Correcting Entries For PPE
Correcting Entries For PPE
a. French Horn Company acquired land, buildings and equipment from a financially distressed
company, Bankrupt Corp. for a lump sum price of P 2,800,000. On the acquisition date,
Bankrupt’s assets had the following book and fair values:
BV FV
Land P 800,000 P 600,000
Building 1,000,000 1,400,000
Equipment 1,200,000 1,200,000
French horn decided to take a conservative position by recording the lower of the two values for each
PPE item acquired. The following entry was made:
Land 600,000
Buildings 1,000,000
Equipment 1,200,000
Cash 2,800,000
b. Trumpet, Inc. purchased factory equipment by making a P 200,000 cash down payment and
signing a 3-year P 300,000 10% notes payable. The acquisition was recorded as follows:
c. Tuba Co. purchased store equipment for P 800,000, terms 2/10, N/30. The company took the
discount and made the following entry when it paid for the stock acquisition:
d. Flute Corp. constructed a building at a total cost of P 43M. The building could have been
purchased for P 45M. The company’s controller made the following entry:
Building 45M
Cash 43M
Profit on construction 2M
A. FV
Land P 600,000
Building 1,400,000
Equipment 1,200,000
TOTAL P3, 200,000
LAND P525, 000 (P600, 000/P3, 200,000=18.75% x P2, 800,000) - P600, 000 = (P75,000)
Equipment 150,000
C. P800,000 x 2%=P16,000
The Delivery trucks account of your client, Alphorin Company, had a balance of P 2,820,000 on January
1, 2014, which included the following:
Transactions completed during the period January 1, 2014 through December 31, 2017, and the entries
made to record they were as follows:
July 1, 2014
Truck No. 3 was traded for a larger one (Truck No. 5), the agreed price of which was P 1,020,000.
Alphorn paid the dealer P 500,000 cash on the transactions. The entry was:
Delivery trucks 500,000
Cash 500,000
January 1, 2015
Truck No. 1 was sold for P 110,000. The entry was:
Cash 110,000
Delivery trucks 110,000
July 1, 2016
A new truck (no.6) was purchased for P 1,080,000 cash and was debited at that amount to the Delivery
trucks account. (Assume Truck No. 2 was not retired)
July 1, 2016
Truck No. 4 was severely damaged in an accident and was sold for junk for P 21,000 cash. Alphorn
received P 75,000 from the insurance company. The entry made by the accountant was:
Cash 96,000
Sales 21,000
Delivery trucks 75,000
Entries for depreciation had been made at the end of each year as follows:
Year Depreciation Expense
2013 P 609,000
2014 P 633,000
2015 P 733,500
2016 P 834,000
1. What amount of gain (loss) should have been recognized on the trade in of Truck No. 3 on July 1,
2014?
Solution:
P1, 020,000 agreed price – 500,000 paid cash=P520, 000 FAIR VALUE
P900, 000 Cost – 270,000(900k/5years x 1 1/2years) =P630, 000 Current Asset
P630,000 CA - P520,000 FV =P110,000 on trade 07/01/2014
3. The gain (loss) on the sale of truck No. 1 on January 1, 2015 was?
Solution:
P540, 000 – P432, 000 (540k/5 x 4(2011-2014)) =P108, 000 CA 01/01/15
P108, 000 CA- P110, 000 sold =P 2,000 Gain on sale 1/1/15
P480, 000 - P733, 500 DEP 2015 =P253, 500(dep over, NI-under) +2,000 Unrecorded Gain
5. What amount of loss should have been recognized on the sale of truck No.4 on July 1, 2016?
Solution:
Truck 4 P720, 000 cost - P432, 000 (720k/5yrs x 3yrs expired)
=P288, 000 CA 07/1/2016 – P21, 000 sold= P267, 000 Loss on Sale
Bagpipe Manufacturing Company began operations on October 1, 2014. The company’s accountant has
started to gather pertinent information about each of the company’s property, plant and equipment as
shown below. When he was about to prepare a schedule of PPE and depreciation, he was assigned to
maintain the books of the company’s foreign operations. You have been asked to assist in the
preparation of this schedule. In addition to ascertaining that the summarized data below are correct,
you have accumulated the following information from the company’s record and personnel.
