The following were discovered during your audit of Black Company’s financial statements for the year ended December 31, 2005: a. On December 24, 2005, Black purchased an office equipment for P400,000, terms 2/5, n/15. No entry was made on the date of purchase. The same was paid on December 31, 2005 and the accountant debited Office Equipment and credited cash for P400,000. b. b. Machine C, with a cash price of P128,000, was purchased on January 2, 2005. The company paid P20,000 down and P10,000 for 12 months. The last payment was made on December 30, 2005. Straight line depreciation, based on a five-year useful life and no salvage value, was recorded at P28,000 for the year. Freight of P4,000 on machine C was debited to the Freight in account. c. Machine P with a cash selling price of P360,000 was acquired on April 1, 2005, in exchange for P400,000 face amount of bonds payable selling at 94, and maturing on April 1, 2015. The accountant recorded the acquisition by a debit to Machinery and a credit to Bonds Payable for P400,000. Straight line depreciation was recorded based on a five-year economic life and amounted to P54,000 for nine months. In the computation of depreciation, residual value of P40,000 was used. d. Machine A was acquired on January 22, 2005, in exchange for past due accounts receivable of P140,000, on which an allowance of 20% was established at the end of 2004. The current fair value of the machine on January 22 was estimated at P110,000. The machine was recorded by a debit to Machinery and a credit to Accounts Receivable for P140,000. No depreciation was recorded on Machine A, because it was not installed and never used in operations. On February 2, 2005, Machine A was exchanged for 1,000 shares of the company’s outstanding capital stock with market price of P105 per share. The Treasury Stock account was debited for P140,000 with the corresponding credit to Machinery. e. On December 29, 2005, the company exchanged 10,000 shares of Emong, Inc. common stock, which Black was holding as an investment, for an equipment from De Leon Corporation. The common stock of Emong, Inc., which had been purchased by Black for P45 per share, had a quoted market value of P50 per share on the date of exchange. The equipment had a market value of P470,000. The transaction was recorded by a debit to Equipment and a credit to Investment in Emong, Inc.-Common for P450,000. f. On December 30, 2005, Machine M with a carrying amount of P120,000 (cost P400,000) was exchanged for a similar asset with a fair value of P150,000. In addition, Black paid P20,000 to acquire the new machine. The exchange, which lacks commercial substance, was recorded by a debit to Machinery and a credit to cash for P20,000. g. Machine E was recorded at P102,000, which included the carrying amount of P22,000 for an old machine accepted as a trade in, and cash of P80,000. The cash price of Machine S was P90,000, and the trade in allowance was P10,000. This transaction took place on December 31, 2005. h. Ms. Beauty, the company’s president, donated land and building appraised at P200,000 and P400,000, respectively, to the company to be used as plant site. The company began operating the plant on September 30, 2005. The building is estimated to have a useful life of 25 years. Since no money was involved, no journal entry was made for the above transaction. i. On July 1, 2004, the national government granted a parcel of land located in Baliuag, Bulacan to Black. On the date of grant, the land had a fair value of P2,000,000. The grant required Black to construct a cold storage building on the site. Black finished the construction of the building, which has an estimated useful life of 25 years, on January 2, 2005. Black appropriately recorded the cost of the building of P4,000,000 (which include direct materials, direct labor, and indirect cost and incremental overhead) but failed to provide depreciation in 2005. Unaware of the accounting procedures for government grants, the company did not reflect the grant on its books. REQUIRED: As Black’s external auditor, you are required to prepare any necessary adjusting journal entries as of December 31, 2005.
The following were discovered during your audit of Black Company’s financial statements for the
year ended December 31, 2005:
a. On December 24, 2005, Black purchased an office equipment for P400,000, terms 2/5,
n/15. No entry was made on the date of purchase. The same was paid on December 31,
2005 and the accountant debited Office Equipment and credited cash for P400,000.
b. b. Machine C, with a cash price of P128,000, was purchased on January 2, 2005. The
company paid P20,000 down and P10,000 for 12 months. The last payment was made on
December 30, 2005. Straight line
salvage value, was recorded at P28,000 for the year. Freight of P4,000 on machine C was
debited to the Freight in account.
c. Machine P with a cash selling price of P360,000 was acquired on April 1, 2005, in
exchange for P400,000 face amount of bonds payable selling at 94, and maturing on April
1, 2015. The accountant recorded the acquisition by a debit to Machinery and a credit to
Bonds Payable for P400,000. Straight line depreciation was recorded based on a five-year
economic life and amounted to P54,000 for nine months. In the computation of
depreciation, residual value of P40,000 was used.
d. Machine A was acquired on January 22, 2005, in exchange for past due
receivable
2004. The current fair value of the machine on January 22 was estimated at P110,000.
The machine was recorded by a debit to Machinery and a credit to Accounts Receivable
for P140,000. No depreciation was recorded on Machine A, because it was not installed
and never used in operations. On February 2, 2005, Machine A was exchanged for 1,000
shares of the company’s outstanding capital stock with market price of P105 per share.
The
Machinery.
e. On December 29, 2005, the company exchanged 10,000 shares of Emong, Inc. common
stock, which Black was holding as an investment, for an equipment from De Leon
Corporation. The common stock of Emong, Inc., which had been purchased by Black for
P45 per share, had a quoted market value of P50 per share on the date of exchange. The
equipment had a market value of P470,000. The transaction was recorded by a debit to
Equipment and a credit to Investment in Emong, Inc.-Common for P450,000.
f. On December 30, 2005, Machine M with a carrying amount of P120,000 (cost P400,000)
was exchanged for a similar asset with a fair value of P150,000. In addition, Black paid
P20,000 to acquire the new machine. The exchange, which lacks commercial substance,
was recorded by a debit to Machinery and a credit to cash for P20,000.
g. Machine E was recorded at P102,000, which included the carrying amount of P22,000 for
an old machine accepted as a trade in, and cash of P80,000. The cash price of Machine
S was P90,000, and the trade in allowance was P10,000. This transaction took place on
December 31, 2005.
h. Ms. Beauty, the company’s president, donated land and building appraised at P200,000
and P400,000, respectively, to the company to be used as plant site. The company began
operating the plant on September 30, 2005. The building is estimated to have a useful life
of 25 years. Since no money was involved, no
transaction.
i. On July 1, 2004, the national government granted a parcel of land located in Baliuag,
Bulacan to Black. On the date of grant, the land had a fair value of P2,000,000. The grant
required Black to construct a cold storage building on the site. Black finished the
construction of the building, which has an estimated useful life of 25 years, on January 2,
2005. Black appropriately recorded the cost of the building of P4,000,000 (which include
direct materials, direct labor, and indirect cost and incremental
provide depreciation in 2005. Unaware of the accounting procedures for government
grants, the company did not reflect the grant on its books.
REQUIRED: As Black’s external auditor, you are required to prepare any necessary
journal entries
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
