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1. Lim Limited acquired a Plant asset on 1 July 20X3 for P10 000.

The asset had an expected life of 5 years and an estimated


residual value of P2 000. On 1 January 20X5 the entity sold the asset for P9 100. Lim Limited uses the straight-line depreciation
method. At the date of sale the accumulated depreciation is:
A P800;
B P900;
CP1 600;
D P2 400.
2. Christou Limited sold an item of Equipment for P16 200. The Equipment initially cost P20 000 and depreciation amounting to P6
400 had accumulated by the date of sale. The difference on disposal is:
A a gain of P3 800;
B a gain of P2 600;
C a loss of P2 600;
D a loss of P3 800.

3.

During 2005, Cavite Company made the following property, plant and equipment expenditures:
Land and building acquired from Bacoor Company
Repairs made to the building
Special tax assessment
Remodeling of office space including new partitions and walls

9,000,000
300,000
50,000
400,000

In exchange for the land and building acquired from Bacoor, Cavite issued 60,000 shares of its P100 par value common stock.
On the date of purchase, the stock had a market value of P150 per share and the land and building had fair value of
P2,000,000 and P6,000,000 respectively.
During the year, Cavite also received land from a shareholder to facilitate the construction of a plant in the city. Cavite paid
P100,000 for the land transfer and charged this amount to legal expenses. The land is fairly valued at P1,500,000.
The cost of the land and building acquired should respectively be
a. 3,800,000, and 7,450,000
b. 3,550,000, and 6,700,000
e.
4.

5.

6.

7.

c.
d.

3,500,000, and 6,400,000


3,500,000, and 6,750,000

Silang Company acquired a welding machine with an invoice price of P3,000,000 subject to a cash discount of 5% which was
not taken. Silang incurred freight and insurance during shipment of P50,000 and testing and installation cost of P200,000.
Silang also incurred cost of P20,000 in removing the old welding machine prior to the installation of the new one. Welding
supplies were acquired at a cost of P100,000. The VAT on the acquisition is P300,000. The cost of the new welding machine
should be
a. 3,100,000
b. 3,250,000
c. 3,220,000
d. 3,400,000
e.
Imus Company acquired two items of machinery as follows:
a.
On December 30, 2005, Imus Company purchased a machine in exchange for a noninterest bearing note requiring three
payments of P1,000,000. The first payment was made on December 30, 2005, and the others are due annually on
December 30. The prevailing rate of interest for this type of note at date of issuance was 12%. The present value of an
ordinary annuity of 1 at 12% is 1.69 for two periods and 2.40 for three periods. The new machine was damaged during
its installation and the repair cost amounted to P50,000.
b.
On January 1, 2005, Imus Company acquired used machinery by issuing to the seller a three-year, noninterest-bearing
note for P3,000,000. In recent borrowing, Imus has paid a 12% interest for this type of note. The present value of 1 at
12% for 3 years is 0.71.
c.
What is the total cost of the machinery?
a. 4,820,000
b. 4,530,000
c. 4,580,000
d. 4,870,000
e.
In December 2005, Kawit Company exchanged an old machine, with a cost P6,000,000 and 50% depreciated, for a dissimilar
used machine and paid a cash difference of P1,500,000. The fair value of the old machine was determined to be P2,000,000.
Kawit should record the machine at
a. 6,000,000
b. 2,000,000
c. 3,500,000
d. 3,000,000
e.
Romblon Company and Looc Company are fuel oil distributors. To facilitate the delivery of oil to customers. Romblon and
Looc exchanged ownership of 5,000 barrels of oil without physically moving the oil. Romblon paid Looc P9,000,000 to
compensate for a difference in the grade of oil. On the date of exchange, cost and fair value of oil were:
f.
Romblon Company
Looc Company
g.
Cost
45,000,000
40,000,000
h.
Fair value
51,000,000
60,000,000
i.
1. Romblon should record the oil inventory received in exchange at
a. 45,000,00
b.
c.
d.
0
54,000,000
51,000,000
60,000,000
e.
2. Looc Company should record the oil inventory received in exchange at
a. 40,000,00
b.
c.
d.
0
34,000,000
60,000,000
51,000,000
e.
3. In Loocs income statement, what amount of gain should be reported from the exchange of oil?

a.

