INTERMEDIATE ACCOUNTING 2 SCORE

SEATWORK #1

NAME:____________________ YEAR & SECTION:____________ DATE:______________

INSTRUCTIONS: FROM THE FOLLOWING MULTIPLE-CHOICE QUESTIONS BELOW, CHOOSE THE LETTER
OF THE BEST ANSWER. SHADE YOUR ANSWER ON THE SEPARATE SHEET PROVIDED.

PART I: SITUATIONAL

1. A new equipment was acquired by LYCANROC Corporation on June 30, 2023 with the
following considerations:

Cost of old equipment given up with current fair value of P950,000 P1,000,000
Notes payable in two equal annual installment every July 1, starting 2024
(non-interest bearing; 2 years; effective rate on this date 10%) 1,500,000
Estimated dismantling after six (6) year life of the equipment (at 10%
effective rate) 250,000

How much is the initial cost of the equipment acquired by LYCANROC Corporation?
A. P2,392,771
B. P2,360,278
C. P2,326,671
D. P2,083,278

FV of old equipment 950,000

PV of notes payable (750,000 x 1.735537) 1,301,653
PV of dismantling cost (250,000 x 1.10^-6) 141,118
Total cost of the equipment 2,392,771

2. DEDENNE Company acquired the following machines during 2023:

• Machine A in exchange for 50,000 ordinary shares with a P100 par value and market
price of P120 per share.
• Machine B at an invoice price of P3,000,000 subject to a 5% cash discount which
was not taken. Freight and insurance during shipment were P50,000 and installation
cost amounted to P200,000
• Machine C in exchange for a noninterest bearing note requiring eight payments of
P200,000. The note was dated January 1, 2023 and the first payment was made on
December 31, 2023. The prevailing market interest rate is 11%. The PV of an ordinary
annuity of 1 at 11% for 8 periods is 5.146 and the PV of an annuity of 1 in advance
at 11% for 8 periods is 5.712.

What is the total cost of the machines to be recognized by DEDENNE?

A. P10,129,200
B. P10,279,200
C. P10,700,000
D. P10,242,400

Machine A (50,000 x 120) 6,000,000

Machine B (3,000,000 x 95% = 2,850,000 + 50,000 + 200,000) 3,100,000
Machine C (200,000 x 5.146) 1,029,200
Total cost 10,129,200

Financial Accounting and Reporting by Juan Miguel S. Ungsod, CPA

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3. On February 2, 2021 LITLEO Company purchased a machine from PYROAR Corporation
in exchange for a non-interest-bearing note requiring ten payments of P80,000. The
first payment is to be made on February 2, 2022, and the others are due annually on
February 2. At date of issuance, the prevailing rate of interest for this type of
note was 10%. Other cost incurred were: Transport cost P10,000; Installation cost
P50,000. Proceeds from sale of inventories produced during installation of the
machinery, P5,000. What is the initial carrying amount of the machine to be reported
by LITLEO Company on February 2, 2021?
A. P491,565
B. P541,565
C. P546,565
D. P551,565

PV of note (80,000 x 6.14456) 491,565

Transport cost 10,000
Installation cost 50,000
Proceeds from sale (5,000)
Initial carrying amount of the machine 546,565

Use the following information to answer the next items:

On January 3, 2021, GUZZLORD Company purchased a parcel of land with an old building
on it for P2,000,000. The appraised values of the land and building are as follows:

Land – P1,500,000 Building – P1,000,000

On May 1, 2021, GUZZLORD began demolishing the old building to make room for the
construction of a new one. The estimated remaining life of the old building is four
(4) years. The following costs were incurred for the construction, which was finished
on December 31, 2021:

Labor cost – P1,000,000

Materials cost – P1,500,000
Demolition cost – P100,000
Building permit fee – P35,000
Excavation cost – P85,000
Other capitalizable overhead – P250,000

4. What is the cost of the new building if it will be held for rental to others
(investment property) at completion?
A. P2,970,000
B. P3,703,333
C. P3,770,000
D. P3,970,000

New building
Labor cost P1,000,000
Materials cost 1,500,000
Demolition cost 100,000
Building permit fee 35,000
Excavation cost 85,000
Other capitalizable overhead 250,000
Total cost of new building P2,970,000

