Intermediate Accounting

Kindly solve and provide a solution and a brief explanation from each problem

1.ACC Company purchased land and building for 9,000,000 at a lump sum price.The building had a fair value of 6,000,000 and land of 1,500,000.

How much is the cost of land?

2.On January 1,2017ACC Company purchased 2,000,000 ordinary life insurance policy on its president. Sure Company is the beneficiary under the life insurance policy. The policy year and the entity's accounting year coincide.

The annual premium is 62,000. The policy had the following cash surrender value:

End of policy yearCash surrender value

Jan 1, 2017-

Jan 1, 2018-

Jan 1, 201972,000

Jan 1, 2020100,800

Jan 1, 2021139,200

The company received dividend amounting to 5,000 last July 1, 2019.What amount should be reported as life insurance expense for 2019?

3.On January 1, 2018, ACC company adopted a plan to accumulate P8,000,000 by January 1, 2022.The entity plans to make four equal annual deposits to a fund that will earn interest at 12% compounded annually.The first deposit was made on December 31, 2018 and every December 31 thereafter.

Future value of an ordinary annuity of 1 at 12% for 4 periods4.78

Future value of an annuity in advance of 1 at 12% for 4 periods5.35

Future value of ordinary annuity of 1 at 12% for 5 period6.35

Future value of an annuity in advance of 1 at 12% for 5 period7.12

What is the required annual deposit to the fund? Round to nearest peso (no decimal point)

4.Amilia and Celine exchangedmachinery with the following information:

Celine

Machinery1,200,000

Accumulated depreciation810,000

Carrying Amount390,000

Fair value480,000

Cash paid by Mara to Clara120,000

At what amount will the new machinery be recorded in the books of Celine?

5.ACC Company purchased an investment property on January 1, 2017 for P2,200,000. The property had a useful life of 40 years and on December 31, 2019 had a fair value of P3,000,000. On January 1, 2020, the property was sold for net proceeds of P2,900,000.

ACC Company uses the cost model to account for the investment property.

What is the gain or loss to be recognized for the year ended December 31, 2020 regarding the disposal of the property?

6.On January 1, 2017, ACC company borrowed P10,000,000 from a bank at a variable rate of interest for 4 years.Interest will be paid annually to the bank on December 31 and the principal is due on December 31, 2020.

Under the agreement,the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31.In conjunction with the loan, the entity entered into a "receive variable, pay fixed" interest swap agreement with another bank speculator as a cash flow hedge.

The market rates of interest are

6% on January 1, 2017

10% on January 1, 2018

8% on January 1, 2019.

The present value of an ordinary annuity of 1 at 10% for three periods is 2.49 and the present value of an ordinary annuity of 1 at 8% for two periods is 1.78.

What is the derivative asset or liability on December 31, 2018?(indicate if it is asset or liability)

7.ACC Company entered into a contract to acquire a new machine for its factory. The machine, which had a cash price of P2,000,000 was paid as follows: down payment, P400,000, note payable in 3 equal annual installments, P1,200,000, 20,000 ordinary shares with a par value of P25,000 and fair value of P40 per share, P800,000.

Prior to the machine's use, installation cost of P50,000 was incurred. The machine has an estimated residual value of P100,000.What is the initial cost of the machine?

8.At the beginning of current year, Similar company received a grant of P30million from American government in order to defray safety and environmental costs within the area where the entity is located. The safety and environmental costs are expected to be incurred over four years respectively, P2million, P4 million, P6 million and P8 million. What amount should be recognized as grant income for the second year?

9.On January 1, 2017, purchased a machine for 1,920,000 used in a factory with a useful life of 5 years and a residual value of 96,000. The machine was depreciated by the double declining balance method. What is the carrying amount of the machinery on December 31, 2018?