20,000,00
0

b.
6,000,000

c.
3,000,000

d.
0

8.

e.
During 2005 Magdiwang Company had the following transactions pertaining to its new office building:
f.
g. Purchase price of land
i.

s.
t.
of land and building?
u.
v.
w.
x.
y.
9.

h.
j.

k.

Legal fees for contract to purchase


land
Architects fees

m.

Demolition of old building on site

n.

o.

Sale of scrap from old building

p.

q.

Construction cost of new building


(fully completed)

r.

l.

In Magdiwangs December 31, 2005 balance sheet, what amounts should be reported as the cost
a.
b.
c.
d.

Land
Building
1,500,000
9,380,000
1,680,000
9,200,000
1,550,000
9,330,000
1,550,000
9,200,000

z.
On January 1, 2005, Tagaytay Company purchased a tract of land with an old building which was razed shortly after acquisition. The costs
incurred in connection with the acquisition were:
aa. Purchase price
ab.
ac. Agent commission

ad.

ae. Legal fees for the purchase contract

af.

ag. Guarantee insurance

ah.

ai.

aj.

Cost of razing the old building

ak. Salvage value of old building materials

al.

am. Property taxes for 2004 and 2005 (equally


each year)
ao. Option paid for an alternative land which was
not acquired
aq. Cost of relocating squatters

an.
ap.
ar.

as.
at.
The cost of the land should be
a. 5,680,000
b. 5,660,000
c. 5,830,000
d. 5,530,000
e.
10. Maragondon Company had the following borrowings during 2005. The borrowings were made for general purposes but the proceeds were used
in part to finance the construction of a new building:
f.
g. Principal
h. Interest
i.
12% bank loan
j.
10,000,000
k.
1,200,000
l.
15% long-term loan
m.
20,000,000
n.
3,000,000
o.
p.
The construction began on January 1, 2005 and was completed on December 31, 2005. Expenditures on the building were made as
follows:
q. January 1
8,000,000
r.
June 30
8,000,000
s. December 31
4,000,000
t.
u.
Following the alternative treatment, the capitalizable borrowing cost should be
a. 1,680,000
b. 4,200,000
c. 1,400,000
d. 1,620,000
e.
11. On January 1, 2005, Kawit Company borrowed P6,000,000 at an interest rate of 10% specifically for the construction of its new building. Interest
earned from the temporary investment of the proceeds the loan prior to their disbursement amounted to P75,000. Kawit also had the following
other loans in 2005 which were borrowed for general purposes. The proceeds of these loans were used in part for the construction of the
building:
f.
g.
h.
i.
1

j.

l.
1

m.

k.
4,500,0

450,
n.

6,000,0

720,

o.
p.
The construction began on January 1, 2005 and the building was completed on December 31,
2005. Expenditures on the building were made as follows:
q.
r.
Ja
s.
nu
ary
2
t.
Ap
u.
ril
1
v. Jul
w.
y1
x. Se
y.
pte
mb
er
30
z. De
aa.
ce
mb
er
31
ab.
ac.
ad.
a. 1,350,000

The amount of capitalizable borrowing cost is


690,000
c.
525,000
d.
165,000
e.
12. During 2005 Dasmarias Company installed a production assembly line to manufacture furniture. In 2005 Dasmarias purchased a new
machine and rearranged the assembly line to install this machine. The rearrangement did not increase the estimated useful life of the assembly
line but it did result in significantly more efficient production. The following expenditures were incurred in connection with this project:
f.
g. Machine
h.
b.

i.

Labor to install new


machine
Parts
added
in
rearranging the assembly
line to provide future
benefits
Labor and overhead to
rearrange the assembly
line

k.

m.

j.
l.

n.

o.
p.
2005?
a. 8,000,000
e.

What amount of the above expenditures should be capitalized in


b.

5,400,000

c.

7,400,000

d.