5. What is the cost of the new building if it will be held for sale in the ordinary
course of business (inventory) at completion?
A. P2,970,000
B. P3,703,333
C. P3,770,000
D. P3,970,000

Appraised Value Allocated Cost

Land P1,500,000 P1,200,000
Building 1,000,000 800,000
Total P2,500,000 P2,000,000

Financial Accounting and Reporting by Juan Miguel S. Ungsod, CPA

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Cost of old building P800,000
Less: Accumulated depreciation (800,000 / 4 years x 4/12) 66,667
Carrying value of the old building, May 1, 2023 P733,333

Cost of the new building (see computation above) P2,970,000

Carrying value of the old building, May 1, 2023 733,333
Total cost of new building P3,703,333

6. In June 2021, LITTEN Company acquired a machine in exchange for a non-monetary

asset with a cost of P1,200,000 and an accumulated depreciation of P 600,000 and
paid cash difference of P160,000. The market value of the non-monetary asset was
determined to be P 650,000.If the exchange is lacking in commercial substance, what
would be the cost of the new asset acquired and the amount of the gain to be
recognized, respectively?
A. P760,000 and P0
B. P810,000 and P0
C. P810,000 and P50,000
D. P810,000 and P210,000

(1,200,000 – 600,000) + 160,000 = 760,000; No gain or loss since without commercial

substance

7. On January 1, 2016, EKANS Corporation bought a factory equipment for P924,000

salvage value was estimated at P24,000. The asset will be depreciated over 10 years
using the double declining balance method. How much is the total accumulated
depreciation to be reported in the balance sheet on December 31, 2021?
A. P450,912
B. P545,530
C. P621,224
D. P681,779

8. The HITMONLEE Company takes a full year depreciation expense in the year of an
asset's acquisition and no depreciation in the year of disposal. Data relating to
one of HITMONLEE's depreciable assets at December 31, 2020 is as follows: Year of
acquisition – 2019; Estimated residual value – 15,000; Cost – P225,000; Estimated
useful life – 10 years; Accumulated Depreciation – P81,000. Using the same
depreciation method as used in 2019 and 2020, how much depreciation expense should
be recorded for this asset in the year 2021?
A. P30,545
B. P28,800
C. P23,040
D. P21,000

9. WAILMER Company purchased a machine on January 1, 2016 for P6,000,000. At the

date of acquisition, the machine had a life of six years with no residual value.
The machine was depreciated on a straight line basis. On January 1, 2019, the entity
determined that the machine had a useful life of eight years from the date of
acquisition with no residual value. What is the depreciation of the machine for
2019?
A. P750,000
B. P600,000
C. P375,000
D. P500,000

Cost 6,000,000
Accumulated depreciation (6,000,000 / 6 x 3) 3,000,000
Carrying amount - January 1, 2019 3,000,000
Depreciation for 2019 (3,000,000 / 5 years)
600,000
Revised life 8 years
Years expired 3
Remaining revised life 5 years

This is a change in accounting estimate. The procedure is to allocate the remaining

depreciable amount over the remaining revised life.

Financial Accounting and Reporting by Juan Miguel S. Ungsod, CPA

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10. HAUNTER Company takes a full year depreciation in the year of acquisition and
no depreciation in the year of disposition. Data relating to a depreciable asset on
December 31, 2021 are cost P5,500,000, residual value P1,000,000, accumulated
depreciation P3,600,000 and useful life 5 years. The asset was acquired on July 1,
2019. Using the same depreciation method in 2019, 2020 and 2021, what amount of
depreciation should be recorded in 2022?
A. P1,100,000
B. P1,200,000
C. P900,000
D. P600,000

11. On January 1, 2023, BUZZWOLE Co. acquired machinery for a total cost of
P80,000,000. The machinery is depreciated using the double declining balance method
over a period of 10 years. On January 1, 2026, BUZZWOLE Co. changed its depreciation
method to straight line method. How much is the depreciation expense in 2026?
A. P5,815,428
B. P7,314,286
C. P6,581,342
D. P5,851,429

