Intermediate Accounting 1

Problems

Submitted by:
Umabong, Ombrazar U.
Bantala, Jennelyn S.
Saupi, Fatra M.
Tanajora, Shecaina O.
CASH AND CASH EQUIVALENTS

1. Eggie Company had the following balances on December 31, 2019:

Cash in checking account

Cash in money market account
Treasury bill, purchased Nov. 1, 2019 maturing Jan. 31, 2020
Time deposit purchased Dec. 1, 2019 maturing March 31, 2020

What amount should be reported as cash and cash equivalents on December 31, 2019?
A. ₱1,100,000 C. ₱4,600,000
B. ₱3,850,000 D. ₱8,600,000

Answer: B

Cash in checking account

Cash in money market account
Treasury bill, purchased Nov. 1, 2019 maturing Jan. 31, 2020

2. Strawberry Company reported the following information in year-end:

 Share investments of ₱1,000,000 that are very actively traded in the stock market.
 Government treasury bills of ₱2,500,000 with a 10-year term but purchased on
December 31 at which they had two month to go until maturity.
 Cash of ₱4,400,000 in the form of coin, currency, saving account, and checking account.
 Commercial papers of ₱2,000,000 with term of nine months but purchased on December
31 at which they had three months to go until maturity.

Q1.What total amount should be reported as cash?

A. ₱3,400,000 C. ₱4,400,000
B. ₱4,900,000 D. ₱’5,400,000

Q2.What total amount should be reported as cash equivalent?

A. ₱2,000,000 C. ₱3,500,000
B. ₱1,500,000 D. ₱4,500,000

Answer:
Q1. C Q2. D
Cash - Coin, currency, saving, and checking

Government treasury bills

Commercial papers

3. Mahla Bohka Company reported an imprest petty cash fund of ₱50,000 with the
following details:

Currencies
Coins
Petty cash vouchers:
Gasoline payments for delivery equipment
Medical supplies for employees
Repairs of office equipment
Loans to employees
A check drawn by the entity payable to the order of Ms. Papan Sinka, petty
cash custodian, representing her salary
An employee check returned by the bank for insufficiency of fund
A sheet of paper with names of several employees together with contribution

What amount of petty cash fund should be reported in the statement of financial position?
A. ₱42,000 C. ₱37,000
B. ₱27,000 D. ₱22,000

Answer: B

Currencies
Coins
Check drawn to the order of the petty cash custodian

4. Philingsya Company had the following account balances on December 31, 2019.
Petty cash fund
Cash in bank - current account
Cash in bank - payroll account
Cash in bank - sinking fund
Cash on hand
Cash in bank - restricted account for plant addition and expected
to be disturbed in 2020

The petty cash fund included unreplenished December 2019 petty cash expense vouchers
₱5,000 and employee IOU ₱5,000.

The cash on hand included a ₱100,000 customer check payable to Philingsya dated January
15, 2020.
In exchange for a guaranteed line of credit, the entity has agreed to maintain a minimum
balance of ₱200,000 in the unrestricted current bank account.

The sinking fund is set aside to settle a bond payable that is due on June 30, 2020.

What total amount should be reported as cash and cash equivalents on December 31, 2019?
A. ₱9,990,000 C. ₱8,690,000
B. ₱7,490,000 D. ₱6,690,000

Answer: A

Petty cash fund

Unreplenished petty cash voucher
Employee IOU
ADJUSTED PETTY CASH

Cash on hand
Customer check postdated January 31, 2020
ADJUSTED CASH ON HAND

Petty cash fund

Cash on hand
Current account
Payroll account
Sinking fund

5. Bro. Kenhart Company provided the following information on December 31, 2019:
Cash on hand
Security Bank current account
PNB Current account No. 1
PNB Current account No. 2 (overdraft)

 The cash on hand included a customer postdated check of ₱100,000 and postal money
order of ₱40,000.
 A check for ₱200,000 in payment of account was drawn against Security Bank account,
dated January 15, 2020, delivered to the payee and recorded December 31, 2019.