2,600,000

14. On April 1, 2004, Batangas Company bought machinery under a contract that required a down payment of P500,000 plus 24 monthly payments
of P300,000 for total payments of P7,700,000. The cash price of the machinery was P6,500,000. The machinery has an estimated useful life of
four years and estimated residual value of P500,000. Batangas uses SYD method of depreciation. In its 2005 income statement, what amount
should Batangas report as depreciation for this machinery?
a. 2,400,000
b. 1,800,000
c. 1,950,000
d. 2,275,000
e.
15. A schedule of plant assets owned by Bauan Company is presented below.
f.
g.

h.
i.
r.

j.
Cost

k.

l.
Scr
ap

Depreciabl
e
m.

s.

8,800,
000

t.

800,
000

u.

3,200,
000

z.

320,
000

aa.

Building
x.

Machiner
y

y.

ad.

Equipme
nt

ae.

640,
000

af.

n.
o.

p.
Life

q.

cost
v.
ab.

ag.

ah.

20
years

Annual
dep

w.

15 years

ac.

5
years

ai.

aj.
ak. Bauan computes depreciation on the straight line method. The composite life of the assets should be
a.

19.8

b.

13.3

c.

18.0

d.

16.0

e.
16. Alitagtag Company purchased factory equipment which was installed and put into service July 1, 2004 at a total cost of P9,000,000. Residual
value was estimated at P1,000,000. The equipment is being depreciated over 10 years by the double declining balance method. For the year
2005 how much depreciation expense should Alitagtag record on this equipment?
a. 1,620,000
b. 1,440,000
c. 2,220,000
d. 1,280,000
e.
f.
17. On January 1, 2004, Taal Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life
of 5 years and residual value of P3,000,000. The depreciation applicable to this equipment was P3,200,000 for 2005 computed under the sum of
years digits method. What was the acquisition cost of the equipment?
a. 12,000,000
b. 15,000,000
c. 12,600,000
d. 19,000,000
e.
18. Lemery Company acquired property in 2005 which contains mineral deposit. The acquisition cost of the property was P20,000,000. Geological
estimates indicate that 5,000,000 tons of mineral may be extracted. It is further estimated that the property can be sold for P5,000,000 following
mineral extraction. For P2,000,000, Lemery is legally required to restore the land to a condition appropriate for resale. After acquisition, the
following costs were incurred:
f.
g. Exploration cost
h. 13,000,000
i.
Development cost related to drilling of wells
j.
10,000,000
k. Development cost related to production equipment
l.
15,000,000
m.
n. The company extracted 600,000 tons of the mineral in 2005 and sold 450,000 tons. In the 2005 income statement, what amount of
depletion is included in cost of sales?
a. 4,800,000
b. 3,600,000
c. 5,400,000
d. 4,050,000
e.
f.
19. Calaca Company quaries limestone, crushes it and sells it to be used in road building. Calaca paid P20,000,000 for a certain quarry on January
1, 2004. The property can be sold for P4,000,000 after production ceases. The original total estimated reserves totaled 5,000,000 tons. Calaca
quarried 500,000 tons in 2004 and 1,500,000 tons in 2005. An engineering study performed in 2005 indicated that as of December 31, 2005,
4,500,000 tons were available. Calaca Company should record 2005 depletion at
a. 3,600,000
b. 4,800,000
c. 6,000,000
d. 4,500,000
e.
20. On July 1, 2005 Balayan Company purchased rights to a mine. The total purchase price was P50,000,000 of which P5,000,000 was allocated to
the land. Estimated reserves were 6,000,000. Balayan expects to extract and sell 100,000 tons per month. Balayan Company purchased new
equipment on July 1, 2005 for P21,000,000 with estimated life of 8 years. However, after all the resource is removed, the equipment will be of no
use and will be sold for P3,000,000. What is the depreciation of the equipment for 2005?
a. 1,800,000
b. 2,100,000
c. 1,125,000
d. 3,600,000
e.
21. Calatagan Company provides the following balances at the end of 2005:
f.
g. Wasting asset, at cost

s.
t.
a.
e.
f.

h.

i.

Accumulated depletion

j.

k.

Capital liquidated

l.

m.

Retained earnings

n.

o.

Depletion based on 250,000 units extracted at P50 per unit

p.

q.

Inventory of resource deposit (50,000 units)

r.

Calatagan can declare maximum dividend on December 31, 2005 of


32,500,000
b. 45,000,000

c.