DD = 1/10 x 2 = 20%
CA – 1/1/2026 (80M x 80% x 80% x 80%) 40,960,000
Depreciation Expense in 2026 (40,960,000 / 7 years) 5,851,429

12. Assume the following independent cases for SNORLAX Company:

a. At the beginning of the year, a check was issued for P400,000 as payment for a
piece of land and the buyer assumed the liability for unpaid taxes in arrears for
the previous year, P10,000 and those assessed for the current year, P9,000.
b. A company issued 14,000 ordinary shares (P50 par) with a market value of P60 per
share (based upon a recent sale of 100 shares) for the land. The land was recently
appraised at P800,000 by independent and professional appraisers.
c. A company rejected an offer to purchase the land for P8,000,000 cash two years
ago. Instead, the company issued 100,000 ordinary shares for the land (market value
of the ordinary share, P78 each based on several recent large transactions and normal
weekly stock trading volume).
d. A company purchased land by signing a note with the seller, requiring down payment
of P100,000, payment of P120,000 one year from purchase, and P80,000 three years
from purchase. The note is non-interest bearing, but the going rate of similar notes
is 10%. Present value of 1 at 10% for 1 period is 0.91. Present value of 1 at 10%
for 3 periods is 0.75.

How much is the cost of land acquired in (a), (b), (c) and (d), respectively?
A. P419,000; P800,000; P7,800,000; P269,200
B. P410,000; P800,000; P7,800,000; P269,200
C. P410,000; P840,000; P7,800,000; P300,000
D. P419,000; P840,000; P8,000,000; P300,000

a. 400,000 + 10,000 = P410,000

b. Appraised value = P800,000
c. Fair value of shares issued (100,000 x P78) = P7,800,000
d. Down payment P100,000
Present value of note (120,000 x 0.91) 109,200
(80,000 x 0.75) 60,000 P269,200

13. On July 30, 2023, CLEFFA Company trades in an old Mercedes Benz for a new one.
The old Benz is carried in the books at its net book value of P200,000 and has a
market value of P700,000. The cash purchase price of a new Benz is P2,500,000 and
the dealer gives CLEFFA a trade-in allowance of P650,000 for the old Benz. CLEFFA
pays the balance in cash. What amount of gain or loss from the trade-in should be
recognized?
A. None
B. P50,000
C. P450,000
D. P500,000

P650,000 – P200,000 = P450,000

Financial Accounting and Reporting by Juan Miguel S. Ungsod, CPA

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14. BOUNSWEET Corp. has decided to expand its operations and has purchased land for
construction of a new manufacturing plant. The following costs were incurred in
purchasing the property and constructing the building:

Land purchase price P 120,000

Payment of delinquent property taxes 35,000
Title search and insurance 6,500
City improvements for water and sewer 18,000
Building permit 8,000
Cost to destroy existing building on land (P3,000 worth of salvaged
material used in new building) 20,000
Contract cost of new building 1,650,000
Land improvements-landscaping 82,000
Sidewalks and parking lot 39,000
Fire insurance on building - 1 year 18,000

The depreciated value of the old building on the books of the company from which
the land was purchased was P26,000. The old building was never used by BOUNSWEET.
How much should be recognized as cost of land?
A. P144,500
B. P179,500
C. P196,500
D. P199,500

Land purchase price 120,000

Payment of delinquent property taxes 35,000
Title search and insurance 6,500
City improvements for water and sewer 18,000
Cost of land 179,500

Building permit 8,000

Cost to destroy existing building on land 20,000
Contract cost of new building 1,650,000
Cost of building 1,678,000

15. FUECOCO Co. acquired a factory equipment overseas on cash basis for P400,000.
Additional costs incurred include the following: commissions paid to brokers for the
purchase of the equipment, P20,000; import duties of P100,000; non-refundable
purchase taxes of P40,000; freight cost of transferring the equipment to FUECOCO’s
premises, P4,000; costs of assembling and installing the equipment, P8,000; costs
of testing the equipment, P6,000; administration and other general overhead costs,
P16,800; and advertisement and promotion costs of the new product to be produced by
the equipment, P15,200. The samples generated from testing the equipment were sold
at P2,000. How much is the initial cost of the equipment of FUECOCO Co.?
A. P578,000
B. P594,800
C. P576,000
D. P592,800

