Valix Finacc Vol 1 Problem 1

Valix Finacc vol 1 Problem 1-19

Financial Accounting Volume 1 2008 Valix-PeraltaChapter 1 Problem 1-19

Problem 1-19

1. Accrual

2. Going concern

3. Accounting entity

4. Monetary unit

5. Time period

Posted by Louie Lansang at 2:45 AM No comments:

Labels: Finacc Volume 1 Chap 1, Finacc Volume 1 Solutions, Valix Solutions



1. The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value. Revenue arises from the act of selling and not from the act of buying.

2. The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be both probable and measurable.

3. The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.

4. The entry is incorrect because no revenue shall be recognized until a sale has taken place.

5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment.

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Friday, May 28, 2010



1. Monetary unit assumption

2. Cost principle

3. Materiality

4. Time period

5. Matching principle

6. Substance over form

7. Income recognition principle

8. Comparability or consistency

9. Conservatism or prudence

10. Adequate disclosure or completeness



Thursday, May 27, 2010



1. Accrual assumption

2. Going concern assumption

3. Asset recognition principle

4. Cost principle



















5. Liability recognition principle


7. Expense recognition principle

8. Cause and effect association principle

9. Systematic and rational allocation princple

10. Immediate recognition principle

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Friday, May 21, 2010



1. The cost of leasehold improvement should not be recorded as outright expense, but should be amortized as expense over the life of the improvement or life of the lease, whichever is shorter. This is in conformity with the systematic and rational allocation principle of expense recognition.

2. The fact that the customer has not been seen for a year is not a controlling factor to write off the account. If the account is doubtful of collection, an allowance should be set up. It is only when there is proof of uncollectibility that the account should be written off.

3. Advertising cost should be treated as outright expense, by reason of the uncertainty of the benefit that may be derived therefrom in the future, in conformity with “immediate recognition principle”.

4. The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as a prospective receivable if and when the policy is canceled because of excessive premium in the early stage of policy. The CSV should be classified as noncurrent investment.

5. The cost of obsolete merchandise should not be included as part of inventory but charged to expense, as a conservative approach.










6. The excess payment represents goodwill which should not be amortized but subject to impairment. Conservatism dictates that goodwill should be recognized when paid for.

7. The depreciation is not dependent on the amount of profit generated during the year. Depreciation is an allocation of cost and therefore should be provided regardless of the level of earnings.

8. An entry should be made to recognize the inventory fire loss, and such loss should be treated as component of income.

9. Revenues and expenses of the canteen should be separated from the revenues and cost of regular business operations in order to present fairly the financial position and performance of the regular operations.

10. The increase in value of land and building should not be taken up in the accounts. The use of revalued amount is permitted only when the revaluation is made by independent and expert appraiser. The expected sales price of P5,000,000 is not necessarily the revalued amount of the land and building. Moreover, increase in value is not an income until the asset is sold.



Valix Finacc vol Problem 1-14


1. Materiality

2. Going concern



5. Standard of adequate disclosure

6. Comparability

7. Matching principle

8. Cost principle

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9. Reliability

10. Time period





1. Systematic and rational allocation as a matching process

2. Comparability or consistency

3. Monetary unit


5. Time Period

6. Going concern and cost principle


8. Materiality

9. Completeness or standard of adequate disclosure

10. Conservatism or prudence



Valix Finacc vol Problem 1-12


1. E

2. D

3. B

4. C














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5. G

6. H

7. I

8. F

9. J

10. A





1. C

2. B

3. D

4. A

5. F

6. E

7. J

8. G

9. H

10. I


















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1. A

2. B

3. D

4. B

5. A

6. D

7. C

8. A

9. D

10. A



Valix Finacc vol 1 problem 1-9


1. D

2. D

3. C

4. B

5. C























1. B

2. B

3. C

4. C

5. A

6. B

7. D

8. D

9. A

10. B





1. D

2. D

3. C

4. A

5. A

6. C

7. D

8. D

9. B










10. D





1. A

2. A

3. C

4. A

5. A

6. A

7. B

8. C

9. A

10. B





1. A

2. A

3. A

4. D

5. D



















6. D

7. B

8. D

9. C

10. D





1. A

2. C

3. A

4. A

5. D

6. A

7. D

8. B

9. D

10. D





1. C



















2. D

3. D

4. A

5. D




Financial Accounting Volume 1 ValixProblem 1-2

1. A

2. A

3. D

4. B

5. D

6. B

7. D

8. C

9. C

10. D



Tuesday, May 18, 2010


Valix Peralta Financial Accounting Volume 1 2008Problem 1-11. D2. C3. D4. D5. C6. C



















7. B8. C9. D10. A



Reliable Company

Statement of Retained Earnings

Year Ended December 31, 2008

Retained earnings – January 1 200,000

Prior period error – overdepreciation in 2007 100,000

Change in accounting policy from FIFO to weighted average

method – credit adjustment 150,000

Corrected beginning balance 450,000

Net income 1,300,000

Decrease in appropriation for treasury share 200,000

Total 1,950,000

Cash dividends paid to shareholders ( 500,000)

Current appropriation for contingencies ( 100,000)

Retained earnings – December 31 1,350,000

Problem 2-12


Loss from fire ( 50,000)


Goodwill impairment ( 250,000)

Loss on sale of equipment ( 200,000)

Gain on retirement of bonds payable 100,000

Gain on life insurance settlement 450,000

Adjusted net income 3,050,000

Gondola Company

Statement of Retained Earnings

Year ended December 31, 2008

Balance – January 1 2,600,000

Compensation of prior period not accrued ( 500,000)

Correction of prior period error – credit 400,000

Adjusted beginning balance 2,500,000

Net income – adjusted 3,050,000

Stock dividend ( 700,000)

Loss on retirement of preference share ( 350,000)

Appropriated for treasury share (1,000,000)

Balance – December 31 3,500,000





Problem 2-10










Ronald Company

Statement of Cost of Goods Manufactured


Materials – January 1 1,120,000

Purchases 1,600,000

Freight on purchases 220,000

Purchase discounts ( 20,000) 1,800,000

Materials available for use 2,920,000

Less: Materials – December 31 1,560,000

Materials used 1,360,000

Direct labor 2,000,000

Factory overhead:

Heat, light and power 600,000

Repairs and maintenance 100,000

Indirect labor 360,000

Other factory overhead 340,000

Factory supplies used (300,000 + 660,000 – 540,000) 420,000

Depreciation – factory building 280,000 2,100,000

Total manufacturing cost 5,460,000

Goods in process – January 1 360,000

Total cost of goods in process 5,820,000

Less: Goods in process – December 31 320,000

Cost of goods manufactured 5,500,000

24

Ronald Company

Income Statement


Note

Net sales revenue (1) 6,980,000

Cost of goods sold (2) (5,400,000)

Gross income 1,580,000

Other income (3) 160,000

Total income 1,740,000

Expenses:

Selling expenses 200,000

Administrative expenses 340,000 540,000

Income before tax 1,200,000

Income tax expense ( 200,000)


Note 1 – Net sales revenue

Sales 7,120,000

Sales returns and allowances ( 140,000)

Net sales revenue 6,980,000

Note 2 – Cost of goods sold

Finished goods – January 1 420,000


Goods available for sale 5,920,000

Finished goods – December 31 ( 520,000)

Cost of goods sold 5,400,000

Note 3 – Other income

Interest revenue 160,000





Christian Company

Statement of Cost of Goods Manufactured











Purchases 1,600,000

Freight in 80,000

Total 1,680,000

Increase in raw materials ( 100,000)

Raw materials used 1,580,000

Direct labor 1,480,000

Factory overhead:

Indirect labor 600,000

Depreciation – machinery 50,000

Factory taxes 130,000

Factory supplies expense 120,000

Factory superintendence 480,000

Factory maintenance 150,000

Factory heat, light and power 220,000 1,750,000


Decrease in goods in process 90,000


Christian Company

Income Statement


Note

Sales revenue 8,000,000



Expenses:

Selling expenses (2) 800,000

Administrative expenses (3) 930,000 1,730,000






Decrease in finished goods 200,000


23

Note 2 – Selling expenses

Sales salaries 520,000

Advertising 120,000

Delivery expense 160,000

Total 800,000

Note 3 – Administrative expenses

Office supplies expense 30,000

Office salaries 800,000

Doubtful accounts 100,000

Total 930,000




Financial Accounting Volume 1 2008 Valix-Peralta

Chapter 1 Problem 2-8

Youth Company

Income Statement


Note

Net sales revenue (1) 8,870,000



Expenses:

Selling expenses (3) 690,000

Administrative expenses (4) 580,000

Other expense (5) 340,000 1,610,000




21










Note 1 – Net sales revenue

Sales 9,070,000

Sales returns and allowances ( 200,000)

Net sales revenue 8,870,000


Beginning inventory 1,500,000

Purchases 5,750,000

Transportation in 150,000

Purchase discounts ( 100,000) 5,800,000


Ending inventory (1,400,000)


Note 3 – Selling expenses

Depreciation – store equipment 110,000

Store supplies 80,000

Sales salaries 500,000

Total 690,000

Note 4 – Administrative expenses

Officers’ salaries 400,000

Depreciation – building 120,000

Office supplies 60,000

Total 580,000

Note 5 – Other expense

Uninsured flood loss 340,000

Valix Finacc vol 1 Problem 3-13 to 28

Problem 3-13 Answer B Problem 3-14 Answer C

Problem 3-15 Answer A Problem 3-16 Answer A

Petty cash fund 50,000 Payroll account 2,500,000

Undeposited collections 1,100,000 Value added tax account 1,000,000

Cash in bank 2,500,000 Traveler’s check 300,000

Total 3,650,000 Money order 700,000

Petty cash fund 40,000

Total 4,540,000

Problem 3-17 Answer C

Checking account #101 1,750,000

Checking account #201 ( 100,000)

Time deposit account 250,000

90-day Treasury bill 500,000

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Total cash and cash equivalent 2,400,000

Problem 3-18 Answer B

Cash in First Bank 5,000,000

Change fund 50,000


Total 5,065,000


Cash balance per book 6,000,000

Credit adjustment (1,600,000)

Adjusted cash balance 4,400,000

33

Note receivable 1,000,000

Accounts receivable (400,000 + 200,000) 600,000

Cash 1,600,000

Problem 3-20 Answer A

Checkbook balance 8,000,000

Postdated customer check (2,000,000)

NSF check ( 500,000)

Undelivered company check 1,500,000

Adjusted balance 7,000,000


Cash on hand 2,400,000

Cash in bank 3,500,000

Petty cash 40,000

Saving deposit 2,000,000

Total deposit 7,940,000

Problem 3-22 Answer B Problem 3-23 Answer A Problem 3-24 Answer A


Cash on hand and in bank 5,000,000

Time deposit 6,000,000

Saving deposit 1,000,000

Total 12,000,000


Currencies 4,000

Coins 1,000

Accommodation check 6,000

Total 11,000

Financial Accounting Volume 1 2008 Valix-Peralta

Chapter 1 Problem 3-28


Coins and currency 2,000

Replenishment check 4,000

Total 6,000


Total petty cash 10,000

Currency and coins ( 3,000)

Amount of replenishment 7,000





Requirement 1

2008

Dec. 1 Petty cash fund 10,000

Cash in bank 10,000

20 Selling expenses 5,000

Miscellaneous expenses 2,000

Equipment 2,000

Cash in bank 9,000

31 Receivable from employee 2,000


Transportation 500







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2009

Jan. 1 Petty cash fund 4,000

Receivable from employee 2,000


Transportation 500

32

2009

Jan. 15 No entry

31 Selling expenses 2,000

Administrative expenses 2,000

Transportation 1,500

Purchases 1,200

Cash in bank 6,700

Requirement 2

Petty cash 10,000

Less: Petty cash expenses from December 21, 2008 to January 31, 2009:

Selling expenses (1,500 + 500) 2,000


Transportation (500 + 1,000) 1,500

Purchases 1,200 6,700

Petty cash before replenishment 3,300














2008

Nov. 2 Petty cash fund 10,000

Cash in bank 10,000

30 Postage 2,000

Supplies 5,000


Cash in bank 17,000

Dec. 31 Postage 3,000

Supplies 4,000

Special deposit 2,000


2009

Jan. 1 Petty cash fund 9,000

Postage 3,000

Supplies 4,000

Special deposit 2,000

2 No entry

31 Postage 5,000

Supplies 6,000

Accounts payable 7,000

Cash short or over 1,000

Cash in bank 19,000





Fluctuating Fund System Imprest Fund System

May 2 Petty cash fund 10,000 May 2 Petty cash fund 10,000

Cash in bank 10,000 Cash in bank 10,000

29 Postage 1,000 29 Postage 1,000

Supplies 3,000 Supplies 3,000

Transportation 2,500 Transportation 2,500

Miscellaneous expense 1,500 Miscellaneous expense 1,500

Petty cash fund 8,000 Petty cash fund 8,000


Cash in bank 8,000

June 30 Supplies 2,000 June 30 Supplies 2,000

Accounts payable 1,000 Accounts payable 1,000

Transportation 1,000 Transportation 1,000

Petty cash fund 4,000 Petty cash fund 4,000

July 1 Petty cash fund 4,000

Supplies 2,000

Postage 1,000










Transportation 1,000

To reverse the adjustment made

on June 30.