What total amount of cash and cash equivalents should be reported on December 31, 2019?
A. ₱4,550,000 C. ₱4,750,000
B. ₱5,050,000 D. ₱1,950,000

Answer: A
Cash on hand (500,000 - 100,000 postdated ckeck)
Security Bank current account (1,000,000 + 200,000)
PNB Current account No. 1
PNB Current account No. 2 (overdraft)
BSP treasury bill - 60 days

TRADE AND OTHER RECEIVABLES

6. Captain Company provided the following information relating to accounts receivable for
the current year:

Accounts receivable - January 1

Credit sales
Collections from customers, excluding recovery
Collection of accounts written off in prior year
(customer credit was not reestablished)
Accounts written off

What is the balance of accounts receivable, before allowance for doubtful accounts on
December 31?
A. ₱1,825,000 C. ₱1,950,000
B. ₱1,850,000 D. ₱1,990,000

Answer: A
Accounts receivable - January 1
Credit sales
Total
Collections from customers, excluding recovery 4,750,000.00
Accounts written off 125,000.00

7. Dimag Aling Company prepared an aging of accounts reveivable on December 31 and

determined that the net realizable value of the accounts receivable was ₱2,500,000

Allowance for doubtful accounts - January 1

Accounts written off as uncollectible
Accounts receivable - December 31
Uncollectible accounts recovery

What amount should be recognized as doubtful account expense for the current year?
A. ₱230,000 C. ₱150,000
B. ₱200,000 D. ₱100,000

Answer: D

Allowance for doubtful accounts - January 1

Uncollectible accounts recovery
Doubtful account expense (SQUEEZE)
Total
Accounts written off as uncollectible

8. Wonwoo Company provided the following pertaining to accounts receivable at year-end:

Days outstanding Estimated Amount

0 - 60 1,200,000.00
61 - 120 900,000.00
Over 120 1,000,000.00

During the current year, the entity wrote off ₱70,000 in accounts receivable and recovered
₱40,000 that had been written off in prior years.

At the beginning of current year, the allowance for uncollectible accounts was ₱100,000.
Under the aging method, what amount of allowance for uncollectible accounts should be
reported at year-end?
A. ₱190,000 C. ₱130,000
B. ₱100,000 D. ₱ 90,000

Answer: D

0 - 60 (1,200,000 x 1%)
61 - 120 (900,000 x 2%)
Over 120

9. Candy Crush Company has an 8% note receivable dated June 30, 2019, in the original
amount of ₱1,500,000.

Payments of ₱500,000 in principal plus accrued interest are due annually on July 1, 2020, 2021,
and 2022.

Q1. What is the balance of note receivable on July 1, 2020?

A. ₱1,500,000 C. ₱ 500,000
B. ₱1,000,000 D. ₱ 0

Q2. In the June 30, 2021 statement of financial position, what amount should be reported as
a current asset for interest on the note receivable?
A. ₱ 120,000 C. ₱ 80,000
B. ₱ 40,000 D. ₱ 0

Answer:
Q1. B

Note receivable, June 30, 2019

Payment on July 1, 2020
NOTE RECEIVABLE, JULY 1, 2020
Q2. C

Accrued interest receivable - June 30, 2021 (1,000,000 x 8%)

10. National Bank granted a 10-year loan to Mingo Company in the amount of ₱1,500,000
with a stated interest rate of 6%. Payments are due monthly and are computed to be
₱16,650.
National Bank incurred ₱40,000 of direct loan origination cost and ₱20,000 of indirect loan
origination cost.

In addition, National Bank, charged Mingo Company a 4-point nonrefundable loan origination
fee.

Q1. What is the initial carrying amount of the loan receivable on the part of National Bank?
A. ₱1,440,000 C. ₱1,500,000
B. ₱1,480,000 D. ₱1,520,000

Q2. What is the initial carrying amount of the loan payable on the part of Mingo Company?
A. ₱1,440,000 C. ₱1,500,000
B. ₱1,480,000 D. ₱1,520,000

Answer:

Q1. B

Loan receivable
Direct origination cost
Total
Origination fee received from borrower (1,500,000 x 4%)

Q2. A

Loan payable
Origination fee charged by the bank
CARRYING AMOUNT

INVENTORIES

11. Ice Cream Cake Company incurred the following costs:

Materials
Storage costs of finished goods
Delivery to customers
Irrecoverable purchase taxes

At what amount should the inventory be measured?