Invoice price 400,000

Commission paid for the purchase 20,000
Import duties 100,000
Non-refundable purchase taxes 40,000
Freight cost 4,000
Costs of assembling and installing 8,000
Cost of testing (6,000 – 2,000 samples generated) 4,000
Cost of equipment 576,000

16. LICKITUNG Company purchased several machines for use in operations:

• The machine was purchased on account for P500,000. Credit terms were 2/10, n/30.
The entity paid the account within the discount period.
• The entity issued to the seller a noninterest bearing note to purchase a machine.
The note required a payment of P1,000,000 and has a term of 2 years. The fair
value of the machine cannot be determined and the effective interest rate for
similar notes was 10%. The present value of 1 at 10% is 0.83 for two periods.
• The entity traded in an old equipment with a cost of P280,000 and accumulated
depreciation of P16,000 for a new equipment. The entity paid cash of P440,000 and

Financial Accounting and Reporting by Juan Miguel S. Ungsod, CPA

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 the fair value of the old equipment was P50,000. The exchange has commercial
substance.
• The entity issued 20,000, P100 par value ordinary shares in exchange for
equipment. The equipment could have been purchased for P250,000 cash.

What is the total cost of machine and equipment?

A. P2,070,000
B. P2,060,000
C. P2,230,000
D. P2,010,000

(1) (500,000 x 98%) 490,000

(2) (1,000,000 x 0.83) 830,000
(3) Cash price equivalent (440,000 + 50,000) 490,000
(4) 250,000
Total cost of machine and equipment 2,060,000

17. SHAYMIN Corp. uses the composite method of depreciation and has a composite rate
of 25%. During 2023, it sold assets with an original cost of P100,000 (residual
value of P20,000) for P80,000 and acquired P60,000 worth of new assets (residual
value of P10,000). The original group of assets had the following characteristics:

Total cost P250,000

Total residual value 30,000

The above original group includes the assets sold in 2023 but not the assets purchased
in 2023. How much is the depreciation in 2023?
A. P62,500
B. P52,500
C. P47,500
D. P46,500

Adjusted total cost = 250,000 – 100,000 + 60,000 = 210,000

Depreciation rate = annual depreciation / total cost
25% = annual depreciation / 210,000
Annual depreciation = 210,000 x 25% = 52,500

18. EEVEE Manufacturing has equipment that is comprised of five components:

Component Cost Estimated residual Estimated life (in

value years)
JOLTEON 550,000 50,000 10
UMBREON 420,000 20,000 9
SYLVEON 360,000 10,000 8
GLACEON 190,000 30,000 7
VAPOREON 235,000 40,000 6

Compute for the depreciation expense for the year

A. P196,250
B. P193,551
C. P175,551
D. P161,500

Component Cost Estimated Depreciable Estimated Annual

residual amount life (in depreciation
value years)
JOLTEON 550,000 50,000 500,000 10 50,000
UMBREON 420,000 20,000 400,000 9 44,444
SYLVEON 360,000 10,000 350,000 8 43,750
GLACEON 190,000 30,000 160,000 7 22,857
VAPOREON 235,000 40,000 195,000 6 32,500
1,755,000 150,000 1,605,000 193,551

Financial Accounting and Reporting by Juan Miguel S. Ungsod, CPA

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19. On January 2, 2017, DIALGA Company acquired equipment to be used in its
manufacturing operations. The equipment has an estimated useful life of 10 years and
an estimated residual value of P15,000. The depreciation applicable to this equipment
was P63,636 for 2020, computed under the sum-of-the-years'-digits method. What was
the acquisition cost of the equipment?
A. P515,000
B. P541,667
C. P550,000
D. P565,000

SYD = ((10 + 1)/2) x 10 55

(63,636 x 55/7) + 15,000 515,000

20. In October, POPPLIO Company exchanged an old packaging machine costing P240,000
and 50% depreciated, for a dissimilar used machine and paid a cash difference of
P32,000. The market value of the old packaging machine was determined to be P140,000.
How much is the cost of the newly acquired machine and the amount of gain or loss,
respectively, that POPPLIO should record on this exchange?
A. P172,000 and P20,000 loss
B. P172,000 and P20,000 gain
C. P140,000 and P20,000 gain
D. P108,000 and P20,000 gain