15 Petty cash fund 5,000 July 15 Supplies 1,500

Supplies 3,500 Postage 500

Postage 1,500 Transportation 500

Transportation 1,500 Miscellaneous expense 500

Miscellaneous expense 500 Petty cash fund 3,000

Cash in bank 12,000


Cash in bank 12,000


Financial Accounting Volume 1 2008 Valix-PeraltaChapter 1 Problem 4-22 to 38


Balance per book 4,000,000

Bank charges ( 10,000)

Customer note collected by bank 1,500,000

Interest on customer note 60,000

NSF customer check ( 250,000)

Depositor’s note charged to account (1,000,000)

Adjusted book balance 4,300,000



Balance per bank 2,000,000

Add: Deposit in transit 200,000

Total 2,200,000

Less: Outstanding checks 400,000

Erroneous bank credit 300,000 700,000

Adjusted bank balance 1,500,000

The adjusted cash in bank can also be computed by starting with the balance per book.

Balance per book 850,000

Add: Proceeds of note collected 750,000

Total 1,600,000

Less: NSF checks (150,000 – 50,000) 100,000



Balance per book 8,500,000

Note collected by bank 950,000

Book error (200,000 – 20,000) ( 180,000)


Bank service charge ( 20,000)





Problem 4-28 Answer D

Balance per ledger 3,750,000

Service charges ( 50,000)

Collection of note 1,500,000

Book error ( 100,000)

Unrecorded check for traveling expenses ( 500,000)


Balance per bank 6,200,000

Deposit in transit 1,400,000

Total 7,600,000

Outstanding checks (squeeze) 3,000,000





Outstanding checks – May 31 3,000,000

Checks issued by depositor in June:

Total credits to cash in June 9,000,000

Service charge in May recorded in June ( 100,000) 8,900,000

Total 11,900,000

Checks paid by bank in June:

Checks and charges by bank in June 8,000,000

Service charge in June ( 50,000)

NSF check in June (1,000,000) 6,950,000

Outstanding checks – June 30 4,950,000


Balance per book – June 30 2,100,000

Service charges ( 50,000)

Collection by bank 550,000



Balance per bank – June 30 2,400,000

Deposits outstanding – June 30 500,000

Checks outstanding – June 30 ( 400,000)


Outstanding checks – May 31 100,000

Checks recorded by book in June 2,500,000

Total 2,600,000

Less: Checks recorded by bank in June 2,200,000

Outstanding checks – June 30 400,000

Deposits outstanding – May 31 300,000

Deposits recorded by book in June 1,800,000

Total 2,100,000

Less: Deposits recorded by bank in June 1,600,000

Deposits outstanding – June 30 500,000


Note collected 1,936,000

Book error (1,930,000 – 1,390,000) ( 540,000)


Service charge ( 47,000)

Net debt to cash 509,000




Balance per bank – November 30 3,600,000

December deposits 5,500,000

Total 9,100,000

December disbursements (4,400,000)

Balance per bank – December 31 4,700,000

Deposit in transit – December 700,000

Outstanding checks – December ( 500,000)

Adjusted bank balance – December 31 4,900,000

Balance per book – December 31 (squeeze) 4,300,000

Note collected by bank 1,000,000


Service charge ( 50,000)



Bank disbursements for July 9,000,000

Outstanding checks – June 30 (1,400,000) Outstanding checks – July 31 1,000,000

Book disbursements for July 8,600,000


Bank receipts for April 6,000,000

Deposits in transit – March 31 (1,000,000)

Deposits in transit – April 30 1,500,000

Book receipts for April 6,500,000





May 31 Receipts Disbursements June 30

Balance per book 2,500,000 5,300,000 5,400,000 2,400,000

Bank service charge:

May 31 ( 20,000) ( 20,000)

June 30 25,000 ( 25,000)

NSF check:

June 30 200,000 ( 200,000)

Interest collected:










June 30 75,000 75,000

Book error:

June 30 _________ ( 300,000) 300,000

Adjusted balance 2,480,000 5,375,000 5,305,000 2,550,000

Balance per bank 2,700,000 5,500,000 5,600,000 2,600,000

Deposit in transit

May 31 625,000 ( 625,000)

June 30 500,000 500,000

Outstanding checks

May 31 ( 845,000) ( 845,000)

June 30 550,000 ( 550,000)


Adjusting entries on June 30:

1. Cash in bank 375,000

Interest income 75,000

Equipment 300,000

2. Bank service charge 25,000

Accounts receivable 200,000

Cash in bank 225,000



Valix Finacc vol 1 Problem 4- 20











Sept. 30 Receipts Disbursements Oct. 31

Book balance 1,900,000 1,400,000 2,400,000 900,000

NSF check:

September 30 ( 60,000) ( 60,000)

October 31 40,000 ( 40,000)

Collection of accounts receivable

September 30 30,000 ( 30,000)

October 31 50,000 50,000

Overstatement of check

September 30 90,000 ( 90,000)

October 31 ________ ( 120,000) 120,000


Bank balance 2,100,000 1,200,000 2,500,000 800,000

Deposit in transit

September 30 130,000 ( 130,000)

October 31 260,000 260,000

Outstanding checks

September 30 ( 270,000) ( 270,000)

October 31 30,000 ( 30,000)


Adjusting entries on October 31

1. Accounts receivable 40,000

Cash in bank 40,000

2. Cash in bank 170,000

Accounts receivable 50,000

Salaries 120,000




Accounts receivable-January 1 1,300,000

Credit sales 5,500,000

Collections from customers (5,000,000)

Sales return ( 150,000)

Accounts written off ( 100,000 )

Accounts receivable-December 31 1,550,000

Allowance for doubtful accounts ( 250,000)

Allowance for sales return ( 50,000)

Net realizable value 1,250,000


Trade accounts receivable 2,000,000


Claim receivable 300,000


Total trade and other receivables 2,200,000


Accounts receivable (squeeze) 6,700,000

Allowance for doubtful accounts (900,000 – 200,000) ( 700,000 )



Allowance – January 1 300,000

Doubtful accounts expense 650,000

Recovery of accounts written off 100,000

Total 1,050,000

Accounts written off 450,000

Allowance – December 31 600,000

70



Uncollectible accounts expense (squeeze) 100,000


Total 430,000

Accounts written off (230,000)

Allowance – December 31 (2,700,000 – 2,500,000) 200,000




Total 230,000

Accounts written off (squeeze) 30,000



0 –60 days (1,200,000 x 1%) 12,000

61 – 120 days (900,000 x 2%) 18,000

Over 120 days (1,000,000 x 6%) 60,000

Allowance – December 31, 2008 90,000



Recovery 20,000

Total 160,000

Accounts written off ( 70,000)



Allowance for sales discount (5,000,000 x 2% x 50%) 50,000



Doubtful accounts expense (3% x 3,000,000 + 10,000) 100,000


Doubtful accounts expense (2% x 7,000,000) 140,000

71




Collection of accounts written off 10,000

Total 250,000





Doubtful accounts expense (squeeze) 175,000

Total 425,000





Posted by Louie Lansang at 6:33 AM 2 comments:




12/31/2008 Impairment loss 338,500

Allowance for loan impairment 338,500

The remaining term of the loan is 4 years. Accordingly, the present value

factor for 4 periods is used.

Present value of principal (500,000 x .735) 367,500

Present value of interest (80,000 x 5 = 400,000 x .735) 294,000

Total present value of loan 661,500

Loan receivable 1,000,000

Present value of loan 661,500

Loan impairment loss 338,500

12/31/2009 Allowance for loan impairment 52,920

Interest income (8% x 661,500) 52,920

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December 31, 2011 ( 360,000 x .772) 277,920 Face value of loan 4,000,000

December 31, 2012 ( 360,000 x .708) 254,880 Present value of loan 3,365,360

December 31, 2013 ( 360,000 x .650) 234,000 Impairment loss 634,640

December 31, 2014 (4,360,000 x .596) 2,598,560

Total present value of loan 3,365,360

2008 Cash 360,000


Impairment loss 634,640


2009 Allowance for loan impairment 302,882

Interest income (9% x 3,365,360) 302,882


Interest income (634,640 – 302,882) 331,758

2011 Cash 360,000


2012 Cash 360,000


2013 Cash 360,000


2014 Cash 4,360,000







Requirement 1

December 31, 2009 ( 500,000 x .89) 445,000

December 31, 2010 (1,000,000 x .80) 800,000

December 31, 2011 (2,000,000 x .71) 1,420,000

December 31, 2012 (4,000,000 x .64) 2,560,000


Requirement 2


Accrued interest receivable (12% x 7,500,000) 900,000

Total carrying value 8,400,000

Present value of loan 5,225,000

Impairment loss 3,175,000

Requirement 3

2008 Impairment loss 3,175,000

Accrued interest receivable 900,000

Allowance for loan impairment 2,275,000










2009 Cash 500,000

Loan receivable 500,000


Interest income (12& x 5,225,000) 627,000

2010 Cash 1,000,000




Loan receivable – 12/31/2009 7,000,000

Allowance for loan impairment (2,275,000 – 627,000) (1,648,000)

Carrying value – 12/31/2009 5,352,000

Interest income for 2010 (12% x 5,352,000) 642,240




Accounts receivable-January 1 1,300,000

Credit sales 5,500,000

Collections from customers (5,000,000)


Accounts written off ( 100,000 )


Accounts receivable-December 31 1,550,000


Allowance for sales return ( 50,000)



Trade accounts receivable 2,000,000


Claim receivable 300,000

Total trade and other receivables 2,200,000


Accounts receivable (squeeze) 6,700,000

Allowance for doubtful accounts (900,000 – 200,000) ( 700,000 )






Total 1,050,000



70





Total 430,000

Accounts written off (230,000)

Allowance – December 31 (2,700,000 – 2,500,000) 200,000




Total 230,000

Accounts written off (squeeze) 30,000



0 –60 days (1,200,000 x 1%) 12,000

61 – 120 days (900,000 x 2%) 18,000

Over 120 days (1,000,000 x 6%) 60,000




Recovery 20,000

Total 160,000

Accounts written off ( 70,000)



Allowance for sales discount (5,000,000 x 2% x 50%) 50,000



Doubtful accounts expense (3% x 3,000,000 + 10,000) 100,000



71




Collection of accounts written off 10,000

Total 250,000





Doubtful accounts expense (squeeze) 175,000

Total 425,000





Posted by Louie Lansang at 6:33 AM 2 comments:

























December 31, 2011 ( 360,000 x .772) 277,920 Face value of loan 4,000,000

December 31, 2012 ( 360,000 x .708) 254,880 Present value of loan 3,365,360

December 31, 2013 ( 360,000 x .650) 234,000 Impairment loss 634,640

December 31, 2014 (4,360,000 x .596) 2,598,560


2008 Cash 360,000







Interest income (634,640 – 302,882) 331,758










2011 Cash 360,000


2012 Cash 360,000


2013 Cash 360,000


2014 Cash 4,360,000







Requirement 1

December 31, 2009 ( 500,000 x .89) 445,000

December 31, 2010 (1,000,000 x .80) 800,000

December 31, 2011 (2,000,000 x .71) 1,420,000

December 31, 2012 (4,000,000 x .64) 2,560,000


Requirement 2











Accrued interest receivable (12% x 7,500,000) 900,000

Total carrying value 8,400,000

Present value of loan 5,225,000


Requirement 3

2008 Impairment loss 3,175,000


Allowance for loan impairment 2,275,000

2009 Cash 500,000

Loan receivable 500,000


Interest income (12& x 5,225,000) 627,000

2010 Cash 1,000,000




Loan receivable – 12/31/2009 7,000,000

Allowance for loan impairment (2,275,000 – 627,000) (1,648,000)

Carrying value – 12/31/2009 5,352,000

Interest income for 2010 (12% x 5,352,000) 642,240


Financial Accounting Volume 1 2008 Valix-PeraltaChapter 1 Problem 7-61 to 70 (Multiple Choice)


Units Unit cost Total cost

January 1 40,000 5 200,000

January 17 (35,000) 5 (175,000)

Balance 5,000 5 25,000

January 28 20,000 8 160,000

Balance 25,000 7.40 185,000


Units Total cost

January 1 200 300,000

April 3 300 525,000

October 1 500 1,000,000

Total 1,000 1,825,000

Less: Sales (400 + 400) 800

Ending inventory 200

Average unit cost (1,825,000/1,000) 1,825

Cost of inventory (200 x 1,825) 365,000

106




January 1 8,000 200 1,600,000

8 ( 4,000 ) 200 ( 800,000 )

