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University of San Jose Recoletos

Junior Philippine Institute of Accountants


Quizbowlers Society 2014-2015

TUTORIALS IN ACCOUNTING 4
PROPERTY, PLANT AND EQUIPMENT
1. On September 10, 2004, Flint Co. incurred the following costs for one of its printing presses:
Purchase of stapling attachment
P110,000
Installation of attachment
10,000
Replacement parts for renovation of press
36,000
Labor and overhead in connection with renovation of press
14,000
Neither the attachment nor the renovation increased the estimated useful life of the press. However, the
renovation resulted in significantly increased productivity. What amount of the costs should be capitalized?
a. P 0.
b. P134,000.
c. P156,000.
d. P170,000.
2. On January 2, 2004, Pine Corp. replaced its boiler with a more efficient one. The following information was
available on that date:
Purchase price of new boiler
P120,000
Carrying amount of old boiler
5,000
Fair value of old boiler
3,000
Installation cost of new boiler
10,000
The old boiler was sold for P3,000. What amount should Pine capitalize as the cost of the new boiler?
a. P130,000.
b. P122,000.
c. P125,000.
d. P120,000.
3. On December 1, 2004, Neely Co. purchased a tract of land as a factory site for P700,000. The old building
on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs
incurred and salvage proceeds realized during December 2004 were as follows:
Cost to raze old building
P25,000
Legal fees for purchase contract and to record ownership
5,000
Title guarantee insurance
8,000
Proceeds from sale of salvaged materials
4,000
In Neely's December 31, 2004 balance sheet, what amount should be reported as land?
a. P713,000.
b. P721,000.
c. P734,000.
d. P738,000.
4. BAKAL Company acquired a welding machine with an invoice price of P3,000,000 subject to a cash
discount of 5% which was not taken. BAKAL incurred freight and insurance during shipment of P50,000 and
testing and installation cost of P200,000. BAKAL 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
5. On December 30, 2005, BIG BROTHER 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,

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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.
On January 1, 2005, BIG BROTHER Company acquired used machinery by issuing to the seller a threeyear, noninterest-bearing note for P3,000,000. In recent borrowing, BIG BROTHER has paid a 12% interest
for this type of note. The present value of 1 at 12% for 3 years is 0.71.
What is the total cost of the machinery?
a. 4,820,000
b. 4,530,000
c. 4,580,000
d. 4,870,000
6. In December 2005, SHOWEE 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. SHOWEE should record the machine at
a.
b.
c.
d.

6,000,000
2,000,000
3,500,000
3,000,000

Use the following information for questions 7 and 8.


Reiley Co. purchased land as a factory site for P1,000,000. Reiley paid P40,000 to tear down two buildings
on the land. Salvage was sold for P5,400. Legal fees of P3,480 were paid for title investigation and making
the purchase. Architect's fees were P41,200. Title insurance cost P2,400, and liability insurance during
construction cost P2,600. Excavation cost P10,440. The contractor was paid P2,400,000. An assessment
made by the city for pavement was P6,400. Interest costs during construction were P170,000.
7. The cost of the land that should be recorded by Reiley Co. is
a.
P1,040,480.
b.
P1,046,880.
c.
P1,049,880.
d.
P1,056,280.
8. The cost of the building that should be recorded by Reiley Co. is
a.
P2,613,800.
b.
P2,614,840.
c.
P2,623,200.
d.
P2,624,240.
9. Taylor Company buys a lift truck with a list price of P40,000. The dealer grants a 15% reduction in list price
and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes amount to
P500 and the company paid an extra P400 to have a special horn installed. What should be the recorded
cost of the truck?
a.
P33,320.
b.
P34,160.
c.
P34,220.
d.
P33,820.