a. Bagpipe computes depreciation from the first month of acquisition to the first month of the
month of disposition.
b. Land A and Building A were purchased from Pobre Company. Bagpipe paid P 12,300,000 for the
land and building together. At the time of acquisition, the land had a fair value of P 1,350,000
and the building had a fair value of P 12,510,000.
c. Land B was acquired on October 3, 2014, in exchange for 37,500 ordinary shares of Bagpipe, On
the acquisition date, Land B had a fair value of P 1,365,000 and the company’s P 5 par value
ordinary shares had a fair value of P 35 per share.
d. Construction of Building B on the newly acquired land began on October 1, 2015. By September
30, 2016, Bagpipe had paid P 4,800,000 of the estimated total construction costs of P 6,750,000.
It is estimated that the building will be completed and occupied by July 2017.
e. Certain equipment was donated to the corporation by the national government. An
independent appraisal of the equipment when donated placed the fair market value at P
450,000 and the salvage value at P 45,000.
f. Machinery A’s total cost of P 2,473,500 includes installation cost of P 9,000 and normal repairs
and maintenance of P 223,500. Salvage value is estimated at P 900,000. It was sold on February
1, 2016 for P 1,600,000.
g. On October 1, 2015, Machinery B was acquired with a down payment of P 86,100 and the
remaining payments to be made in 11 annual installments of P 90,000 each, beginning October
1, 2015. The prevailing interest rate was 8%. The following data were abstracted from present
values (rounded):
10 years 11 years 12 years
Building A:
Building B
Donated equipment:
Acquisition date: October 2, 2014
Salvage value: P 45,000
Depreciation method: 150% declining balance
Estimated life: 10 years
Machinery A
Acquisition date: October 2, 2014
Salvage value: P 90,000
Estimated life: 8 years
Depreciation method: SYD
Machinery B
Acquisition date: October 1, 2015
Salvage value: P0
Depreciation method: straight line
Estimated life: 20 years.
4. What is the depreciation expensed on Building A for the year ended Sept. 30, 2016?
Solution:
P261, 750 Depreciation expense 09/30/2016
6. What is the depreciation expense on Building B for the year ended Sept. 30, 2016?
Solution:
P0 Depreciation expense 09/30/2016
8. What is the depreciation expense on the donated equipment for the year ended Sep. 30, 2015?
Solution:
Double declining 150% / 10 years =15% x P450, 000= P67, 500 Depreciation expense 09/30/15
9. What is the depreciation expense on the donated equipment for the year ended Sep. 30, 2016?
Solution:
*P450, 000 – 67,500=P382, 500 CA 09/30/16
Double declining 150% / 10 years =15% x P382, 500=P57, 375 Depreciation expense 09/30/16
11. What is the depreciation expense on Machinery A for the year ended Sept. 30, 2015?
Solution:
1+2+3+4+5+6+7+8=36
P2, 250,000 – 90,000=P2, 160,000 x 8/36=P480, 000 Depreciation expense 09/30/15
12. What is the depreciation expense on Machinery A for the year ended Sept. 30, 2016?
Solution:
P2, 160,000 x 7/36 x 4/12 =P140, 000 Depreciation expense 09/30/16
13. What amount of gain (loss) should be recognized on the sale of Machinery A on Feb. 1, 2016?
Solution:
P2, 250,000 cost – P620, 000accum dep (480k+140k) =P1, 630,000 CA – P1, 600,000sold
=P30, 000 Loss on sale of Machinery A
15. What is the depreciation expense on Machinery B for the year ended Sept. 30, 2016?
Solution:
P780, 000 Cost /20 years=P39, 000 Depreciation expense of Machinery B