4,000 200 800,000

20 12,000 240 2,880,000

(3,680,000/16,000 = 230) 16,000 230 3,680,000



Estimated selling price 4,050,000

Cost of disposal ( 200,000 )

Net realizable value (lower than cost) 3,850,000


Estimated sales price 4,000,000

Cost to complete (1,200,000)


FIFO cost (lower than NRV) 2,600,000


Inventory – January 1 700,000

Purchases 3,300,000


Less: Inventory – December 31 600,000

Cost of goods sold before inventory writedown 3,400,000

Loss on inventory writedown 100,000

Cost of goods sold after inventory writedown 3,500,000


Sales price Fraction Allocated cost

A (100 x 240,000) 24,000,000 24/60 6,000,000

B (100 x 160,000) 16,000,000 16/60 4,000,000

C (200 x 100,000) 20,000,000 20/60 5,000,000

60,000,000 15,000,000








List price 1,000,000

Trade discounts 20% x 1,000,000 ( 200,000)

800,000

10% x 800,000 ( 80,000)

Invoice price 720,000

Cash discount (5% x 720,000) ( 36,000)

Net amount 684,000










Freight charge 50,000

Total remittance 734,000



Purchases of IBM compatibles 1,700,000

Purchases of commercial software packages 1,200,000

Total 2,900,000

Less: Purchase return ( 50,000)

Net purchases 2,850,000

Discounts available on purchases (2% x 2,850,000) 57,000

Less: Purchase discount taken 17,000

Purchase discount lost 40,000


Accounts payable per book 2,000,000

Goods lost in transit, FOB shipping point 100,000

Purchase return ( 50,000)



Accounts payable per book 900,000

Undelivered checks 400,000

Unrecorded purchases on December 28 (150,000 x 98%) 147,000

Purchase on December 20 (200,000 x 95%) 190,000

1,637,000


Net sales per book 5,000,000


Goods shipped on December 31, 2008 300,000

Goods shipped on January 3, 2009 recorded on December 30, 2008 ( 200,000)


105


Gross sales 4,000,000

Estimated sales return (10% x 4,000,000) ( 400,000)

Net sales 3,600,000



January 18 15,000 23 345,000

28 10,000 24 240,000

Total FIFO cost 25,000 585,000


(4,500 x 73.50) 330,750



January 10 2,000 100 200,000

February 8 3,000 110 330,000

5,000 530,000

Weighted average unit cost (530,000/5,000) 106

Cost of inventory (3,000 x 106) 318,000






Physical count 1,500,000


Physical count 2,500,000

Merchandise shipped FOB shipping point on December 30, 2008

from a vendor 100,000

Goods shipped FOB shipping point to a customer on January 4, 2009 400,000

Correct inventory 3,000,000

103












Markup (40% x 500,000) 200,000

Goods received on consignment 400,000

Total reduction 600,000


Inventory shipped on consignment 600,000

Freight paid 50,000

Consigned inventory 650,000


Reported inventory 2,000,000

Goods sold in transit, FOB destination 200,000

Goods purchased in transit, FOB shipping point 300,000

Correct amount of inventory 2,500,000



Consignment sales revenue (40 x P10,000) 400,000


Sales (900 x 1,000) 900,000

Commission (10% x 900,000) ( 90,000)

Payable to consignor 810,000


List price 900,000

Trade discounts 20% x 900,000 (180,000)

720,000

10% x 720,000 ( 72,000)


Freight 50,000

Cost of purchase 698,000



Cost Retail

Inventory, January 1, 2008 420,000 600,000

Purchases adjusted for markup and markdown 72% 5,011,200 6,960,000

Goods available for sale 5,431,200 7,560,000

Sales – 2008 (6,839,000)

Inventory, December 31, 2008 721,000


FIFO cost (721,000 x 72%) 519,120

Inventory, January 1, 2009 519,120 721,000

Purchases adjusted 70% 4,970,000 7,100,000


Sales – 2009 (7,033,000)

Inventory, December 31, 2009 788,000

FIFO cost (788,800 x 70%) 551,600

Posted by Louie Lansang at 11:22 PM 1 comment:




Cost Retail

Inventory – January 1, 2008 556,800 928,000

Purchases 4,576,000 7,028,000

Net markup 42,000

Net markdown ________ ( 30,000 )

Net purchases (65%) 4,576,000 7,040,000


Sales (6,840,000)

Inventory – December 31, 2008 1,128,000










FIFO inventory (65% x 1,128,000) 733,200 1,128,000

119

Cost Retail

Inventory – January 1, 2009 733,200 1,128,000

Purchases 4,760,000 6,812,000

Net markup 56,000

Net markdown ________ ( 68,000 )

Net purchases (70%) 4,760,000 6,800,000


Sales (6,928,000)

Inventory – December 31, 2009 1,000,000

FIFO inventory (70% x 1,000,000) 700,000 1,000,000





Cost Retail

Finished goods – January 1 144,000 240,000

Cost of goods manufactured (squeeze 1,200,000 2,000,000


Less: Finished goods – December 31 504,000 840,000

Cost of goods sold 840,000 1,400,000










The amount of goods manufactured at retail is determined by simply working back.

Goods manufactured at cost

Cost ratio = -------------------------------------------------

Goods manufactured at retail

= 1,200,000/2,000,000

= 60%

Finished goods:

January 1 - 240,000 x 60% 144,000 December 31 - 840,000 x 60% 504,000





Cost Retail

Inventory, January 1 560,000 1,000,000

Purchases 4,000,000 6,200,000

Markup (5,000 x 100) 500,000

Markup cancelation (1,000 x 100) _________ ( 100,000)

Goods available for sale – conservative (60%) 4,560,000 7,600,000

Markdown _________ ( 475,000)

Goods available for sale – average (64%) 4,560,000 7,125,000

Net sales (5,200,000)

Inventory, December 31 1,925,000










Conservative cost (1,925,000 x 60%) 1,155,000

Average cost (1,925,000 x 64%) 1,232,000





cost retail

1. Opening inventory 1,650,000 2,200,000

Purchases 3,700,000 4,950,000

Freight in 200,000

Purchase allowances ( 100,000)

Departmental transfer – credit ( 200,000) ( 300,000)

Additional markup 180,000

Markup cancellation ________ ( 30,000)

Goods available for sale – conventional 5,250,000 7,000,000

Cost ratio (5,250/7,000) 75%

Markdown (500,000 – 400,000) ________ ( 100,000)

Goods available for sale – average 5,250,000 6,900,000

Less: Sales 4,000,000

Inventory shortage 100,000 4,100,000

Ending inventory at sales price 2,800,000

Ending inventory at cost (2,800,000 x 75%) 2,100,000

2. Goods available for sale 5,250,000










Less: Ending inventory 2,100,000

Cost of sales 3,150,000





Cost Retail

Beginning inventory 168,000 400,000

Purchases 2,806,000 3,100,000

Freight in 42,000

Markup 300,000

Markup cancellation _______ ( 30,000)

Goods available for sale – conservative 3,016,000 3,770,000

Cost ratio (3,016/3,770) 80%

Markdown ( 150,000)

Markdown cancellation _________ 40,000



Shrinkage (4% x 3,000,000) 120,000 3,120,000

Ending inventory 540,000

Conservative cost (540,000 x 80%) 432,000

Physical inventory (500,000 x 80%) 400,000

Shortage 32,000

Inventory, December 31 400,000










Inventory shortage 32,000

Income summary 432,000





Cost Retail

Beginning inventory 340,000 640,000

Purchases 4,500,000 7,300,000

Freight in 100,000

Purchase returns ( 150,000) ( 250,000)

Purchase allowances ( 90,000)

Departmental transfer in 100,000 160,000

Markup ________ 150,000

Goods available for sale – conventional 4,800,000 8,000,000

Cost ratio (4,800/8,000) 60%

Markdown ________ ( 500,000)


Cost ratio (4,800/7,500) 64%


Employee discount 100,000

Spoilage and breakage 200,000 6,900,000

Ending inventory 600,000


Average cost (600,000 x 64%) 384,000















Raw materials – January 1 300,000

Purchases 1,000,000

Freight in 100,000 1,100,000

Raw materials available for use 1,400,000

Less: Raw Materials – December 31 600,000

Raw materials used 800,000

Direct labor 800,000

Manufacturing overhead (50% x 800,000) 400,000


Add: Goods in process – January 1 1,000,000

Total goods in process 3,000,000

Less: Goods in process – December 31 (squeeze) 1,300,000


Add: Finished goods – January 1 1,400,000


Less: Finished goods _ December 31 1,000,000

Cost of sales (70% x 3,000,000) 2,100,000

The amount of goods in process on December 31is computed as simply working back.

Problem 8-22










Requirement a

Physical inventory Purchases up to Purchases up to

May 31, 2008 May 31, 2008 June 30, 2008

Balances 950,000 6,750,000 8,000,000

1 - 75,000 -

2 - ( 10,000) ( 15,000)

3 - ( 20,000) ( 20,000)

4 ( 55,000) ( 55,000) -_ __

Adjusted 895,000 6,740,000 7,965,000

Inventory – July 1, 2007 875,000

Purchases up to May 31, 2008 6,740,000


Less: Inventory – May 31, 2008 895,000


Sales up to May 31, 2008 8,400,000


Gross profit 1,680,000

Rate (1,680,000/8,400,000) 20%

Requirement b

Sales for year ended June 30, 2008 9,600,000

Less: Sales for 11 months ended May 31, 2008 8,400,000

Sales for June 1,200,000

113

Cost of goods sold with profit (1,100,000 x 80%) 880,000

Cost of goods sold without profit 100,000

Cost of goods sold during June 2008 980,000

Requirement c

Inventory, July 1, 2007 875,000

Purchases for year ended June 30, 2008 (as adjusted) 7,965,000


Less: Cost of goods sold

Sales with profit (9,500,000 x 80%) 7,600,000

Sales without profit 100,000 7,700,000

Inventory, June 30, 2008 1,140,000

Problem 8-23

1. Accounts receivable – April 30 1,040,000

Writeoff 60,000

Collections (440,000 – 20,000) 420,000

Total 1,520,000

Less: Accounts receivable – March 31 920,000

Sales for April 600,000

Sales up to March 31 3,600,000

Total sales 4,200,000

2. Accounts payable – April 30 for April shipments 340,000

Payment for April merchandise shipments 80,000

Purchases of April 420,000

Purchases up to March 31 1,680,000

Total purchases 2,100,000

3. Inventory – January 1 1,880,000

Purchases 2,100,000

Less: Purchases return 20,000 2,080,000


Less: Cost of sales (4,200,000 x 60%) 2,520,000

Inventory – April 30 1,440,000

Less: Goods in transit 100,000

Salvage value 140,000 240,000

Fire loss 1,200,000

114


Cost Retail

Inventory – January 1 280,000 700,000

Purchases 2,480,000 5,160,000

Freight in 75,000

Markup 500,000

Markup cancellation __ __ __ _ ( 60,000)

GAS 2,835,000 6,300,000

Cost ratio (2,835/6,300) 45%

Markdown ( 250,000)

Markdown cancellation _ __ _ 50,000

GAS – Average 2,835,000 6,100,000

Sales (5,000,000)

Shrinkage (2% x 5,000,000) ( 100,000)

Inventory – December 31 1,000,000

Conservative cost (1,000,000 x 45%) 450,000

The “approximate lower of average cost or market” retail is the same as the conservative or conventional retail.