PART II: THEORY OF ACCOUNTS

21. In addition to the purchase price, what constitutes the initial cost assigned
to an item of property, plant and equipment?
I. Costs directly attributable to bringing the asset to the location and condition
for use intended by the management.
II. Costs of day-to-day servicing of items of property, plant and equipment to
maintain good condition.
III. Initial estimate of costs of dismantling and removing or restoring the site on
which the asset is located.
IV. Refundable purchase taxes
A. I, II, III and IV
B. I, II and III
C. II, III and IV
D. I and III

22. The diminishing balance method of depreciation results in

A. constant charge over the useful life of the asset if the residual value does not
change.
B. decreasing charge over the useful life of the asset.
C. increasing charge over the useful life of the asset.
D. variable charge based on the expected use or output.

23. Statement 1: The three factors involved in the depreciation process are the
depreciation
base, the useful life, and the risk of obsolescence.
Statement 2: The units-of-production approach to depreciation is appropriate when
depreciation is a function of time instead of activity.
Statement 3: Depreciation is based on the decline in the fair market value of
the asset.
A. False, false, false
B. True, false, true
C. True, true, true
D. False, true, false

24. The activity method of depreciation

A. is a variable charge approach.
B. assumes that depreciation is a function of the passage of time.
C. conceptually associates cost in terms of input measures.
D. All of these answer choices are correct.

Financial Accounting and Reporting by Juan Miguel S. Ungsod, CPA

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25. An enterprise is depreciating an asset with a 5-year useful life. It cost
P100,000 and has no residual value. If the <List A> method is used, depreciation
expense in the second year will be <List B>.
List A List B
A. Sum-of-years’ digits 20,000
B. Sum-of-years’ digits 40,000
C. 200% diminishing balance 16,000
D. 200% diminishing balance 24,000

26. Which of the following are included in the property, plant and equipment category
in the statement of financial position?
I. Building under construction.
II. Land acquired and put on the market for resale.
III. Equipment that is idle temporarily.
IV. Delivery truck acquired on installment, certificate of ownership being held by
the finance company.
A. I, II and II
B. I, III and IV
C. I, II and IV
D. II, III and IV

27. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which
it is located with the plan to tear down the Emporia Hotel and build a new luxury
hotel on the site. If the new hotel was constructed, the cost of demolition of the
old Emporia hotel should:
A. capitalized as part of the cost of the land.
B. capitalized as part of the cost of the new hotel.
C. written off as loss in the year the hotel is torn down.
D. depreciated over the period from acquisition to the date the hotel is scheduled
to be torn down.

28. Which of the following items are chargeable to the Land account?
I. Cost of survey by a geodetic engineer
II. Expenditure for fence, water system, sidewalk, and pavement
III. Broker's commission and fees for registration and title transfer
IV. Attorney’s fee and any other expenditure for establishing clean title
A. I, II and III
B. I, III and IV
C. II, III and IV
D. I, II, III and IV

29. An item of property, plant and equipment acquired In an exchange transaction

where the configuration of the asset received is significantly different from the
configuration of the asset given up, shall be initially recorded at
A. Fair value of the non-cash asset given up, plus cash paid or minus cash received.
B. Fair value of the item of property, plant and equipment received, plus cash paid
or minus cash received.
C. Carrying value of the asset given up.
D. Amount established by the Board of Directors.

30. Consider the following statements

Statement 1: If a nonmonetary exchange lacks commercial substance, and cash is
received, a partial gain or loss is recognized.
Statement 2: The carrying amount of an existing old building demolished to make room
for the construction of a new building should be capitalized as cost of the new
building.
Statement 3: Insurance on equipment purchased, while the equipment is in transit,
is part of the cost of the equipment.
A. True, false, false
B. False, false, true
C. False, false, false
D. True, true, true

END OF SEATWORK #1

Financial Accounting and Reporting by Juan Miguel S. Ungsod, CPA

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