10.Sally provided the following information in relation to a bond sinking fund that was placed in trust as required by the underwriter:

Bond Sinking fun, Jan 1, 20192,500,000

Additional investment in 2019200,000

Dividends on investments250,000

Interest revenue200,000

Administration costs150,000

Carrying amount of bonds payable 5,000,000

What is the carrying amount of the bond sinking fund on Dec 31, 2019?

11.Cassandra Company operates a seafood restaurant. On October 1, 2019, the entity determined that it will need to purchase 50,000 kilos of deluxe fish on March 1, 2020. Because of the volatile fluctuation in the price of deluxe fish, on October 1, 2019, the entity negotiated a forward contract with a reputable bank to purchase 50,000 kilos of deluxe fish on March 1, 2020 at a price of P50 per kilo or P2,500,000. This forward contract was designated as a cash flow hedge. The derivative forward contract provides that if the market price of deluxe fish on March 1, 2020 is more than P50, the difference is paid by the bank to the entity. On the other hand, if the market price on March 1, 2020 is less than P50, the entity will pay the difference to the bank. On December 31, 2019, the market price per kilo is P60 and on March 1, 2020 the market price is P58. The discount rate is 8%. The present value of 1 at 8% for one period is .93. What is the fair value of the derivative asset or liability on December 31, 2019. (indicate if it is liability or asset)

12. ACC company purchased computer at an installment price of 2,100,000; down payment 300,000; balance payable in 3 equal annual instalments and a promissory note has been issued by the company.The implied interest rate is 10%.The present value factor of 1 at 10% for 3 periods is 2.487.

How much is the cost of the computer?

13. ERR company has a single investment property which had an original cost of P5,800,000 on January 1, 2013.On December 31, 2015 the fair value was P6,000,000 and on December 31, 2016 the fair value was P5,900,000.On acquisition the property had a useful life of 40 years.What is the expense recognized in profit or loss for the year ended December 31, 2016 under the fair value model and cost model?

Fair value modelCost model

14.A machine is purchased on May 1, 2017 costing 1,500,000 with useful life of 5 years and a residual value of 150,000.The company uses the straight line method.On December 31, 2020, the machine was sold for 800,000.At what amount will the gain or loss be recognized?

If loss, put negative sign -

15. BALISIN company uses approximately200,000 units of raw material in its manufacturing operations.On December 1, 2017, the entity purchased a call option to buy 200,000 units of the raw material on July 1, 2018 at a strike price of P25 per unit.The entity paid P20,000 for the call option.The entity designated the call option as a cash flow hedge against price fluctuation for its July purchase.The market price of the raw material is P28 on December 31, 2017 and P21 on July 1, 2018.What is the derivative asset on December 31, 2017?

16. At the beginning of the current year, BEST Company purchased a mineral mine for P26,400,000 with removable ore estimated at 1,200,000 tons.After it has extracted all the ore, the entity will be required by law to restore the land to its original condition at an estimated cost of P2,100,000.The present value of the estimated restoration cost is P1,800,000.

The entity believed that it will be able to sell the property afterwards for P3,000,000.During the current year, the entity incurred P3,600,000 of development cost preparing the mine for production removed 80,000 tons of ore and sold 60,000 tons.

a.How much is the cost of the wasting asset?

b.How much is the depletion included in cost of good sold?

17. Salve Company applied revaluation accounting to plant asset with carrying amount of 10,000,000 on January 1, year 1, useful life of 4 years and no residual value.Depreciation is based on straight line method. On December 31, year 1, independent appraisers determined that the asset has a fair value of 6,600,000.

A.What is included in the journal entry to record depreciation for year 2?

B.How much is the impairment loss to be recorded in year?

18.On January 1, year 1, ACC Company owned a building with historical cost of 32,000,000 depreciated over a 40 year life on a straight line method.Revaluation model was adopted by the entity in measuring its property, plant and equipment.The building has already been revalued twice with the following fair values:

January 1, Year 237,440,000

January 1, Year 444,000,000

a.What is the increase in revaluation surplus to be recognized as component of other comprehensive income on January 1, year 4?