Cost Retail

Inventory – January 1 720,000 1,000,000

Purchases 4,080,000 6,300,000

Markup 700,000

Markdown __ _____ ( 500,000)

GAS 4,800,000 7,500,000

Cost ratio (4,800/7,500) 64%

Sales (5,900,000)

Shoplifting losses ( 100,000)

Inventory 1,500,000

Average cost (1,500,000 x 64%) 960,000

115

Problem 8-26 Answer D Problem 8-27 Answer A

Cost Retail Cost Retail

Beginning inventory Beginning inventory 600,000 1,500,000

and purchases 6,000,000 9,200,000 Purchases 3,000,000 5,500,000

Net markup ________ 400,000 Net markups 500,000

GAS 6,000,000 9,600,000 Net markdown __ _____ (1,000,000)

Net purchases 3,000,000 5,000,000

Cost ratio

(6,000/9,600) = 62.5% Cost ratio

(3,000/5,000) = 60%

Sales (7,800,000)

Net markdown ( 600,000) GAS 3,600,000 6,500,000

Ending inventory 1,200,000 Sales (4,500,000)

Ending inventory 2,000,000

Conservative cost

(1,200,000 x 62.5%) 750,000 FIFO cost

(2,000,000 x 60%) 1,200,000


Less: Ending inventory 750,000



Cost Retail

Inventory – January 1 1,200,000 1,800,000

Purchases 5,600,000 7,200,000

Freight in 400,000

Net markup 1,400,000

Net markdown ________ ( 600,000)

Net purchases (6,000/8,000) 75% 6,000,000 8,000,000


Sales (7,600,000)

Inventory – December 31 2,200,000

FIFO cost (2,200,000 x 75%) 1,650,000


Less: Inventory – December 31 1,650,000



Cost Retail

Available for sale 4,900,000 7,000,000

Markdown ( 100,000)

Sales (5,500,000)

Inventory, December 31 1,400,000

Average cost (1,400,000 x 71%) 994,000

Cost ratio (4,900,000 / 6,900,000) 71%

116

Problem 8-30

Cost Retail

Inventory, January 1 500,000 770,000

Purchases 3,070,000 4,300,000

Transportation in 70,000

Purchases return ( 25,000) ( 40,000)

Purchase discount ( 45,000)

Markup 100,000

Cancelation of markup ________ ( 30,000)

Goods available for sale – conservative 3,570,000 5,100,000

Cost ratio – conservative (357/510) 70%

Markdown ( 350,000)

Cancelation of markdown ________ 10,000

Goods available for sale – average cost 3,570,000 4,760,000

Cost ratio – average cost (357/476) 75%


Sales return ( 80,000) 3,920,000

Inventory, December 31 at selling price 840,000


Average cost (840,000 x 75%) 630,000



Problem 9-21

Question 1 – Answer B

Market value – December 31, 2008 1,550,000


Unrealized gain – trading 550,000

127

Question 2 – Answer A



Unrealized gain in 2008 100,000

Unrealized loss – December 31, 2007 (1,500,000 – 1,200,000) ( 300,000)

Net unrealized loss – December 31, 2008 ( 200,000)



The unrealized loss of P40,000 on trading securities is shown in the income statement.

However, the unrealized loss of P100,000 on available for sale securities is recognized in

equity.


Unrealized losses 260,000

Unrealized gains 40,000

Net unrealized loss – December 31, 2008 220,000


Net sales price 1,450,000

Unrealized loss related to B ( 150,000)

Net amount 1,300,000

Carrying amount of B (1,550,000)

Loss on sale ( 250,000)

Net sales price (1,500,000 – 50,000) 1,450,000

Less: Cost of B 1,700,000

Loss on sale ( 250,000)


Market value – December 31, 2008 850,000

Market value – December 31, 2007 800,000


Unrealized loss – December 31, 2007 (200,000)

Net unrealized loss – December 31, 2008 (150,000)


Available for sale equity securities, at cost 2,200,000

Unrealized loss ( 200,000)

Market value 2,000,000

128


12/31/2007 Unrealized loss - AFS 200,000

Available for sale securities 200,000 (2,000,000 – 1,800,000)

12/31/2008 Available for sale securities 50,000

Unrealized loss – AFS (1,850,000 – 1,800,000) 50,000




Financial Accounting Volume 1 2008 Valix-PeraltaChapter 1 Problem 9-16 to 20 Multiple Choice


Cost Market A common 1,000,000 800,000

B common 1,500,000 1,800,000










C preferred 2,000,000 1,700,000

D preferred 2,500,000 2,600,000

Total 7,000,000 6,900,000


Cost Market

Man 1,000,000 900,000

Kemo 900,000 1,100,000

Penn 1,100,000 800,000

Total 3,000,000 2,800,000

Unrealized loss (3,000,000 – 2,800,000) 200,000


Total market value – December 31, 2008 2,000,000


Unrealized gain 350,000




Unrealized loss in 2008 ( 300,000)

Unrealized loss – December 31, 2007 ( 200,000)

Total unrealized loss – December 31, 2008 ( 500,000 )





Unrealized loss – December 31, 2007 ( 200,000)

Net unrealized gain – December 31, 2008 100,000





01/01/2008 Available for sale securities 6,500,000

Cash 6,500,000

12/31/2008 Unrealized loss – AFS 750,000

Available for sale securities 750,000

(6,500,000 – 5,750,000)


Available for sale securities 450,000

(5,750,000 – 5,300,000)

06/30/2009 Held to maturity securities 5,300,000

Available for sale securities 5,300,000

12/31/2009 No entry is required to recognize the decrease

in value of P400,000 (P5,300,000 – P4,900,000).










The total unrealized loss of P1,200,000 on the reclassification of AFS securities will continue to be reported as part of equity as a deduction. However, it is amortized through interest income over the remaining life of the debt security starting June 30, 2009.





2008

Jan. 1 Held to maturity securities 3,649,600

Cash 3,649,600

Dec. 31 Cash (8% x 4,000,000) 320,000


31 Held to maturity securities 44,960



Interest received 320,000 Amortization 44,960

2009

Dec. 31 Cash 320,000


31 Held to maturity securities 49,456












Interest received 320,000 Amortization 49,456

31 Available for sale securities 3,744,016

Held to maturity securities 3,744,016

31 Available for sale securities 455,984

Unrealized gain – AFS 455,984

Market value (4,000,000 x 105) 4,200,000

Book value 3,744,016

Unrealized gain 455,984





2008 Available for sale securities 6,000,000

Cash 6,000,000

Unrealized loss – AFS 300,000

Available for sale securities (6,000,000 – 5,700,000) 300,000

2009 Unrealized loss – AFS 500,000










Available for sale securities (5,700,000 – 5,200,000) 500,000


Available for sale securities 5,200,000

The total unrealized loss of P800,000 (300,000 + 500,000) will still be reported in equity but it will be subsequently amortized through interest income over the remaining term of the debt securities.





01/01/2008 Trading securities 2,000,000

AFS securities 4,000,000

Cash 6,000,000

12/31/2008 Trading securities 500,000

Unrealized gain – TS 500,000


AFS securities 700,000

12/31/2009 Trading securities 200,000

Unrealized gain - TS 200,000

Impairment loss – AFS 700,000

Unrealized loss – AFS 700,000










12/31/2010 Unrealized loss – TS 600,000

Trading securities 600,000

AFS securities 900,000

Unrealized gain – AFS (4,200,000 – 3,300,000) 900,000




Sales price (50,000 x 10) 500,000

Cost of rights sold (10/100 x 3,600,000) 360,000

Gain on sale of rights 140,000

138


Cost of rights (18/150 x 500,000) 60,000

Cost paid for new shares (2,500 shares x 90) 225,000

Total cost of new investment 285,000

Cost per share (285,000 / 2,500 shares) 114



Cost of 2006 rights (4/100 x 180,000) 7,200

Cost of 2007 rights (4/100 x 330,000) 13,200

Total cost of rights 20,400

900 shares x 5 rights 4,500 rights

Cash paid (900 x 80) 72,000

Cost of rights exercised

2006 – 2,250 rights 7,200

2007 – 2,250 rights (2,250/3,750 x 13,200) 7,920

Total cost of 900 shares 87,120






Cash dividend (10% x 500,000) 50,000


Dividend income (2,000 x 60) 120,000


Sales price (80,000 x 30) 2,400,000










Less: Cost of shares sold (80,000 x 40) 3,200,000

Loss on disposal ( 800,000 )


June 1 December 1

Original shares 20,000 30,000

Stock dividend – 20% 4,000 6,000

Total shares 24,000 36,000

Sales price (30,000 x 125) 3,750,000

Cost of shares sold:

From June 1 – 24,000 shares 2,000,000

From December 1 – 6,000 shares (6,000 / 36,000 x 3,600,000) 600,000 2,600,000

Gain on sale 1,150,000


Cost of rights (5/100 x 8,000,000) 400,000






Purchase price (4,000 x P100) 400,000

Brokerage 12,000

Total 412,000

Less: Dividend purchased (4,000 x 5) 20,000










Acquisition cost 392,000


Fair value of asset given (land) 3,000,000


Original shares acquired January 15 50,000

Stock dividend on March 31 (20% x 50,000) 10,000

Total shares 60,000

Dividend income – cash dividend on December 15 (60,000 x 5) 300,000


Dividend income – cash dividend on July 1 100,000

Original shares on March 1 20,000

Stock dividend on December 1 (10% x 20,000) 2,000

Total shares 22,000


Original shares on October 1, 2007 40,000

Stock dividend on November 30, 2008 (10%) 4,000

Total shares 44,000

Shares sold on December 31, 2008 ( 4,000)

Balance 40,000

Sales price 1,000,000

Cost of shares sold (4,000/44,000 x 6,600,000) ( 600,000)

Gain on sale 400,000


Shares received as property dividend (5,000/5) 1,000

Dividend income (1,000 x 100) 100,000





Jan. 2 Investment in King Corporation 700,000

Cash 700,000

Mar. 1 Investment in Plastic Company 660,000

Cash 660,000

Apr. 1 Cash (10,000 x 5) 50,000

Dividend income 50,000










July 1 Received 2,000 shares as 20% stock dividend on

10,000 Plastic Company shares originally held.

Shares now held, 12,000.

Aug. 1 Investment in Makati Corporation 500,000

Cash 500,000

Oct. 1 Received 60,000 new shares of Plastic Company

as a result of a 5 for 1 split of 12,000 original shares.

1 Cash (10,000 x 5) 50,000


31 Stock rights (3/33 x 660,000) 60,000

Investment in Plastic Company 60,000

Nov. 15 Investment in Plastic Company 180,000

Cash (6,000 shares x 20) 120,000

Stock rights 60,000

Dec. 1 Cash (66,000 shares x 5) 330,000


15 Cash (10,000 shares x 30) 300,000

Investment in Plastic Company 100,000

(10,000/60,000 x 600,000)

Gain on sale of investment 200,000

Summary of investments Shares Cost

King Corporation common 10,000 700,000

Plastic Company common

Block 1 50,000 500,000

Block 2 6,000 180,000

Makati Corporation common 10,000 500,000

76,000 1,880,000

Of course, the investments will simply be described as “investments in equity

securities” in the balance sheet.





2008

Aug. 1 Investment in equity securities 60,000

Cash 60,000

Oct. 1 Investment in equity securities 560,000

Cash 560,000

2009

July 1 Investment in equity securities 480,000

Cash 480,000










Aug. 1 Cash 500,000

Investment in equity securities 340,000

Gain on sale of investment 160,000

Lot 1 (1,000 shares) 60,000

Lot 2 (4,000/8,000 x 560,000) 280,000

Cost of investment sold 340,000

2010

Feb. 1 Received 5,000 shares representing 50% stock dividend on

10,000 remaining shares held. Shares now held, 15,000.

Nov. 1 Stock rights 95,000


Lot 2 – 6,000 rights (10/80 x 280,000) 35,000

Lot 3 – 9,000 rights (10/80 x 480,000) 60,000

Cost of rights received 95,000

135

2010

Dec. 1 Cash (15,000 x 10) 150,000

Stock rights 95,000

Gain on sale of stock rights 55,000

Summary of investments Shares Cost

Lot 2 (280,000 – 35,000) 6,000 245,000

Lot 3 (480,000 – 60,000) 9,000 420,000

Total 15,000 665,000




Acquisition cost 5,160,000

Net assets acquired (30% x 11,800,000) 3,540,000

Excess of cost 1,620,000

Attributable to depreciable assets (30% x 2,600,000) 780,000

Attributable to goodwill 840,000


Share in net income (30% x 3,600,000) 1,080,000

Share in dividends (30% x 400,000) ( 120,000)

Amortization (780,000/4) ( 195,000)

Investment balance – December 31 5,925,000



Net assets acquired (40% x 5,000,000) 2,000,000

Excess of cost 560,000

150

Attributable to equipment (40% x 800,000) 320,000


Attributable to building (40% x 600,000) 240,000

560,000


Net income (40% x 1,600,000) 640,000

Cash dividend (40% x 1,000,000) ( 400,000)

Amortization of excess:

Equipment (320,000 / 4) ( 80,000)

Building (240,000 / 12) ( 20,000)

Carrying value of investment – 12/31/2008 2,700,000



Less: Preference dividend (10% x 2,000,000) 200,000

Net income to ordinary shares 4,800,000

Investment income (50% x 4,800,000) 2,400,000

Problem 11-34


Share in 2008 net income (30% x 800,000) 240,000



Share in net income – 2008 240,000

Cash dividends – 2008 (30% x 500,000) ( 150,000)

Book value – December 31, 2008 2,090,000



Share in net income up to June 30, 2009 (30% x 1,000,000) 300,000

Book value – June 30, 2009 2,390,000


Book value sold (2,390,000 x ½) 1,195,000

Gain on sale 305,000

151


Acquisition cost (30,000 x 120) 3,600,000

Deficit on January 1, 2008 (30% x 500,000) ( 150,000 )


Net income for 2008 (30% x 700,000) 210,000

Net income for 2009 (30% x 800,000) 240,000

Cash dividend on 12/31/2009 (30% x 400,000) ( 120,000)


Another approach


Share in retained earnings – 12/31/2009 (30% x 600,000) 180,000








Share in net income (10% x 5,000,000) 500,000

Share in cash dividend (10% x 1,500,000) ( 150,000 )

Carrying value 4,350,000


Acquisition cost (squeeze) 1,720,000


Share in cash dividend (25% x 480,000) ( 120,000 )

Carrying value – December 31 1,900,000



Less: Book value of net assets acquired (30% x 5,000,000) 1,500,000

Excess of cost over book value 1,000,000










Less: Amount attributable to undervaluation of land (30% x 2,000,000) 600,000

Goodwill 400,000

149


Add: Share in net income (30% x 1,000,000) 300,000

Balance, December 31 2,800,000

The excess of cost attributable to the land is not amortized because the land is

nondepreciable. The goodwill is not amortized.