A. ₱880,000 C. ₱980,000
B. ₱760,000 D. ₱940,000

Answer: B

Materials
Irrecoverable purchase taxes
TOTAL COST OF INVENTORY

12. At year-end, Bb boi Company purchased goods costing ₱500,000 FOB destination.
These goods were received at year-end. The costs incurred in connection with the sale
and delivery of the goods were:

Packaging for shipment

Shipping
Special handling charges

What total cost should be included in inventory?

A. ₱545,000 C. ₱520,000
B. ₱535,000 D. ₱500,000

Answer: D

When goods are purchased FOB destination, the seller is responsible for costs incurred in
transporting the goods to the buyer.

13. On October 1, 2019, Soon Tuhk Yuh Company consigned 40 freezers to Pah Nget Yuh
Company costing ₱14,000 each for sale at ₱20,000 each and paid ₱16,000 I
transporting costs.

On December 30, 2019, Pah Nget Yuh Company reported the sale of 10 freezers and remitted
₱170,000. The remittance was net of the agreed 15% commission.

What amount should be recorded as consignment sales revenue for 2019?

A. ₱154,000 C. ₱196,000
B. ₱170,000 D. ₱200,000

Answer: D

Freezers sold (10 x ₱20,000) = 200,000

14. JYP Company had the following transactions during December:

Inventory shipped on consignment to Kahla Yaahn Company
Freight paid by Puhn Yeh Tah
Inventory received on consignment from Henhe Rhaluhna Company
Freight paid by Henhe Rhaluhna

No sales of consigned goods were made in December.

What amount should be included in inventory on December 31?

A. ₱1,200,000 C. ₱1,800,000
B. ₱1,250,000 D. ₱1,890,000

Answer: D

Inventory shipped on consignment to Kahla Yaahn Company

Freight paid by Puhn Yeh Tah
TOTAL COST OF CONSIGNED INVENTORY

15. On December 1, 2019, Fee Lihn Gera Department Store received 505 sweaters on
consignment from Fee Lihn Pohgi. Fee Lihn Pohgi’s cost for the sweaters was ₱800
each, and they were priced to sell at ₱1,000.

Fee Lihn Gera’s commission on consigned goods is 10%. On December 31, 2019, 5 sweaters
remained.

On December 31, 2019, what amount should be reported as payable for consigned goods?
A. ₱490,000 C. ₱450,000
B. ₱454,000 D. ₱404,000

Answer: C

Payable for consigned goods (500,000 - 50,000 commission)

Property, Plant, and Equipment

16. Eggiepie Company purchased a high-speed industrial centrifuge at a cost

₱920,000. Shipping cost amounted to ₱65,000. Foundation work to house the
centrifuge cost ₱85,000. An additional water line had to be run to the equipment at cost
of ₱50,000. Labor and testing cost totaled ₱70,000. Materials used up in testing cost
₱37,500.
What is the capital cost of the equipment?
A. ₱1,267,500 C. ₱1,227,500
B. ₱1,207,000 D. ₱1,217,500

Answer: C

Solution:
Acquisition cost 920,000
Shipping cost 65,000
Foundation work cost 85,000
Water line 50,000
Labor and testing cost 70,000
Materials used in testing 37,500
Total cost ₱1,227,500

17. Daeyoung Company purchased a new machine on a deferred payment basis. A

down payment of ₱120,000 was made and four monthly installments of ₱280,000 are to
be made at the end of each month. The cash equivalent price of the machine was
₱1,000,000. The entity incurred and paid installation costs amounting to ₱40,000.

What is the amount to be capitalized as cost of the machine?

A. ₱1,000,000 C. ₱1,280,000
B. ₱1,040,000 D. ₱1,440,000

Answer: B
Solution:
Cash price 1,000,000
Installation cost 40,000
Total cost 1,040,000

18. HYBE Company purchased a ten-ton draw press at a cost of ₱3,600,000 with
terms of 5/15, n/45. Payment was made within the discount period.