19.On Jan 1, 2014 Bell Company acquired a building at cost of P5million. The building has been depreciated on the basis of a 20 year life. On Jan 1, 2019, an appraisal of the building showed replacement cost at 8million with no change in useful life. How much should be credited to revaluation surplus on Jan 1, 2019?

20.Spring Company has four generating units.One CGU has been experiencing significant losses in the prior years.Thus, it becomes necessary to determine impairment for the cash generating unit.The assets of the CGU at carrying amount at the current year end are:

Cash8,000,000

Accounts receivable16,000,000

Inventory24,000,000

Building, net40,000,000

Goodwill3,000,000

It is reliably determined that the value in use of the cash generating unit at the current year-end is 80,000,000. the building's fair value less cost of disposal is35,000,000.

a.Compute the impairment loss.

b.How much is the building after impairment?

c.How much is the goodwill after impairment?

d.How much is inventory after impairment?

21. ACC company borrowed 30,000,000 at 12% to finance in part the construction of a new building on January 1, 2017 and in part for general purposes.The loan is to be repaid commencing the month following completion of the building.Expenditures for the completed structure totaled 20,000,000 during the year ended December 31, 2017.These expenditures were incurred evenly throughout the year.The entity earned interest of 400,000 for the year on the unexpended portion of the loan.What is the interest expense for 2017?

22.BELO company borrowed 8,000,000 on a 10% note payable to finance a new warehouse which the entity is constructing for own use.The only other debt of the entity is 12,000,000, 12% mortgage payable on an office building.At the end of the current year, average accumulatedexpenditures on the new warehouse totaled 9,500,000.What amount of interest should be capitalized for the current year?

23.On January 1, 2017, ACC Company borrowed 3,000,000 at an interest rate of 12% specifically for the construction of a new building.

The actual interest cost on this specific borrowing was 336,000 but interest of 20,000 was earned from the temporary investment of the borrowing proceeds.

Sheena company also had the following other loans in 2017 for general purposes but the proceeds were used in part for the construction of the building.

PrincipalInterest

10% bank loan4,200,000420,000

12% long term loan7,000,000840,000

The construction began on January 1, 2017 and was completed on December 31, 2017.The expenditures on the construction were 3,000,000 on Jan. 1;1,400,000 on March 31 and 4,200,000 on Sept.30.

Required:

a.How much is the specific borrowing cost that must be capitalized?

b.How much is the general borrowing cost that must be capitalized?

c.Compute the cost of the new building.

24. The following accounts are taken from the trial balance of LISSA Company for December 31, 2018:

Mortgage payable in quarterly instalments of 100,0002,000,000

Income tax payable50,000

Notes payable750,000

Accounts payable, net of debit balance in supplier's account of 100,000300,000

Accrued expenses60,000

Estimated liability for damages140,000

Bank loan payable - due June 30, 2020500,000

How much is the total current liabilities of LISSA Company?

25.FLOW company has a 2,400,000 note payable due June 30, 2019.On December 31, 2018, the entity signed an agreement to borrow up to 2,400,000 to refinance the note payable on a long term basis.The financing agreement called for borrowing not to exceed 80% of the value of the collateral the entity was providing.On December 31, 2018, the value of the collateral was 1,800,000.On December 31, 2018, what amount of the note payable should be reported as current liabilities?

26.On Nov 1, 2019, CAN Company was awarded a judgment of P1,500,000 in connection with a lawsuit. The decision is being appealed by the defendant and it is expected that the appeal process will be completed by the end of 2020. The attorney believed that it is highly probable that an award will be upheld on appeal but that the judgment may be reduced by 40%. What amount should be reported as a receivable on December 31, 2019?

27.Melan company includes one coupon in each box of laundry soap it sells. A towel is offered as a premium to customers who send in 10 coupons and a remittance of P10.