Acquisition cost – January 1 1,000,000

Acquisition cost – December 31 3,000,000

Total cost 4,000,000




Investment income in 2008 (30% x 6,500,000) 1,950,000

Investment income in 2007 (10% x 6,000,000) 600,000

Less: Dividend income recorded in 2006 (10% x 2,000,000) 200,000

Understatement of income 400,000

Investment in associate 400,000

Retained earnings 400,000






Investment income (20% x 1,600,000) 320,000




Interest (30,000/100,000) 30%

Investment income (5,000,000 x 6/12 x 30%) 750,000


Cost 4,000,000

Less: Net assets acquired (40% x 8,000,000) 3,200,000

Excess of cost or goodwill 800,000

Share in net income from April 1 to December 31 (1,000,000 x 9/12 x 40%) 300,000













Share in cash dividend (20% x 600,000) ( 120,000)

Amortization of excess (1,000,000/10) ( 100,000)









Investment in Lax Corporation 3,000,000


Total cash dividend 3,000,000

Cumulative net income 2,500,000

Liquidating dividend 500,000

Cash (10% x 3,000,000) 300,000










Dividend income (10% x 2,500,000) 250,000






Requirement a

1. Memo – Received 500 shares as 10% stock dividend on

5,000 original Dale ordinary shares. Shares now

held, 5,500.

2. Cash (5,500 x 20) 110,000


3. Stock rights (15/150 x 1,600,000) 160,000

Investment in equity securities – Ever 160,000

Cash 200,000

Stock rights 160,000

Gain on sale of stock rights 40,000

4. Investment in associate 5,000,000

Cash 5,000,000

1/1/2007 1/1/2008

Acquisition cost 2,000,000 5,000,000










Net assets acquired:

10% x 16,000,000 1,600,000

20% x 20,000,000 ________ 4,000,000

Goodwill 400,000 1,000,000

Income from Fox investment in 2007 (10% x 4,000,000) 400,000

Less: Dividend income recorded in 2007 – cost method -___

Understatement of income 400,000

147


Investment in equity securities 2,000,000

(Reclassification)

6. Investment in associate 400,000




8. Cash (75,000 x 20) 1,500,000

Investment in associate 1,500,000

Requirement b

Noncurrent assets:

Investment in equity securities (Note) 2,690,000

Investment in associate – Fox Corporation 7,700,000

Note – Investment in equity securities

Dale Corporation, 5,500 shares 1,250,000

Ever Corporation, 10,000 shares 1,440,000





Acquisition cost – July 1, 2008 4,614,000

Discount amortization from July 1 to December 31, 2008:

Interest accrued (5,000,000 x 8% x 6/12) 200,000

Interest income (4,614,000 x 10% x 6/12) 230,700 30,700




Discount amortization:

Interest income (4,766,000 x 12%) 571,920

Interest received (5,000,000 x 10%) 500,000 71,920

Total 4,837,920

Annual installment on December 31, 2008 (1,000,000)

Book value –December 31, 2008 3,837,920



Annual effective (5,000,000 x 14%) 700,000

Annual nominal (5,000,000 x 12%) 600,000

Difference 100,000

Multiply by present value factor using effective rate of 14% 5.216

Discount 521,600

Face value 5,000,000

Purchase price 4,478,400


12/31/2008 (1,250,000 + 600,000 x .9091) 1,681,835

12/31/2009 (1,250,000 + 450,000 x .8264) 1,404,880

12/31/2010 (1,250,000 + 300,000 x .7513) 1,164,515

12/31/2011 (1,250,000 + 150,000 x .6830) 956,200

5,207,430






Bond year Bond outstanding Fraction Amortization

04/01/2007 – 03/31/2008 4,000,000 4/10 80,000

04/01/2008 – 03/31/2009 3,000,000 3/10 60,000

04/01/2009 – 03/31/2010 2,000,000 2/10 40,000










04/01/2010 – 03/31/2011 1,000,000 1/10 20,000

10,000,000 200,000

Interest for the year 2008:

From January 1 to March 31, 2008 (4,000,000 x 12% x 3/12) 120,000

From April 1 to December 31, 2008 (3,000,000 x 12% x 9/12) 270,000 390,000

Amortization of discount for year 2008:

From January 1 to March 31, 2008 (80,000 x 3/12) 20,000

From April 1 to December 31, 2008 (60,000 x 9/12) 45,000 65,000

Interest income for year 2008 455,000


Interest income for 2008 (3,756,000 x 10%) 375,600


Interest accrued from July 1 to December 31, 2008 (5,000,000 x 8% x 6/12) 200,000


Interest received (1,000,000 x 10% x 6/12) 50,000

Interest income (1,198,000 x 8% x 6/12) 47,920

Premium amortization 2,080

Acquisition cost – July 1, 2008 1,198,000

Premium amortization ( 2,080)



Interest accrued (1,000,000 x 8% x 6/12) 40,000

Interest income (906,000 x 10% x 6/12) 45,300

Discount amortization 5,300

Acquisition cost – July 1, 2008 (946,000 - 40,000) 906,000

Discount amortization 5,300

Book value – December 31, 2008 911,300





Problem 12-22


Acquisition cost (4,400,000 – 100,000) 4,300,000

Amortization of premium from Oct. 1, 2007 to Dec. 31, 2008 (4,000 x 15) ( 60,000)


Monthly amortization (300,000/75 months) 4,000











Interest for 2008 (4,000,000 x 10%) 400,000

Amortization of premium (4,000 x 12 months) ( 48,000)



Interest for 2008 (2,000,000 x 12%) 240,000

Amortization of discount (100,000/5) 20,000



Premium on sale of bonds 140,000

Unamortized discount (100,000 – 20,000) 80,000

Gain on sale of bonds 220,000


Acquisition cost – 1/1/2008 3,767,000

Discount amortization for 2008:


Interest received (12% x 4,000,000) 480,000 47,380

Book value – 12/31/2008 3,814,380














1. The present value of the bonds using the interest rate of 11% is as follows:

PV of principal (5,000,000 x .6587) 3,293,500

PV of interest (500,000 x 3.1024) 1,551,200

Total present value of cash flows 4,844,700

2. The present value of the bonds using the interest rate of 12% is as follows:

PV of principal (5,000,000 x .6355) 3,177,500

PV of interest (500,000 x 3.0373) 1,518,650

Total present value of cash flows 4,696,150

3. X – 11%____

12% - 11%

4,700,000 – 4,844,700_

4,696,150 – 4,844,700

_144,700_ = .97

148,550

Effective rate = 11% + .97

= 11.97%

4. Interest income for 2008 (4,700,000 x 11.97%) 562,590

5. Journal entries


Cash 4,700,000

Cash (10% x 5,000,000) 500,000


Held to maturity securities 62,590



Interest received 500,000

Discounted amortization 62,590





1. Principal payment 1,000,000

Interest payment (3,000,000 x 12%) 360,000

Total payment on December 31, 2008 1,360,000

Principal payment 1,000,000












Principal payment 1,000,000



December 31, 2008 payment (1,360,000 x .91) 1,237,600

December 31, 2009 payment (1,240,000 x .83) 1,029,200

December 31, 2010 payment (1,120,000 x .75) 840,000

Total present value on January 1, 2008 3,106,800

2. Journal entries

2008


Cash 3,106,800

Dec. 31 Cash 360,000


31 Interest income 49,320



Interest income (3,106,800 x 10%) 310,680


Dec. 31 Cash 1,000,000


3. Acquisition cost – 1/1/2008 3,106,800

Premium amortization for 2008 ( 49,320)

Annual installment (1,000,000)






Semiannual nominal interest (8,000,000 x 5%) 400,000

Semiannual effective interest (8,000,000 x 4%) 320,000

Difference 80,000

Multiply by PV of annuity of 1 for 10 periods at 4% 8.11

Premium 648,800

Face value 8,000,000


The amount of P648,800 is a premium because the effective rate is lower than

nominal rate.

Another approach

PV of principal (8,000,000 x .6756) 5,404,800

PV of semiannual interest payments (400,000 x 8.11) 3,244,000

Purchase price or present value of bonds 8,648,800

Journal entries










2008


Cash 8,648,800

July 1 Cash 400,000







Dec. 31 Accrued interest receivable 400,000




Interest accrued 400,000







Premium paid – January 1 100,000

Less: Dividend received 15,000

Increase in cash surrender value (270,000 – 245,000) 25,000 40,000

Life insurance expense for 2008 60,000


Premium paid 200,000

Less: Increase in cash surrender value (540,000 – 435,000) 105,000

Life insurance expense 95,000

The dividend of P30,000 is not deducted anymore because it is already part of the increase in cash surrender value.


Sinking fund cash 500,000

Sinking fund securities 1,000,000


Plant expansion fund 600,000

Cash surrender value 150,000

Land held for capital appreciation 3,000,000

Advances to subsidiary 200,000

Investment in joint venture 2,000,000

7,500,000















Annual deposit (8,000,000 / 4.78) 1,673,640


Annual deposit (9,000,000 / 6.34) 1,419,560


Principal amount 5,000,000

Multiply by future value of 1 for 6 periods at 10% 1.77

Future amount at maturity 8,850,000


Future amount of maturity 7,160,000

Divide by future value of 1 for 10 periods at 6% 1.79

Initial investment 4,000,000

The annual interest of 12% is compounded semiannually for 5 years. Therefore, there are

10 interest periods at 6%.


Sinking fund balance – January 1 4,500,000

Add: 2007 investment 900,000

Dividends on investment 150,000

Interest revenue 300,000 1,350,000

Total 5,850,000

Less: Administration costs 100,000

Sinking fund balance – December 31 5,750,000





Cost model

2008 Depreciation 1,800,000

Accumulated depreciation 1,800,000





Fair value model

2008 Investment property 5,000,000











2009 Loss from change in fair value 2,000,000


2010 Investment property 7,000,000

Gain from change in fair value 7,000,000





1. Land held by Eragon for undetermined use 5,000,000

Vacant building 3,000,000

Building owned by a subsidiary Eragon occupied by lessees 1,500,000

Total investment property 9,500,000

2. a. The property held by a subsidiary Eragon in the ordinary course of business in included

in inventory.

b. The property held by Eragon for use in production is owner-occupied property and

therefore part of property, plant and equipment.

c. The land leased by Eragon to a subsidiary under an operating lease is owner-

occupied property for purposes of consolidated financial statements. However, from the perspective of separate financial statements of Eragon, the land is an investment

property.

d. The property under construction for use as investment property is owner-occupied

property until the land is completed. Upon completion, the building becomes










investment property.

e. The land held for future factory site is owner-occupied property and therefore part of

property, plant and equipment.

f. The machinery leased out to an unrelated party is part of property, plant and

equipment because investment property includes only land and building, and not

movable property like machinery.