Shipping cost was ₱90,000 that included ₱4,000 for insurance in transit. Installation
cost totalled ₱240,000 that included ₱80,000 for taking out a section of a wall and
rebuilding it because the press was too large for the doorway.

What is the capitalized cost of the ten-ton draw press?

A. ₱3,420,000 C. ₱3,750,000
B. ₱3,670,000 D. ₱3,715,200

Answer: C

Solution:
Purchase price net of discount (3,600,000 x 95%) 3,420,000
Shipping cost 90,000
Installation cost 240,000
Total cost 3,750,000

19. MegaLand Construction has building construction as their own revenue-

generating activity. The entity decided to construct a new administrative office building.
The following relevant cost information is provided:

Buildings for clients Building for own use

Direct materials used 50,000,000 10,000,000
Direct labor cost incurred 30,000,000
6,000,000

Total overhead 27,000,000

Megaland normally applies overhead at 80% of direct labor cost. What is the total cost
of both constructions if overhead is applied normally to buildings for clients and the
incremental amount is applied to building for own use.
A. 80,000,000 and 16,000,000 C. 93,500,000 and
29,500,000
B. 102,500,000 and 20,500,000 D. 104,000,000 and 19,000,000

Answer: D

Solution:
Buildings for clients Building for own
use
Direct materials used 50,000,000 10,000,000
 Direct labor cost incurred 30,000,000
6,000,000
Overhead
Client (30,000,000x80%) 24,000,000
Own use (27,000,000-24,000,000) 3,000,000
Total cost 104,000,000
19,000,000

20. Mochii Company exchanged their old equipment for a new one. The transaction
is deemed to have commercial substance. The following information is made available:
Used Equipment
Original cost 1,500,000
Accumulated Depreciation 500,000
Fair value 1,200,000

New Equipment
List price 1,800,000
Trade-in allowance 800,000

From the given information, what amount will be recorded as cost of the new
equipment?
A. 1,800,000 C. 2,600,000
B. 2,200,000 D. 1,500,000

Answer: B
Solution:
List price of the new equipment 1,800,000
Trade in allowance (800,000)
Cash payment needed 1,000,000
Fair value of the used equipment 1,200,000
Cost of new equipment 2,200,000

LAND, BUILDING AND MACHINERY

21. At the beginning of current year, Bach Company purchased for P 4,500,000 a tract of
land a factory site. An existing building on the property was razed and construction began on a
new factory building which was completed at year ended.
Cost of razing old building 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000

1. What is the cost of factory building? 9,250,000

2. What is the cost of the land? 4,700,000

22. Mozart Company purchased a P4,000,000 tract of land as a factory site.

The entity razed an old building on the property and sold the materials is salvaged from the
demolition.

Demolition of old building 200,000

Legal fees for purchase contract and recoding title 150,000
Title guarantee insurance 50,000
Proceeds from sale of a salvaged materials 20,000

1. What is the initial carrying amount of land? 4,200,000

23. Negros Company acquired a new machinery.

Invoice price of the machinery 1,400,000

Cash discount available but not taken on purchase 20,000
Freight paid on the new machinery 40,000
Cost of removing the old machinery 15,000
Installation cost of the new machinery 50,000
Testing cost before the machinery was put into
regular operation including P10,000 in wages
of the regular machinery operator 30,000
Loss on premature retirement of the old machinery 5,000
Estimated cost of manufacturing similar machinery including overhead 1,300,000

What amount should be capitalized as cost of new machinery?

a. 1,500,000 b. 1,490,000 c. 1,515,000 d. 1,520,000

Solution: Answer a

List price 1,400,000

Cash discount (20,000)
Freight 40,000
Installation cost 50,000
Testing cost 30,000
Total cost 1,500,000

The cost of removing the old machinery is treated as outright expense. The cash discount is
deducted from the cost of the machinery regardless of whether taken or not taken.

24. Shaw Company purchased a machine for P1,260,000 that was placed in service at year-
end. The entity incurred additional costs for this machine.

Shipping 30,000

Installation 40,000

Testing 50,000

At year-end, what amount should be reported as machinery?

a. 1,260,000 b. 1,290,000 c. 1,330,000 d. 1,380,000

Solution: Answer d

All costs are capitalizable.