Distribution cost of premium is P5. Experience indicates that only 30% of the coupons will be redeemed

Details for 2019

Boxes of soap sold1,000,000

Number of towels purchased at 50 each25,000

Coupons redeemed200,000

a.What amount should be reported as premium expense for 2019?

b.What amount should be reported as estimated premium liability on Dec 31, 2019?

28. On December 31, 2019, Trishia company provided the following information:

Accounts payable, after deducting deposits

and advances from customer of 300,0001,500,000

Notes payable, including note payable to bank due on

December 31, 2021 of 600,0001,800,000

Stock dividend payable480,000

Credit balances in customers accounts240,000

Serial bonds payable in semiannual installment of 600,0006,000,000

Accrued interest on bonds payable180,000

Contested BIR tax assessment - possible obligation360,000

Unearned rent income120,000

Compute the total current liabilities.

29.Huge Company sold a product under a two-year warranty.The estimated cost of warranty repair is 5% of net sales:

2019 net sales2,500,000

Total repair costs incurred65,000

What amount should be reported as warranty expense for 2020?

30.On December 31, 2019, Emmanuel company purchased for 30 per share all 300,000 of Magdallen company's outstanding ordinary shares.On this date, the acquiree's statement of financial position showed net assets of P7,500,000.Additionally, the fair value of the acquiree's identifiable assets on this date was 600,000 in excess of carrying amount.In the statement of financial position, what amount should be reported as goodwill as a result of the acquisition?

31. On January 1, 2019, Warlordcompany took out a loan of 12,000,000with an annual interest of 10% in order to finance specifically the renovation of a building.The renovation work started on the same date.Work on the building was substantially complete on October 31, 2019.The loan was repaid on December 31, 2019 and P150,000 investment income was earned in the period to October 31, 2019 on the proceeds of the loan not yet used for renovation.What is the amount of capitalizable borrowing cost?

32.On January 1, 2019, Wagne company purchased two machines, Machine 1 for P1,500,000 and Machine 2 for 2,000,000.The machines were put into use immediately.Machine 1 has a useful life of 5 years and can be used only in one research project.Machine 2 will be used for 2 years on a research and development project and then used by the production division for an additional 8 years.The straight-line method of depreciation is used.What total amount should be recognized as research and development expense for the current year?

33.In 2019, Beth company constructed a new building at a cost of 45,000,000.The expenditures for the building which was finished late in 2017 were incurred evenly during the year.The entity had the following loans outstanding on December 31, 2019:

10% note to finance specifically the construction, dated January 1, 2019, P15,000,000.The note is unpaid on December 31, 2019.Investments were made on the proceeds from the loan and income of 150,000 was realized in 2019.

12% 10-year bonds issued at face amount on April 30, 2018, 45,000,000.

8% 5-year note payable, dated March 1, 2018, 15,000,000.

What is the capitalizable borrowing cost?

34. In 2019, Temple company incurred the following costs:

Laboratory research aimed at discovery of new knowledge240,000

Cost of testing prototype but economic viability not achieved60,000

Quality control during commercial production360,000

Construction of research facility having an estimated useful life

Of 5 years but no alternative future use480,000

What is the total amount of research and development expense for the current year?

35.Samson Company incurred P1,600,000 of research and development costs to develop a product for which a patent was granted on January 1, 2019. Legal fees and other costs associated with registration of the patent totaled P300,000. On March 31, 2019, Tobin paid P450,000 for legal fees in a successful defense of the patent. What is the total amount that should be capitalized for the patent through March 31, 2019?

36.England Company purchased a patent on January 1, 2015 for P6,000,000. The original useful life was estimated to be 15 years. However, in December 2020 Icegiant's controller received information proving conclusively that the product protected by the Ice Giant patent would be obsolete within four years. Accordingly, the entity decided to write off the unamortized portion of the patent cost over five years beginning in 2020. What is the patent amortization for 2015?