Posted by Louie Lansang at 4:44 AM 1 comment:




a. Life insurance (10,000 x 6/12) 5,000


b. Prepaid life insurance (28,000 x 1/2) 14,000

Life insurance 14,000

c. Interest expense 4,500

Accrued interest payable (50,000 x 12% x 9/12) 4,500

d. Dividend income 2,000

Dividend receivable 2,000

Current assets:

Prepaid life insurance 14,000










Investment:


Current liabilities:

Loan payable 50,000

Accrued interest payable 4,500





2008

Jan. 1 Life insurance 80,000

Cash 80,000

2009


Cash 80,000

Dec. 31 Cash 5,000


31 Cash surrender value 42,000

Life insurance (42,000 x 1/3) 14,000


2010











Cash 80,000

Dec. 31 Cash 6,000




Balance – December 31, 2010 47,000

Balance – December 31, 2009 42,000

Increase in cash surrender value 5,000





2007

April 1 Life insurance 60,000

Cash 60,000

Dec. 31 Prepaid life insurance (60,000 x 3/12) 15,000


2008













Cash 60,000

Dec. 31 Prepaid life insurance 15,000


2009




Cash 60,000



2010



April 1 Cash surrender value 60,000



April 1, 2007 – December 31, 2009 (33/36 x 60,000) prior years 55,000

January 1, 2010 – April 1, 2010 (3/36 x 60,000) current period 5,000

Total 60,000

1 Life insurance 60,000

Cash 60,000





Balance – April 1, 2011 84,000


Increase from April 1, 2010 to April 1, 2011 24,000

Increase from April 1, 2010 to December 31, 2010 (24,000 x 9/12) 18,000

2011



April 1 Cash surrender value (18,000 x 3/12) 6,000


1 Life insurance 60,000

Cash 60,000

July 1 Cash surrender value 8,000


Balance – April 1, 2012 116,000


Increase from April 1, 2011 to April 1, 2012 32,000

Increase from April 1, 2010 to July 1, 2010 (32,000 x 3/12) 8,000

July 31 Cash 2,000,000


Life insurance (60,000 x 9/12) 45,000

Gain on life insurance settlement 1,863,000



Problem 14-21

Question 1 Answer B

The notional figure is 8,000 kilos and the notional value is 8,000 kilos times the underlying

Fixed price of P1,200 per kilo or P9,600,000.

Question 2 Answer C

Market price – 12/31/2008 1,500

Underlying fixed price 1,200

Derivative asset 300

Forward contract receivable (8,000 x 300) 2,400,000


Present value of derivative asset (2,400,000 x .91) 2,184,000

The present value of P2,184,000 is recognized as forward contract receivable on December 31, 2008 because the amount is collectible on January 1, 2010, one year from December 31, 2008.

Question 3 Answer B

Market price – 12/31/2009 1,000

Underlying fixed price 1,200

Derivative liability 200

Forward contract payable – 12/31/2009 (8,000 x 200) 1,600,000


Fair value of call option (120 – 100 = 20 x 10,000) 200,000


Exchange rate on July 31 (80,000,000 / 92) 869,565

Strike price (80,000,000 / 100) 800,000

Derivative asset 69,565

Call option payment 10,000

Saving 59,565

Problem 14-24

Question 1 Answer A

Camry’s payment to Corolla (5,000,000 x 2%) 100,000

Question 2 Answer C

Fair value of interest rate swap (100,000 x .926) 92,600


Notional amount 435,000

Exchange rate on December 31, 2008 (47,850,000 / 115) 416,087

Fair value of forward contract receivable 18,913





2008

Dec. 31 Forward contract receivable 50,000

Unrealized gain – forward contract ($50,000 x P1) 50,000

2009

March 31 Forward contract receivable 100,000

Unrealized gain – forward contract ($50,000 x P2) 100,000

31 Cash 150,000

Forward contract receivable 150,000










31 Purchases ($50,000 x P43) 2,150,000

Cash 2,150,000

31 Unrealized gain – forward contract 150,000

Purchases 150,000





2008

Sept. 1 Equipment 2,250,000

Accounts payable 2,250,000

Dec. 31 Loss on foreign exchange 50,000


Peso equivalent – 12/31/2008 2,050,000

Peso equivalent – 09/01/2008 2,000,000

Loss on foreign exchange 50,000

31 Forward contract receivable 50,000

Gain on forward contract 50,000

2009

March 1 Loss on foreign exchange 100,000


Peso equivalent – 3/1/2009 2,150,000










Peso equivalent – 12/31/2008 2,050,000

Loss on foreign exchange 100,000

1 Forward contract receivable 100,000

Gain on forward contract 100,000

1 Cash 150,000

Forward contract receivable 150,000

1 Accounts payable (50,000 x 43) 2,150,000

Cash 2,150,000





2008

Dec. 1 Put option 100,000

Cash 100,000

2009

Feb. 1 Cash (50,000 x 180) 9,000,000

Sales 9,000,000

1 Loss on put option 100,000

Put option 100,000

With the price above the put option price, on the part of the

seller, there is no reason to exercise the option. It is better to










sell the product on the open market. Thus, the output option

is not exercised on February 1, 2009 and has no value.





2008

Dec. 1 Call option 20,000

Cash 20,000


Unrealized gain - call option 380,000

Fair value (200,000 x 2) 400,000

Payment for call option 20,000

Increase 380,000

2009

June 1 Call option 200,000

Unrealized gain – call option 200,000

Call option – 6/1/2009 (200,000 x P3) 600,000

Call option – 12/31/2008 400,000

Increase in derivative asset 200,000

1 Cash 600,000

Call option 600,000










1 Purchases (200,000 x P28) 5,600,000

Cash 5,600,000

1 Unrealized gain – call option 600,000

Gain on call option 600,000





Requirement 1

2008


Cash 50,000

2009

July 1 Call option 700,000

Gain on call option 700,000

Fair value of call option (150,000 x 5) 750,000

Payment for call option 50,000

Increase 700,000

2009

July 1 Cash 750,000

Call option 750,000










1 Purchases 5,250,000

Cash (150,000 x 35) 5,250,000

Requirement 2

2008


Cash 50,000

2009

July 1 Purchases 4,200,000

Cash (150,000 x 28) 4,200,000

1 Loss on call option 50,000

Call option 50,000





2008

Dec. 31 Unrealized loss – futures contract 125,000

Futures contract payable (25,000 x 5) 125,000

2009

June 1 Unrealized loss – futures contract 75,000

Futures contract payable 75,000










Futures contract payable – 6/1/2009 (25,000 x P8) 200,000

Futures contract payable – 12/31/2008 125,000

Increase in derivative liability 75,000

1 Futures contract payable 200,000

Cash 200,000

1 Purchases (25,000 x 42) 1,050,000

Cash 1,050,000

1 Loss on futures contract 200,000

Unrealized loss – futures contract 200,000




Since the old machine has no available fair value, the new machine received in exchange is recorded at its cash price without trade in of P900,000. The average published retail value of the old machine is not necessarily its fair value.


Average expenditures (20,000,000 / 2) 10,000,000

Multiply y capitalization rate 12%

Interest on average expenditures 1,200,000

The capitalizable borrowing cost is limited to the actual borrowing cost incurred. In this case, the computed amount of P1,200,000 is more than the actual borrowing cost of P1,020,000. Accordingly, the capitalizable interest is P1,020,000. Note that in computing the average expenditures, the amount of P20,000,000 is simply divided by 2 because the said amount is incurred evenly during the year ended 2008.



Since the actual interest incurred is not given, the interest on the average expenditures is determined.


Interest on average expenditures (4,800,000 x 10%) 480,000

Interest income on unexpended portion (320,000)

Capitalizable interest 160,000


Accumulated expenditures at the end of two years 3,000,000

Average expenditures in the third year (8,000,000 / 2) 4,000,000

Total 7,000,000

Capitalizable interest (7,000,000 x 9%) 630,000


Average accumulated expenditures 2,500,000

Specific borrowing (1,500,000)

Applicable to general borrowing 1,000,000

Specific (6% x 1,500,000) 90,000

General (9% x 1,000,000) 90,000

Capitalizable interest 180,000












Discount (2% x 700,000) ( 14,000)

Freight and insurance 3,000

Cost of assembling and installation 5,000

Total cost 694,000


Equipment:


Discount (5% x 600,000) ( 30,000) 570,000

Land (at its fair value) 1,100,000

Machinery:

Acquisition cost 275,000

Installation cost 7,000

Trial run and testing cost 18,000

Construction of base 10,000 310,000

Total 1,980,000


Fair value of asset given 700,000





Cash payment 160,000

Total cost 860,000


Fair value of asset given 2,100,000

Cash payment 400,000

Cost of new inventory 2,500,000


Fair value of asset given 1,500,000

Less: Cost of asset given 1,250,000

Gain on exchange 250,000






Cost of land (5,400,000 x 2/5) 2,160,000


Cash price 950,000


Total cost 980,000











Cash price 2,000,000




Present value of first note payable (500,000 x 5.65) 2,825,000

Present value of second note payable (3,000,000 x .80) 2,400,000

Total cost of machinery 5,225,000


First payment on December 30, 2008 200,000

Present value of next 7 payments (200,000 x 4.712) 942,400

Total cost of machine 1,142,400

Another computation:

PV of annuity of 1 in advance for 8 periods (200,000 x 5.712) 1,142,400





1. Cash 30,000,000

Deferred income-government grant 30,000,000










Environmental expenses 2,000,000

Cash 2,000,000


Income from government grant (2/20 x 30,000,000) 3,000,000

2. Cash 40,000,000


Building 50,000,000

Cash 50,000,000

Depreciation 2,500,000

Accumulated depreciation (50,000,000 / 20) 2,500,000


Income from government grant (40,000,000 / 20) 2,000,000

3. Land 50,000,000


Building 80,000,000

Cash 80,000,000

Depreciation 3,200,000



Income from government grant (50,000,000 / 25) 2,000,000

4. Cash 10,000,000

Income from government grant 10,000,000





Date Expenditure Months Amount

January 1, 2008 4,000,000 12 48,000,000

April 1, 2008 5,000,000 9 45,000,000

December 1, 2008 3,000,000 1 3,000,000

12,000,000 96,000,000

Average expenditures in 2008 (96,000,000 / 12) 8,000,000

Applicable to specific loan (3,000,000)

Applicable t general loan 5,000,000

Actual expenditures in 2008 12,000,000

Capitalizable interest in 2008

Specific (3,000,000 x 10%) 300,000

General (5,000,000 x 12%) 600,000

Total cost of building 12,900,000











January 1, 2009 12,900,000 6 77,400,000

March 1, 2009 6,000,000 4 _24,000,000

18,900,000 101,400,000

Average expenditures in 2009 (101,400,000 / 6) 16,900,000

Applicable to specific loan ( 3,000,000)

Applicable to general loan 13,900,000

Note that the construction period in 2009 is only 6 months because the building

was completed on June 30, 2009. Thus, the average expenditures should be for

6 months only.

Actual expenditures in 2009 18,900,000

Capitalizable interest in 2009

Specific (3,000,000 x 10% x 6/12) 150,000

General (13,900,000 x 12% x 6/12) 834,000

Total cost of new building – 6/30/2009 19,884,000






January 1 1,000,000 12 12,000,000

July 1 2,000,000 6 12,000,000

November 1 3,000,000 2 6,000,000

6,000,000 30,000,000











Average expenditures 2,500,000

Applicable to specific loan (1,000,000)

Applicable t general loan 1,500,000

Actual expenditures 6,000,000

Capitalizable interest:

Specific (1,000,000 x 10%) 100,000

General (1,500,000 x 12%) 180,000

Total cost of building 6,280,000




All expenditures are capitalized.


All costs are capitalized.


Continuing and frequent repairs 400,000

Repainting of the plant building 100,000

Partial replacement of roof tiles 150,000


Repair and maintenance expense 650,000








Allocated cost of land (2,400,000 / 6,000,000 x 5,500,000) 2,200,000

Property taxes (2,400 / 6,000 x 250,000) 100,000

Cost of survey 5,000

Total cost of land 2,305,000

Incidentally, the cost of the building is:

Allocated cost (3,600 / 6,000 x 5,500,000) 3,300,000

Property taxes (3,600 / 6,000 x 250,000) 150,000

Renovation 500,000

Total cost of building 3,950,000 Problem 16-26 Answer A


Payments to tenants 200,000

Demolition of old building 100,000

Legal fees 50,000










Title insurance 30,000

Proceeds from sale of materials ( 10,000)



Land Building

Purchase price of land 600,000

Legal fees for contract 20,000

Architect fee 80,000

Demolition of old building 50,000

Construction cost _______ 3,500,000

Total cost 670,000 3,580,000


Acquisition price 7,000,000

Option of building acquired 200,000

Repairs 500,000



Purchase price 250,000 Shipping 5,000

Installation 10,000

Testing 35,000

Total cost 300,000











1. Discount on bonds payable 500,000

Machinery 500,000

Interest expense (500,000 / 10 x 9/12) 37,500

Discount on bonds payable 37,500

Accumulated depreciation 75,000

Depreciation 75,000

Depreciation for 9 months 600,000

Depreciation for 12 months (600,000 / 9/12) 800,000

Depreciable cost (800,000 x 5 years) 4,000,000

Per book Adjusted

Cost 5,000,000 4,500,000

Less: Residual value 1,000,000 1,000,000

Depreciable cost 4,000,000 3,500,000

Correct depreciation for 9 months (3,500,000 / 5 x 9/12) 525,000

Less: Depreciation recorded 600,000

Overstatement 75,000

2. Interest expense 300,000





Machinery (3,500,000 – 3,200,000) 300,000

Machinery 150,000

Freight in 150,000


Depreciation 30,000

Depreciation per book 700,000

Correct depreciation (3,350,000 / 5) 670,000


3. Loss on exchange 390,000

Machinery 390,000

Cost per book 3,000,000

Correct cost

Trade in value 150,000

Add: Cash paid 2,460,000 2,610,000


Trade in value 150,000

Less: Book value 540,000

Loss on exchange (390,000)

4. Allowance for doubtful accounts 840,000

Loss on exchange – accounts receivable 60,000

Treasury share 900,000

Per book

Machinery 4,200,000

Accounts receivable 4,200,000

Treasury shares 4,200,000

Machinery 4,200,000

Should be

Machinery 3,300,000

Allowance for doubtful accounts (20% x 4,200,000) 840,000

Loss on accounts receivable 60,000


Treasury shares 3,300,000

Machinery 3,300,000

The cost of treasury shares acquired for noncash consideration is usually measured by the recorded amount of the noncash asset surrendered (SFAS No. 18).