25. Altitude Company purchased a plot of land for P2,000,000 as a plant site. There was a
small office building on the plot with a fair value of P700,000 which the entity will continue to
use with some modification and renovation. The entity decided to construct a factory building
and incurred the following costs:

Materials and supplies 3,000,000

Excavation 100,000

Labor on construction 2,500,000

Cost remodeling office building 300,000

Legal cost of conveying land 50,000

Cash discounts on materials purchased 60,000

Supervision by management 70,000

Compensation insurance premium for workers 20,000

Clerical and other expenses related to construction 30,000

Plans and specifications 340,000

Payment for claim for injuries not covered by insurance 25,000

Legal cost of injury claim 15,000

1. What amount should be recorded as cost of land?

a. 1,350,000 b. 1,300,000 c. 1,450,000 d. 1,410,000

2. What amount should be recorded as cost of office building?

a. 1,050,000 b. 1,000,000 c. 700,000 d. 850,000

3. What amount should be recorded as cost of factory building?

a. 5,920,000 b. 6,120,000 c. 6,000,000 d. 5,800,000

Solution:

Question I: Answer a

Purchase price allocated to land 1,300,000

Legal cost of conveying land 50,000

Total cost of land 1,350,000

Purchase price of land and office building 2,000,000

Fair value of office building ( 700,000)

Purchase price allocated to land 1,300,000

Question 2: Answer b

Purchase price equal to fair value 700,000

Cost of remodeling 300,000

Total cost of office building 1,000,000

Question 3: Answer c
Materials and supplies 3,000,000

Excavation 100,000

Labor on construction 2,500,000

Cash discount ( 60,000)

Supervision by management 70,000

Compensation insurance 20,000

Clerical and other expenses related to construction 30,000

Plans and specifications 340,000

Total cost of factory building 6,000,000

GOVERNMENT GRANTS

26. On January 1, 2023, Sani Company purchased a plating machine for 5,500,000. The
entity received a government grant of 500,000 towards this capital cost.

The machine is to be depreciated on a 20% reducing balance basis over 10 years the estimated
residual value is 200,000.

The accounting policy is to treat the grant as a reduction in the cost of the asset.

1. What amount should be recorded as accumulated depreciation on Dec. 31, 2024?

A.1,200,000
B. 1,444,000
C. 1,800,000
D. 2,000,000

2. What is the carrying amount of the machine on Dec. 31, 2024?

A. 4,000,000
B. 4,050,000
C. 3,458,000
D. 3,200,000

Solution: 1.) C 2.) D

Cost 5,500,000
Government grant. 500,000
Net cost. 5,000,000
Accumulated depreciation Dec. 31, 2024
2023 (5,000,000x20%) 1,000,000
2024 (4,000,000x20%) 800,000. 1,800,000
Carrying amount Dec.31,2024 3,200,000

27. Sarah Company purchased a vanishing machine for 6,000,000 on Jan 01, 2011. The
entity received a government grant of 540,000 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.

1. What should be reported as carrying amount of the machine and deferred income,
respectively on Dec. 31, 2012?

A. 3,000,000 270,000
B. 4,500,000 405,000
C. 3,270,000. 270,000
D. 3,000,000 540,000

Solution: A

Cost 6,000,000
Accumulated depreciation
(6,000,000 / 4 x 2) 3,000,000
Carrying amount Dec. 31, 2012 3,000,000

Deferred income. 540,000

Income earned
(540,000/4x2). 270,000
Dec. 31, 2012. 270,000

28. Strawberry Company purchased a machine for 7,000,000 on Jan. 1, 2021 and received
a government grant of 1,000,000 toward the capital cost. The machine is to be depreciated on a
straight line basis over 5 years and estimated to have a residual value of 500,000 at the end of
this period. The accounting policy is to treat the grant as a deferred income.