10. On April 1, Smiley Corporation purchased for P1,020,000 a tract of land on which was located a
warehouse and office building. The following data were collected concerning the property:

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Land
Warehouse
Office building

Current Assessed Valuation


P 400,000
240,000
560,000

Vendors Original Cost


P250,000
150,000
300,000

What are the appropriate amounts that Smiley should record for the land, warehouse, and office building,
respectively?
a.
Land, P250,000; warehouse, P150,000; office building, P300,000.
b.
Land, P400,000; warehouse, P240,000; office building, P560,000.
c.
Land, P364,286; warehouse, P218,571; office building, P437,143.
d.
Land, P340,000; warehouse, P204,000; office building, P476,000.
11. Garner Company exchanged 600 shares of Eller Company common stock, which Garner was holding as
an investment, for equipment from West Company. The Eller Company common stock, which had been
purchased by Garner for P50 per share, had a quoted market value of P58 per share at the date of
exchange. The equipment had a recorded amount on West's books of P32,000. What journal entry should
Garner make to record this exchange?
a.
Equipment
30,000
Investment in Eller Co. Common Stock
30,000
b.

c.

d.

Equipment
Investment in Eller Co. Common Stock
Gain on Disposal of Investment

32,000

Equipment
Loss on Disposal of Investment
Investment in Eller Co. Common Stock

32,000
2,800

Equipment
Investment in Eller Co. Common Stock
Gain on Disposal of Investment

34,800

30,000
2,000

34,800
30,000
4,800

Use the following information for questions 12 through 14.


Two independent companies, Nance Co. and Olso Co., are in the home building business. Each owns a tract
of land held for development, but each would prefer to build on the other's land. They agree to exchange
their land. An appraiser was hired, and from her report and the companies' records, the following information
was obtained:
Nance's Land
Oslo's Land
Cost and book value
P 96,000
P 60,000
Fair value based upon appraisal 120,000
105,000
The exchange was made, and based on the difference in appraised fair values, Oslo paid cash to Nance.
12. For financial reporting purposes, Nance should recognize a pre-tax gain on this exchange of
a. P0.
b. P3,000.
c. P15,000.
d. P24,000.
13. The new land should be recorded on Nance's books at
a. P84,000.
b. P96,000.
c. P105,000.
d. P120,000.
14. The new land should be recorded on Oslo's books at
a. P60,000.

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b. P75,000.
c. P105,000.
d. P120,000.
15. Potts Manufacturing Co. was incorporated on 1/2/14 but was unable to begin manufacturing activities
until 8/1/14 because new factory facilities were not completed until that date. The Land and Building account
at 12/31/14 per the books was as follows:
Date
1/31/14
2/28/14
4/1/14
5/1/14
5/1/14
5/1/14
8/1/14
8/1/14
12/31/14

Item
Land and dilapidated building
Cost of removing building
Legal fees
Fire insurance premium payment
Special tax assessment for streets
Partial payment of new building construction
Final payment on building construction
General expenses
Asset write-up

Amount
P200,000
5,000
6,000
7,200
5,500
180,000
180,000
30,000
75,000
P688,700

Additional information:
1. To acquire the land and building on 1/31/14, the company paid P100,000 cash and 1,000 shares of
its common stock (par value = P100/share) which is very actively traded and had a market value per
share of P210.
2. When the old building was removed, Potts paid Kwik Demolition Co. P5,000, but also received
P2,000 from the sale of salvaged material.
3. Legal fees covered the following:
i. Cost of organization
P2,000
ii. Examination of title covering purchase of land
2,500
iii. Legal work in connection with the building construction
1,500
P6,000
4. The fire insurance premium covered premiums for a three-year term beginning May 1, 2004.
5. General expenses covered the following for the period 1/2/04 to 8/1/04.
i. President's salary
P20,000
ii. Plant superintendent covering supervision of new building
10,000
P30,000
6. Because of the rising land costs, the president was sure that the land was worth at least P75,000
more than what it cost the company.
Instructions
Determine the proper balances as of 12/31/14 for a separate land account and a separate building account.
Use separate T-accounts (one for land and one for building) labeling all the relevant amounts and disclosing
all computations.

Solution:

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Land
Land and old building
(P100,000 plus P210,000)

310,000

Removal of old building


(P5,000 P2,000)

3,000

Legal fees

2,500

Special assessment

5,500

Balance

321,000

Building
Legal Fees
Partial payment
Insurance (3 months)
Final payment
Superintendent's salary
Balance

1,500
180,000
600
180,000
10,000
372,100

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