1. Depreciation (60,000 x 3/12) 15,000


Accumulated depreciation (480,000 + 15,000) 495,000

Loss on retirement of store equipment 105,000










Store equipment 600,000

2. Depreciation (150,000 x 4/12) 50,000


Cash 100,000

Accumulated depreciation (1,050,000 + 50,000) 1,100,000

Loss on sale of office equipment 300,000

Office equipment 1,500,000

3. Depreciation (600,000 x 5/12) 250,000


Delivery equipment – new 5,000,000


Cash (5,000,000 – 750,000) 4,250,000

Delivery equipment – old 3,000,000

Gain on exchange (750,000 – 350,000) 400,000

Original cost 3,000,000

Less: Accumulated depreciation to date (2,400,000 + 250,000) 2,650,000

Book value 350,000

4. Accumulated depreciation 1,200,000

Office equipment 1,200,000

5. Depreciation (900,000 x 9/12) 675,000


Accumulated depreciation (2,700,000 + 675,000) 3,375,000

Fire loss 1,125,000

Machinery 4,500,000




Straight line rate (100% / 5 years) 20%

Fixed rate (20% x 2) 40%

2006 depreciation (5,000,000 x 40%) 2,000,000

2007 depreciation (3,000,000 x 40%) 1,200,000

Accumulated depreciation, December 31, 2007 3,200,000

Depreciation for 2008 – straight line (5,000,000 – 3,200,000 / 3) 600,000

Accumulated depreciation, December 31, 2008 3,800,000


Cost – 1/1/2005 7,200,000

Accumulated depreciation – 12/31/2007 (7,200,000 / 10 x 3) 2,160,000

Book value – 12/31/2007 5,040,000

SYD for the remaining life of 7 years (1 + 2 + 3 + 4 + 5 + 6 + 7) 28

Depreciation for 2008 (5,040,000 x 7/28) 1,260,000



Annual depreciation (1,536,000 / 8) 192,000

235


Fixed rate (100% / 4 x 2) 50%

Cost 6,000,000

Depreciation for 2007 (50% x 6,000,000) 3,000,000

Book value – 1/1/2008 3,000,000

Residual value ( 600,000)

Maximum depreciation in 2008 2,400,000

Fixed rate in 2008 (100% / 2 x 2) 100%

This means that the computers should be fully depreciated in 2008. Since there is a residual value of P600,000, the maximum depreciation for 2008 is equal to the book value of P3,000,000 minus the residual value of P600,000 or P2,400,000.






The first three fractions are:










2006 10/55

2007 9/55

2008 8/55

Thus, the 2008 depreciation of P240,000 is equal to 8/55.

Depreciable cost (240,000 / 8/55) 1,650,000

Salvage 50,000



April 1, 2006 to March 31, 2007 (5/15 x 3,000,000) 1,000,000

April 1, 2007 to March 31, 2008 (4/15 x 3,000,000) 800,000

Accumulated depreciation, March 31, 2008 1,800,000


The accumulated depreciation on December 31, 2007 is recomputed following a certain method. The same is arrived at following the SYD as follows:

SYD = 1 + 2 + 3 + 4 + 5 = 15

2005 (5/15 x 900,000) 300,000

2006 (4/15 x 900,000) 240,000

2007 (3/15 x 900,000) 180,000

Accumulated depreciation – 12/31/2007 720,000

Accordingly, the SYD is followed for 2008.

2008 depreciation (2/15 x 900,000) 120,000


Straight line rate (100% / 8 years) 12.5%

Fixed rate (12.5 x 2) 25%

2007 depreciation (1,280,000 x 25%) 320,000

2008 depreciation (1,280,000 – 320,000 x 25%) 240,000

Problem 17-30

1. 4,000,000 – 2,560,000 x 40% (Answer D) 576,000

2. 1,800,000 x 2/15 (SYD) (Answer A) 240,000

3. Sales price 1,700,000

Book value (2,800,000 – 1,344,000) 1,456,000

Gain (Answer A) 244,000















Cost of machinery (cash price) 1,100,000

Less: Residual value 50,000

Depreciable cost 1,050,000

Straight line depreciation (1,050,000 / 10) 105,000



Book value:

Cost 4,200,000

Accumulated depreciation (3,600,000 / 5 x 3) 2,160,000 2,040,000

Gain 260,000


Accumulated depreciation – 12/31/2007 3,700,000

Add: Depreciation for 2008 550,000

Total 4,250,000

Less: Accumulated depreciation on property, plant and

equipment retirements (squeeze) 250,000

Accumulated depreciation – 12/31/2008 4,000,000


Depreciable Annual

Cost Salvage cost Life depreciation

A 550,000 50,000 500,000 20 25,000

B 200,000 20,000 180,000 15 12,000

C 40,000 40,000 5 8,000

790,000 720,000 45,000

Composite life = 720,000 / 45,000 16 years


Invoice price 4,500,000

Cash discount (2% x 4,500,000) ( 90,000)

Delivery cost 80,000

Installation and testing 310,000


Salvage value 800,000


Rate per unit (4,000,000 / 200,000) 20

Depreciation for 2008 (30,000 x 20) 600,000


Cost 4,000,000

Accumulated depreciation

2007 (8/36 x 3,600,000) 800,000

2008 (7/36 x 3,600,000) 700,000 1,500,000

Book value, 12/31/2008 2,500,000










1. Old building (4,672,200 x 10%) 467,220

New building

Direct cost 2,220,000

Fixed (15,000 x 25) 375,000

Variable (15,000 x 27) 405,000


3,000,000 x 10% 300,000

Total depreciation 767,220

Fixed rate (100 / 20 x 2) 10%

2. Old machinery (1,380,000 / 10) 138,000

New machinery

Invoice cost 356,000

Concrete embedding 18,000

Wall demolition 7,000

Rebuilding of wall 19,000

Total cost 400,000

400,000 / 10 x 6/12 20,000

Total depreciation 158,000


















1. Beginning balance 875,000

Acquisition (150,000 / 750,000 x 1,250,000) 250,000


Technically, the land for undetermined use is an investment property.

2. Old (7,500,000 – 1,644,500 x 8%) 468,440

New (600,000/750,000 x 1,250,000 = 1,000,000 x 8%) 80,000

Depreciation – building 548,440

3. 2,250,000 / 10 225,000

400,000 / 10 x 6/12 20,000

Depreciation – machinery 245,000

4. Depreciation – leasehold improvements (216,000 – 108,000 / 5 years) 21,600

5. Depreciation – land improvements 192,000 / 12 x 9/12) 12,000





1. Land (350,000 + 450,000) 800,000

Land acquired (380,000 + 25,000 + 45,000) 450,000

2. Depreciation of land improvements (180,000 / 15) 12,000










3. Depreciation of building (4,500,000 – 1,050,000 x 7.5%) 258,750

231

4. Depreciation of machinery and equipment

(1,160,000 – 60,000 / 10) 110,000

(300,000 / 10) 30,000 (60,000 / 10 x 6/12) 3,000

143,000

5. Fixed rate (100% / 3 x 1.5) 50%

(1,800,000 – 1,344,000 x 50%) 228,000




Depletable cost 33,000,000

Depletion for 2007 (33,000,000 / 4,000,000 = 8.25 x 200,000) ( 1,650,000)

Balance – 1/1/2008 31,350,000

Production in 2008 225,000

New estimate – 12/31/2008 5,000,000

New estimate – 1/1/2008 5,225,000

Depletion for 2008 (31,350,000 / 5,225,000 = 6 x 225,000) 1,350,000

Problem 18-17




Less: Residual value 2,000,000


Depletion rate (12,000,000 / 1,500,000) 8.00

Depletion for 2008 (150,000 x 8) 1,200,000

Production (25,000 x 6) 150,000

Question 2 – Answer C

Production from July 1 to December 31, 2008 (25,000 x 6) 150,000 tons

Annual production (25,000 x 12) 300,000 tons

Estimated life of mine (1,500,000 / 300,000) 5 years

Since the life of the mine is shorter than the life of the equipment, the output method is used in computing depreciation.

245

Equipment 8,000,000

Less: Residual value 500,000


Rate per unit (7,500,000 / 1,500,000) 5.00

Depreciation for 2008 (150,000 x 5) 750,000



Development costs in 2007 300,000


Residual value 1,200,000


Rate in 2007 (8,100,000 / 2,000,000) 4.05

Depletion for 2007 (200,000 x 4.05) 810,000


Depletion in 2007 ( 810,000)

Balance 7,290,000

Development costs in 2008 135,000

Depletable cost in 2008 7,425,000

Rate in 2008 (7,425,000 / 1,650,000) 4.50

Depletion for 2008 (300,000 x 4.50) 1,350,000
















Development cost 3,600,000

Estimated restoration cost 1,800,000




Rate per unit (28,800,000 / 1,200,000) 24

Depletion for 2008 (60,000 x 24) 1,440,000


Depletion rate per unit (9,200,000 / 4,000,000) 2.30


Rate per unit (46,800,000 – 3,600,000 / 2,160,000) 20

Depletion in cost of goods sold (240,000 x 20) 4,800,000





Less: Accumulated depletion – 12/31/2007

(7,000,000 / 10,000,000 = .70 x 4,000,000) 2,800,000

Remaining depletable cost – 1/1/2008 4,200,000

New depletion rate (4,200,000 / 7,500,000) .56

Depletion for 2008 (1,500,000 x .56) 840,000





2008 No depletion because there is no production.

2009 Purchase price 28,000,000

Estimated restoration cost 2,000,000

Development cost – 2008 1,000,000

Development cost – 2009 1,000,000


Residual value ( 5,000,000)


Rate in 2009 (27,000,000 / 10,000,000) 2.70










Depletion in 2009 (3,000,000 x 2.70) 8,100,000

2010 Tons extracted in 2010 3,500,000

Tons remaining in 12/31/2010 2,500,000

Total estimated output – 1/1/2010 6,000,000

New rate in 2010 (27,000,000 – 8,100,000/6,000,000) 3.15

Depletion in 2010 (3,500,000 x 3.15) 11,025,000





1. Purchase price 50,000

Road construction 5,000,000

Improvements and development costs 750,000




Depletion rate per unit (5,200,000 / 4,000,000) 1.30

Depletion for 2008 (500,000 x 1.30) 650,000


Depletion in 2008 ( 650,000)

Remaining depletable cost 4,550,000

Development costs in 2009 1,300,000










Total depletable cost – 1/1/2009 5,850,000

Original estimated tons 4,000,000

Additional estimate 3,000,000

Total estimated tons 7,000,000

Extracted in 2008 ( 500,000)

Remaining tons – 1/1/2009 6,500,000

New depletion rate per unit (5,850,000 / 6,500,000) .90

Depletion for 2009 (1,000,000 x .90) 900,000

2. Cost of buildings 2,000,000



Depreciation rate per unit (1,800,000 / 4,000,000) .45

Depreciation for 2008 (500,000 x .45) 225,000

In the absence of any statement to the contrary, the output method is used in computing depreciation of mining equipment.