1. What is the carrying amount of the asset on Dec. 32, 2022?

A. 4,200,000
B. 5,000,000
C. 4,400,000
D. 3,900,000

2. What is the deferred income on Dec. 31, 2022?

A. 400,000
B. 800,000
C. 600,000
D. 0

Solution:
1.C

Acquisition cost. 7,000,000

Accumulated depreciation
(7,000,000-500,000/5x2) (2,600,000)
Carrying amount Dec. 31, 2022. 4,400,000

3. C

Government grant. 1,000,000

Income recognized
( 1,000,000/5x2). 400,000
Deferred income Dec. 31, 2022 600,000

29. Hobi Company purchased a jewel polishing machine for 3,600,000 on Jan. 01,2023 and
received a government grant of 500,000 toward the capital cost. The accounting policy is to
treat the grant as a reduction in the cost of the asset.

The machine is to be depreciated on a straight line basis over 8 years and estimated to have a
residual value of 100,000 at the end of this period.

1.What amount should be recorded as depreciation of the for 2023?

A. 387,500
B. 500,000
C. 437,500
D. 375,000
Solution: answer D

Cost. 3,600,000
Government grant ( 500,000)
Net cost 3,100,000
Residual value ( 100,000)
Depreciable amount 3,000,000

Annual Depreciation ( 3,000,000/8). 375,000

Investment on equity securities

30. SM Company acquired trading equity instrument for 4,000,000 on April 30, 2018. The
equity investment is classified as financial asset at fair value at profit or loss. The transaction
cost incurred amounted to 700,000. On December 31, 2018, the fair value of the instrument
was 5,500,000.
What amount of gain should be recognized in the income statement for the year ended
December 31, 2018?
A. 4,700,000
B. 6,200,000
C. 1,500,000
D. 1,000,000
Answer: C
Solution:
Fair value 5,500,000
Acquisition (4,000,000)
1,500,000
31. Shibuya Company acquired non-trading equity instrument for 4,000,000 on April 30,
2018. The equity instrument is classified as financial asset at fair value through other
comprehensive income. The transaction cost incurred amounted to 700,000. On December 31,
2018, the fair value of the instrument was 5,500,000.
What amount of gain should be recognized in other comprehensive income for the year ended
December 31, 2018?
A. 800,000
B. 200,000
C. 700,000
D. 1,500,000

Answer: A
Solution:
Acquisition cost 4,000,000
Transaction cost 700,000
Cost of the equity instrument 4,700,000

Fair value 5,500,000

Cost of the equity instrument (4,700,000)
Gain recognised in OCI 800,000

32. LL Company sold 10,000 shares of security Y on January 15, 2019, for P150 per share.
During 2018, LL Company purchased trading securities with the following cost and market value
on December 31, 2018:

Security Cost Market value

X – 1,000 shares 200,000 300,000
Y – 10,000 shares 1,700,000 1,600,000
Z – 20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000
The company sold 10,000 shares of security Y on January 15, 2019, for P150 per share. What
amount should be reported as gain or loss on sale of trading securities in 2019?

A. 300,000
B. (100,000)
C. (300,000)
D. 100,000
Answer: B
Solution:
Selling price 1,500,000
Market value (1,600,000)
Reported loss (100,000)

33. On December 31, 2018, SS Company appropriately reported a 100,000 unrealized loss.
There was no change during 2019 in the composition of the portfolio of non-trading equity
securities held at fair value through other

INVESTMENT IN ASSOCIATES
35. At the beginning of the current year, Kookie Company purchased 30,000 shares of an
investment’s 200,000 outstanding ordinary shares for 6,000,000. On the date, the carrying amount of
the acquired shares was 4,000,000.

Kookie Company attributed the excess of cost over carrying amount to patent. The patent has a
remaining useful life of 10 years.

During the current year, Kookie Company’s officers gained a majority of the investee’s board of directors.

The investee reported earnings of 5,000,000 for the current year and declared and paid dividend of
3,000,000 at year – end.