29,000,000

100,000,0
00
30,000,0
00
10,000,0
00
15,000,0
00
12,500,0
00
6,000,0
00
d.

15,000,000

g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.

22.On February 12, Laker Company purchased a tract of land as a factory site for
$175,000. An existing building on the property was razed and construction was begun on a new factory building in March of the same year.
Additional data are available as follows:
Cost of razing old building.....................................................................................................
$ 35,000
Title insurance and legal fees to purchase land....................................................................
12,500
Architects fees..............................................................................................................
42,500
New building construction cost..............................................................................................
875,000
The recorded cost of the completed factory building should be
a.
b.

$910,000.
$917,500.

r.
s.

c.
d.

$930,000.
$952,500.

t.
u.
v.
w.
x.
y.
z.
aa.
ab.
ac.
ad.
ag.
ah.

23. The Oscar Corporation acquired land, buildings, and equipment from a
bankrupt company at a lump-sum price of $180,000. At the time of acquisition, Oscar paid $12,000 to have the assets appraised. The
appraisal disclosed the following values:
Land..............................................................................................................................
$120,000
Buildings........................................................................................................................
80,000
Equipment.....................................................................................................................
40,000
What cost should be assigned to the land, buildings, and equipment, respectively?

a. $64,000, $64,000, and $64,000


ae.
c. $96,000, $64,000, and $32,000
b. $90,000, $60,000, and $30,000
af.
d. $120,000, $80,000, and $40,000
24. Carter Company acquired three machines for $200,000 in a package deal.
The three assets together had a book value of $160,000 on the sellers books. An appraisal costing the purchaser $2,000 indicated that the
three machines had the following market values (book values are given in parentheses):
ai.
Machine 1: $60,000 ($40,000)
aj.
Machine 2: $80,000 ($50,000)
ak.
Machine 3: $100,000 ($70,000)

al.
am.
an.
ao.
ap.
aq.
ar.

The three assets should be individually recorded at a cost of (rounded to the nearest dollar)
Machine 1
Machine 2..................................... Machine 3
a. $40,000
$53,333
$66,667
b. $50,000
$62,500
$87,500
c. $40,000
$50,000
$70,000
d. $50,500
$67,333
$84,167

as.
at.
au.

25. Peterson, Inc. purchased a machine under a deferred payment contract on


December 31, 2001. Under the terms of the contract, Peterson is required to make eight annual payments of $140,000 each beginning
December 31, 2002. The appropriate interest rate is 8 percent. The purchase price of the machine is
av.
aw.
ax.
ba.

bb.
bc.

a.
b.

$1,389,190.
$1,120,000.

ay.
az.

c.
d.

$868,900.
$804,520.

26. On October 1, Takei, Inc. exchanged 8,000 shares of its $25 par value
common stock for a parcel of land to be held for a future plant site. Takeis common stock had a fair market value of $80 per share on the
exchange date. Takei received $36,000 from the sale of scrap when an existing building on the site was razed. The land should be
carried at

bd.
be.
bf.

a.
b.

$200,000.
$236,000.

bg.
bh.

c.
d.

$604,000.
$640,000.

bi.
bj.
bk.

bo.
bp.
bq.

27. Marburg Manufacturing Company purchased a machine on January 2, 2002.


The invoice price of the machine was $40,000, and the vendor offered a 2 percent discount for payment within ten days. The following
additional costs were incurred in connection with the machine:
bl.
...................................................................................................................Transportation-in
$1,200
bm.
......................................................................................................................Installation cost
700
bn.
.................................................................................Testing costs prior to regular operation
550
If the invoice is paid within the discount period, Marburg should record the acquisition cost of the machine at
a. $41,650.
b. $41,100.
c. $40,400.
d. $39,200.
br.
28. Naic Company acquired an equipment by exchanging a similar used equipment with the following data:
bs.
Equipment
10,000,000
bt.
Accumulated depreciation
3,500,000
bu.
Fair value
8,000,000
bv.
Cash received on exchange
2,000,000
bw.
bx. Naic Company should record gain on exchange at
a. 1,500,000
b. 2,000,000
c.
375,000

d.

e.

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