37.On November 5, 2018, ACE company truck was in an accident with an auto driven by Walk ACE received notice on January 12, 2019 of a lawsuit for 1,400,000 damages for personal injuries suffered by Walk Co.ACE's counsel believes it is probable that Billy will be awarded an estimated amount in the range between 400,000 and 1,000,000.Damn's accounting year ends on December 31, and the 2018 financial statements were issued on March 2, 2019.What amount of provision should ACE accrue at December 31, 2018?

38.On January 1, 2018, Melan Company issued 6% bonds with face amount of 6,000,000 for net proceeds of 5,516,400, a price that yields 8%.Interest is payable annually every December 31.The entity has elected the fair value option.On December 31, 2018, the bonds are quoted at 95.What is the loss from change in fair value for 2018?

(Do not put negative sign)

39.In 2018, Bunny company began selling a new calculator that carried a two-year warranty against defects.

Bare projected the estimated warranty (as a percent of sales) as follows:

First year of warranty4%

Second year of warranty10%

Sales and actual warranty repairs were:

20182019

Sales5,000,0009,000,000

Actual warrantyrepairs200,000560,000

How much is the amount of estimated liability for warranties on December 31, 2018?

40.Drake company issued 7,500,000 face amount 12% convertible bonds at 110 on January 1, 2019, maturing on January 1, 2024 and paying interest semiannually on January 1 and July 1.It is estimated that the bonds would sell only at 103 without the conversion feature.Each P1,000 bond is convertible into 10 ordinary shares with P100 par value.What is the increase in shareholders' equity arising from the original issuance of the convertible bonds?

41.During 2019 Ziggy Company became involved in a tax dispute with the BIR.At December 31, 2019, Ziggy's tax advisor believed that an unfavorable outcome was probable and the best estimate of additional tax was 750,000, but could be as much as 975,000.After the 2019 financial statements were issued, Ziggy received and accepted a BIR settlement offer of 825,000.What amount of accrued liability would Ziggy have reported in its December 31, 2019 statement of financial position?

42.Zeus company's accounting policy with respect to investment properties is to measure them at fair value at the end of each reporting period.One of the investment properties was measured at 12,000,000 on Dec. 31, 2015.The property had been acquired on January 1, 2015 for a total of 11,400,000, made up of 10,350,000 paid to the vendor, 450,000 paid to the local authority as a property transfer tax and 600,000 paid to professional advisers.The useful life of the property is 40 years.What is the gain to be recognized for the year ended December 31, 2015 in respect of the investment property?

43.ACC company started a new promotional program.For every 10 box tops returned to Tops, customers receive a basketball.Tops estimates that only 60% ofthe box tops reaching the market will be redeemed.Additional information is as follows:

UnitsAmounts

Sales of product100,00030,000,000

Basketballs purchased5,5004,125,000

Basketballs distributed4,000

What is the amount of year-end estimated liability associated with this promotion?

44.On Jan 1,2019, Anne Company issued 3 year bonds with face value of P2,500,000 at 98.Additionally Anne Company paid bond issue cost of P70,000.The nominal rate is 10% and the effective rate is 12%.The interest is payable annually on December 31.

Anne Company uses the effective interest method in amortizing discount and issue cost.What is the carrying value of the bonds payable on December 31,2019?

45.Hardine Company entered into a contract to acquire a new machine for its factory. The machine, which had a cash price of P2,000,000 was paid as follows:

down payment, P400,000

note payable in 3 equal annual installments, P1,200,000

20,000 ordinary shares with a par value of P25,000 and fair value of P40 per share, P800,000

Prior to the machine's use, installation cost of P50,000 was incurred. The machine has an estimated residual value of P100,000.

What is the initial cost of the machine?

46.HOT Corporation has 4,000, 10%, 10-year bonds, face value 1,000, and sold it at 105. Each bond is accompanied by one warrant that permits the bondholder to purchase 20 shares of capital, par 50, at 55 per share, or a total of 80,000 shares. The prevailing market rate of interest for similar bonds without warrants is 12% per annum with which the PV of 1 at 12% for 10 periods is .322 and in an ordinary annuity is 5.65.