1. What is the carrying amount of the investment in associate at year end?

Solution:

Acquisition cost. 6,000,000

Carrying amount of net assets acquired (4,000,000)

Excess of cost applicable to patent. 2,000,000

Share in net income (5,000,000 x 15%). 750,000

Amortization of patent (2,000,000 / 10). (200,00)

Investment income. 550,000

Interest acquired ( 30,000 / 200,000 ). 15%

Acquisition cost. 6,000,000

Inv income 550,000

Share in cash dividend

(3,000,000 x 15%) ( 450,00 )

Carrying amount of Inv. In Assoc. 6,100,000

36. At the beginning of the current year, Mang Company purchased 10% of Tata Company’s ordinary
shares for 4,000,000. Mang Company is the largest single shareholder in Tata Company and Mang
Company’s officers are a majority of Tata Company’s board of directors. The investee reported net
income of 5,000,000 for the current year and paid cash dividend of 1,500,000.

What amount should be reported as investment in Tata Company at year end?

Solution:

Acquisition, Jan 1 4,000,000

Share in net income

(5,000,000 x 10%). 500,000

Share in cash dividend

(1,500,000 x 10%). 150,000

Carrying amount of inv, ______________

Dec. 31 4,350,000

RETAIL PRICE METHOD

37. Revamonte Company purchased a tract of land for 13,000,000. The entity incurred cost of
2,000,000 during the remainder of the year in preparing the land for sale. The tract of land was
subdivided into residential lots.

Lot class Number of lots Sales price per lot

A 100 240,000

B 100 160,000

C 200 100,000

1.Using the relative sales value method, what amount of cost should be allocated to Class A lots?

A. 3,750,000

B. 3,500,000

C. 6,000,000

D. 8,000,000

Solution: C

Sales price Fraction Allocated cost

A (100x240,000) 24,000,000 24/60 6,000,000

B (100x160,000) 16,000,000 16/60 4,000,000

C (200x100,000) 20,000,000 20/60 5,000,000

60,000,000 15,000,000
38. Moo Company purchased a plot of ground for 19,000,00. The entity also paid an independent
appraiser for the land the amount of 500,000.

The land was developed as a residential lots at a total cost of 40,500,000.

Numbers of lots Sales price per lot

Highland 20 1,000,000

Midland 40 750,000

Lowland 100 500,000

What total cost should be allocated to Highland lots?

A. 12,000,000

B. 11,900,000

C. 8,400,000

D. 8,300,000

Solution: A

Sales price Fraction Total cost

Highland (20x1,000) 20,000,000 20/100 12,000,000

39. Galaxy company bought a 10-hectare land for 5,600,000 to be improved, subdivided into lots and
eventually sold. Taxes and documentation expenses on the transfer of the property amounted to
280,000.

Lot class/ # of lots/ Selling price per lot/ Total clearing cost

A 10 100,000 none

B 20 80,000 100,000

C 40 70,000 300,000

D 50 60,000 800,000
What amount should be allocated as total cost of Class B lots under relative sales price method?

A. 1,176,000

B. 1,220,000

C. 1,276,000

D. 1,700,000

Solution: B

Sales price Fraction Allocated cost

A (10x100,000) 1,000,000 10/84 700,000

B (20x80,000) 1,600,000 16/84 1,120,000

C (40x70,000) 2,800,000 28/84 1,960,000

D (50x60,000) 3,000,000 30/84 2,100,000

Allocation cost of Class B 1,120,000

Clearing cost of Class B 120,000

Total cost. 1,220,000

Purchased price 5,600,000

Taxes and documentation 280,000

Total cost to be allocated 5,880,000

40. During the current year, Rex Development Company purchased a tract of land for 9,000,000.
Additional cost of 1,500,000 was incurred in subdivision the land during the current year.

Of the acreage, 70% was subdivided into residential lots and 30% was conveyed to the city for road and a
park.

Lots class Number of lots Sales price per lot

A 100 120,000

B 100 80,000
C 200 50,000

Under the relative sales value method, what amount should be allocated as cost to each Class A lots?

A. 29,500

B. 42,000

C. 36,000

D. 26,350

Solution: B

Sales price Fraction Allocated cost

A (100x120,000) 12,000,000 12/30 4,200,000

B (100x80,000) 8,000,000 8/30 2,800,000

C (200x50,000) 10,000,000 10/30 3,500,000

30,000,000 10,500,000

Purchased price of land 9,000,000

Additional cost. 1,500,000

Total cost 10,500,000

Cost oc class A per lot ( 4,200,000x100) 42,000