the necessary permits in August 2021 to operate for a period of five years and started extraction thereafter. In October 2021, environmentalists filed cases against the client. The client engaged services of an external legal counsel to handle the case, thus incurring litigation costs. The case was dismissed in early January 2022 due to lack of merit. Ms. Katrina Cortes, the finance manager, provided you with the following accounting information: Cost of land, P18,000,000 D. P17,172,000 D. P4,284,853 9. How much is the capitalized cost of the wasting asset? A. P24,168,899 B. P20,268,899 D. P60,770,277 C. P19,668,899 To be incurred after four years, P500,000 To be incurred after five years, upon completion of extraction activities, P1,500,000 Appropriate discount rate is 12% O Government permits, P500,000 Litigation costs incurred in relation to the case stated above, P600,000 Mining equipment without alternative use after completion of extraction activities, estimated useful life is eight years, P4,500,000 Estimated fair value of land after restoration, P2,000,000 Engineers estimate that output during the five-year extraction period is 1,000,000 metric tons. In the first year of operations, a total of 160,000 metric tons were extracted. 140,000 metric tons were sold. D. P20,500,000 10. How much is the book value of the wasting asset as at December 31, 2021? A. P20,621,875 B. P17,345,875 C. P16,841,875 D. P17,540,000
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