Depreciation for 2008 ( 225,000)

Remaining depreciable cost 1,575,000

Additional building in 2009 375,000

Total depreciable cost – 1/1/2009 1,950,000

New depreciation rate per unit (1,950,000 / 6,500,000) .30

Depreciation for 2009 (1,000,000 x .30) 300,000





1. Cash (50,000 x 110) 5,500,000

Share capital (50,000 x 100) 5,000,000

Share premium 500,000

2. Resource property 3,000,000

Cash 3,000,000

3. Mining equipment 800,000

Cash 800,000

4. Cash (85,000 x 50) 4,250,000

Sales 4,250,000

5. Mining and other direct cost 2,268,000


Cash 2,768,000

6. Depletion 270,000

Accumulated depletion (3,000,000 / 1,000,000 x 90,000) 270,000










7. Depreciation (90,000 x .80) 72,000

Accumulated depreciation - mining equipment 72,000

Depreciation rate (800,000 / 1,000,000) = .80

8. Inventory, December 31 (5,000 x 29) 145,000

Profit and loss 145,000

Mining labor and other direct costs 2,268,000

Depletion 270,000

Depreciation 72,000

Total production costs incurred 2,610,000

Divide by number of units extracted 90,000

Unit cost 29

Multinational Company

Income Statement


Sales 4,250,000

Cost of sales

Mining labor and other direct costs 2,268,000

Depletion 270,000

Depreciation 72,000

Total production cost 2,610,000

Less: Inventory, December 31 145,000 2,465,000




Multinational Company

Statement of Financial Position

December 31, 2008

Assets

Current assets:

Cash 3,182,000

Inventory 145,000 3,327,000

Noncurrent assets:

Resource property 3,000,000

Less: Accumulated depletion 270,000 2,730,000

Mining equipment 800,000

Less: Accumulated depreciation 72,000 728,000 3,458,000

Total assets 6,785,000

Equity

Share capital 5,000,000

Share premium 500,000

Retained earnings 1,285,000

Total equity 6,785,000


Add: Accumulated depletion 270,000

Total 1,555,000

Less: Unrealized depletion in ending inventory (5,000 x 3) 15,000

Maximum dividend 1,540,000


Capital liquidated 255,000

Dividends payable 1,540,000




Cost – 12/31/2004 2,800,000

Accumulated depreciation – 8/31/2008 (2,400,000 / 96 months x 44) 1,100,000

Book value – 8/31/2008 1,700,000

Fair value 1,500,000Impairment loss 200,000

259



Decommissioning cost ( 8,000,000)

Adjusted carrying value 20,000,000

Fair value less cost to sell – higher (20,000,000 less 1,000,000) 19,000,000


Value in use 26,000,000

Decommissioning cost ( 8,000,000)


Adjusted value in use 18,000,000


Carrying value – 12/31/2007 7,000,000

Depreciation for 2008 (20%) (1,400,000)

Carrying value – 12/31/2008 5,600,000

Carrying value – 12/31/2008 (assuming no impairment) 7,200,000

Reversal of impairment loss 1,600,000






Cost, January 1, 2005 800,000

Accumulated depreciation, December 31, 2007 (100,000 x 3) 300,000

Book value, December 31, 2007 500,000

Recoverable value 200,000


The loss is recorded as follows:












Cost 800,000

Accumulated depreciation (300,000 + 300,000) 600,000

Recoverable value, January 1, 2008 200,000

Depreciation for 2008 (200,000 / 5) 40,000



From August 31, 2005 to May 31, 2008 is a period of 33 months. Thus, the remaining life of the machine is 27 months, 60 months original life minus 33.

Depreciation for the month of June 2008 (1,350,000 / 27 months) 50,000

Cost 3,200,000

Accumulated depreciation – 5/31/2008 (3,200,000 – 500,000 x 33/60) 1,485,000

Book value – 5/31/2008 1,715,000

Fair value 1,350,000



Cost – January 1, 2004 1,000,000

Accumulated depreciation, December 31, 2007 (900,000 / 10 x 4) 360,000


Depreciation for 2008 (640,000 – 40,000 / 4) 150,000



Book value, 1/1/2008 2,400,000

Depreciation for 2008 (1,600,000 / 4) 400,000

Book value, 12/31/2008 2,000,000

Sales price-recoverable value 650,000 Impairment loss 1,350,000


Depreciation for 2008 (10% x 2,000,000) 200,000

Cost – 1/2/2004 2,000,000

Accumulated depreciation - 12/31/08 (200,000 x 5) 1,000,000

Book value-12/31/2008 1,000,000

Estimated cost of disposal 50,000



Cost 2,000,000

Accumulated depreciation – 1/1/2008 (2,000,000 – 100,000 / 10 x 2.5) 475,000

Book value – 1/1/2008 1,525,000

Fair value 600,000


� J � � � � G ��F 15,000,000 .857 12,855,000

2010 15,000,000 .794 11,910,000

2011 12,000,000 .735 8,820,000

60,000,000

Total value in use 50,325,000

2. The recoverable amount is the value in use of P50,325,000 because this is higher than the

fair value less cost to sell of P48,000,000.

3. Impairment loss 14,675,000

Accumulated depreciation (65,000,000 – 50,325,000) 14,675,000

4. Depreciation 12,581,250


Problem 19-20







4. Depreciation 750,000

Accumulated depreciation (6,000,000 / 8) 750,000

5. Accumulated depreciation 1,750,000

Gain on impairment recovery 1,750,000

Cost – 1/1/2006 10,000,000

Accumulated depreciation (10,000,000 / 10 x 2) 2,000,000

Book value – 12/31/2007 8,000,000

Impairment loss – 2007 2,000,000

Adjusted book value – 12/31/2007 6,000,000

Depreciation – 2008 (6,000,000 / 8) 750,000

Book value – 12/31/2008 5,250,000

Cost – 1/1/2006 10,000,000

Accumulated depreciation (10,000,000 / 10 x 3) 3,000,000

Book value – 12/31/2008 (assuming no impairment) 7,000,000

Recorded book value 5,250,000

Gain on reversal of impairment 1,750,000

The fair value or recoverable value of P7,500,000 cannot exceed the “book value” that would have been determined assuming no impairment is recognized.





The primary purpose of the building is to serve as a corporate asset supporting Litmus Company’s manufacturing operations. Therefore, the building in itself cannot be considered to generate cash inflows that are largely independent of the cash inflows from the entity as a whole. In this case, the cash generating unit is Litmus Company as a whole.

The building is not held for investment. Thus, it is not appropriate to determine the value in use of the building based on the cash inflows of related rent.























Case 1

1. A is separate cash generating unit because there is an active market for A’s products.

2. Although there is an active market for the products of B and C, cash inflows from B and

C depend on the allocation of production across two countries. It is unlikely that cash

inflows from B and C can be determined individually. Therefore, B and C, together

should be treated as a cash generating unit.

Case 2

a. A cannot be treated as a separate cash generating unit because its cash inflows depend on the sales of the final product by B and C, since there is no active market for A’s product.

b. As a consequence, A, B and C, together, and therefore, Maximus Company, as a whole, should be treated as the largest single cash generating unit.





It is likely that the recoverable amount of an individual magazine title can be assessed. Even though the level of advertising income for a title is influenced to a certain extent by the other titles in the customer segment, cash inflows from direct sales and advertising are identifiable for each title. In addition, decisions to abandon titles are made on an individual basis.

Accordingly, the individual magazine titles generate cash inflows that are largely independentfrom one another and therefore, each magazine title is a separate cash generating unit.



















All Unimart’s stores are in different locations and probably have different customer profile. So although Smart is managed at the corporate level, Smart generates cash inflows that are largely independent from those of the other Unimart’s stores. Therefore, it is likely that Smart in itself is a cash generating unit.





1. Carrying amount 16,000,000



2. Allocation of impairment loss

Building (8/16 x 5,000,000) 2,500,000

Equipment (4/16 x 5,000,000) 1,250,000

Inventory (4/16 x 5,000,000) 1,250,000

5,000,000

Observe that after allocating the P2,500,000 loss to the building, the carrying amount of the building would be P5,500,000 which is lower than its fair value of P6,500,000.

Accordingly, only P1,500,000 loss is allocated to the building and the balance of P1,000,000 is reallocated to the equipment and inventory prorata.














Building Equipment Inventory

Allocated loss 2,500,000 1,250,000 1,250,000

Reallocated loss (1,000,000)

(4/8 x 1,000,000) 500,000

(4/8 x 1,000,000) _________ _________ 500,000

Impairment loss 1,500,000 1,750,000 1,750,000


Accumulated depreciation – building 1,500,000

Accumulated depreciation – equipment 1,750,000

Inventory 1,750,000





1. Total carrying amount 5,000,000



2. Impairment loss allocated to goodwill 500,000

Impairment loss allocated to the other assets 900,000

1,400,000

When an impairment loss is recognized for a cash generating unit, the loss is










allocated to the assets of the unit in the following order:

a. First, to the goodwill, if any.

b. Then, to all other assets of the unit prorata based on their carrying amount.

Carrying amount Fraction Loss

Building 2,000,000 20/45 400,000

Inventory 1,500,000 15/45 300,000

Trademark 1,000,000 10/45 200,000

4,500,000 900,000


Goodwill 500,000

Accumulated depreciation – building 400,000

Inventory 300,000

Trademark 200,000




Depreciation of equipment 135,000

Materials used 200,000

Compensation costs of personnel 500,000 Outside consulting fees 150,000 Indirect costs allocated 250,000 1,235,000



Modification to the formulation of a chemical product 135,000

Design of tools, jigs, molds and dies 170,000

Laboratory research 215,000

Total research and development expense 520,000


All costs are charged to R and D expense.


Trademark 3,000,000

Value in use (120,000 / 6%) 2,000,000


Patent 2,000,000

Amortization for 2008 (2,000,000 / 5) 400,000

Book value – 12/31/2008 1,600,000

Value in use (500,000 x 3.47) 1,735,000

Impairment loss -_ _


Carrying amount of net assets 16,000,000

Value in use (8,000,000 x 1.5) 12,000,000

Impairment loss – applicable to goodwill 4,000,000







Downpayment 2,000,000

Present value of annual payment for 4 years (1,000,000 x 2.91) 2,910,000 Cost of franchise 4,910,000


Design costs 1,500,000

Legal fees of registering trademark 150,000

Registration fee with Patent Office 50,000

Total cost of trademark 1,700,000


Original lease 12 years

Extension 8

Total life 20

Less: Years expired (2006 and 2007) 2










Remaining life 18 years

Life of improvement (shorter) 15 years

Leasehold improvement 540,000

Less: Depreciation for 2008 (540,000 / 15) 36,000

Book value 504,000


Depreciation (3,600,000 / 6) 600,000






Cost 357,000

Accumulated amortization from 2005 to 2007 (357,000 / 15 x 3) 71,400

Book value – 12/31/2007 285,600

Amortization for 2008 (285,600 / 7) 40,800

Book value – 12/31/2008 244,800











Cost 1/1/2003 6,000,000

Accumulated depreciation – 12/31/2007 (6,000,000 / 15 x 5) 2,000,000

Book value – 1/1/2008 4,000,000

Amortization for 2008 (4,000,000 / 5) 800,000


Cumulative earnings 550,000

Less: Gain on sale 50,000

Adjusted cumulative earnings 500,000

Average earnings (500,000 / 5) 100,000

Divide by capitalization rate 10%

Net assets including goodwill 1,000,000

Less: Net assets before goodwill 750,000

Goodwill 250,000


Net assets 1,800,000

Multiply by excess rate (16% minus 10%) 6%

Excess earnings 108,000

Multiply by present value factor 3.27

Goodwill 353,160



Less: Goodwill 500,000

Net assets before goodwill 4,500,000

Estimated annual earnings (squeeze) 550,000

Less: Normal earnings (4,500,000 x 10%) 450,000

Excess or superior earnings 100,000

Divide by capitalization rate 20%

Goodwill 500,000



Inventory 500,000

Equipment 500,000

Short-term payable (2,000,000)

Net assets at fair value 1,000,000


Net assets at fair value (1,000,000)

Goodwill 4,000,000





1. Designing and planning 1,000,000










Code development 1,500,000

Testing __500,000

Total R and D expense in 2008 3,000,000

The cost of producing the product master of P2,500,000 is capitalized as

software cost to be subsequently amortized.

1. Cost of producing the software program in 2009 1,000,000

Amortization of software cost (2,500,000 / 4) 625,000

Total expense in 2009 1,625,000





1. Product costs which are associated wit inventory items are:

Duplication of computer software and training materials 2,500,000

Packaging product 900,000

Total inventory 3,400,000

2. The costs incurred from the time of technological feasibility to the time when

product costs are incurred should be capitalized as computer software cost.

Other coding costs after establishment of technological feasibility 2,400,000

Other testing costs after establishment of technological feasibility 2,000,000

Costs of producing product masters for training materials 1,500,000










Total costs to be capitalized 5,900,000

3. Completion of detail program design 1,300,000

Cost incurred for coding and testing to establish technological feasibility 1,000,000

Total costs charged as expense 2,300,000





12/31/2008 R and D expense 2,500,000

Cash 2,500,000

1/1/2009 R and D expense 1,200,000

Cash 1,200,000

7/1/2009 R and D expense 500,000

Cash 500,000

11/1/2009 Patent 350,000

Cash 350,000

11/15/2009 Patent 800,000

Cash 800,000

12/31/2009 Patent 100,000

Cash 100,000



















1. Total carrying amount 5,000,000



2. Impairment loss 770,000

Goodwill 500,000

Accumulated depreciation – building (25/45 x 270,000) 150,000

Inventory (15/45 x 270,000) 90,000

Trademark (5/45 x 270,000) 30,000





Valix Finacc Vol 1 Problem 1

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Transcript of Valix Finacc Vol 1 Problem 1