How much is the share warrant outstanding?

47.Raiser Company operates a retail grocery store that is required by law to collect refundable deposits of P5 on soda cans.Information for 2018 follwos:

Liability for refundable deposits - January 16, 2019P 150,000

Cans of soda sold100,000

Soda cans returned110,000

On February 1, 2018, Raiser company subleased space and received a 25,000 deposit to be applied against rent at the expiration of the lease in 2020.

In the December 31, 2019 statement of financial position, what amounts should be reported as current liabilities for deposits?

48.On January 1, 2018, Jolly company purchased a mining site that will have to be restored to certain specifications when the mining production ceases.The cost of the mining site is 6,000,000 and the restoration cost is expected to be 1,500,000.It is estimated that the mine will continue in operation for 10 years.The appropriate discount rate is 8%.The present value of 1 at 8% for 10 periods is 0.4632.On December 31, 2027, the entity contracted with another entity for the restoration of the mining site in accordance with specifications at a cost of 1,350,000.How much is the decommissioning liability on January 1, 2018?

49.On June 30, 2019, Mine Company issued at 99,six thousand of its 8% 1,000 bonds.The bonds were issued through an underwriter to whom Mine Company paid bond issue cost of 510,000.On June 30,2019, Mine Company should report the bond liability at?

50.Alice Company's depreciation policy on machinery is as follows:

A full year's depreciation is taken in the year of an asset's acquisition.

No depreciation is taken in the year of an asset's disposition.

The estimated useful life is five years.

The straight-line method is used.

On June 30, 2020, Poe sold for P2,300,000 a machine acquired in 2017 for P4,200,000. The estimated residual value was P600,000. How much gain on the disposal should Alice record in 2020?

51. On January 1, 2019, Cassy company issued 2,500,000 of 12% nonconvertible bonds payable at 103 which are due on December 31, 2023.In addition, each P1,000 bonds was issued with 30 detachable share warrants, each of which entitled the bondholder to purchase, for P50, one ordinary share of Cassy company par value 25.On January 1, 2019, the quoted market value of each warrant was P4.The market value of the bonds ex-warrants at the time of issuance is 95.What is the carrying amount of the bonds payable on January 1, 2019?

52.Included in Panda Corporationn's liability account balances at December 31,2018, were the following:

14% note payable issued Oct 1,2017, maturing September 30,20191,250,000

16% note payable issued April 1,2016, due on April 20192,000,00

On December 31,2018, the company expects to refinance the P2,000,00 by the issuance of a long term note payable in lumpsum.The refinancing of the P2,000,00 is at the discretion of the enterprise.Panda's Decemebr 31,2018 financial statements were issued on March 31,2019.On Jan 15,2019, the entire P2,00,000 balance of the 16% note was refinanced by issuance of a long term obligation payable.On December 31,2018 balance sheet, what amount of the notes payable should Levis classify as Long term obligation?

53.Dann Company purchased a varnishing machine for P3,000,000 on January 1, 2020. The entity received a government grant of P500,000 in respect of this asset. The accounting policy is to depreciate the asset over 4 years on a straight line basis and to treat the grant as deferred income. How much deferred income from the government grant will be presented in the statement of financial position for 2020?

54.On December 31, 2020, Fila company issued 10,000,000 face amount, 5-year bonds at 109.Each 1,000 bond was issued with 10 share warrants each of which entitled the bondholder to purchase one share of 100 par value at 120.Immediately after issuance, the market value of each warrant was 5.The stated interest rate of the bonds is 11% payable annually every December 31.However, the prevailing market rate of interest for similar bonds without warrants is 12%.The present value of 1 at 12% for 5 periods is .57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60.What is the carrying amount of the bonds payable on December 31, 2020?