EXERCISE PPE

1. A machinery is acquired by X Company at a cash price of P500,000. In addition to the cash

payment, the company pays for the following costs in connection with the machinery:
transportation, P30,000; installation cost, P20,000 and cost of trial runs, P15,000. The entry to
record the acquisition of the machinery includes a debit to machinery at:

a. 500,000 c. 550,000

b. 535,000 d. 565,000

2. Land and building are acquired by Y Company at a single cost of P6,000,000. At the time of
acquisition, the land has a fair value of P1,650,000 and the building, P3,850,000. The cost
allocated to land is

a. 1,650,000 c. 3,000,000

b. 1,800,000 d. 4,200,000

3. On August 1, 2019, Windows Company purchased a new machine on a deferred payment basis.
A down payment of P200,000 was made and 4 monthly installments of P300,000 each are to be
made beginning on September 1, 2019. The cash equivalent price of the machine was
P1,200,000. Windows incurred and paid installation costs amounting to P50,000. The amount to
be capitalized as the cost of the machine is

a. 1,200,000 c. 1,250,000

b. 1,400,000 d. 1,450,000
4. An equipment is purchased for P200,000, 3/10, n/30. The acquisition cost of the equipment
should be recorded at

a. 200,000 c. 206,000

b. 194,000 d. 204,000

5. A machinery is purchased by Z Company at an installment price of P600,000. The terms are

P150,000 down and the balance payable in three equal annual installments. The cash price of
the machinery is P480,000. A promissory note is issued for the installment balance of P450,000.
At the time of acquisition, machinery should be debited at

a. 600,000 c. 480,000

b. 450,000 d. 630,000

6. A machinery is acquired by A Company at an installment price of P450,000. The terms are

P150,000 down and the balance payable in three equal annual installments. A note is issued for
the balance of P300,000. There is no available cash price for the machinery. The implied interest
rate is 12%. The present value of an ordinary annuity of 1 is 2.402 for three periods. The
acquisition cost of the machinery is

a. 450,000 c. 240,200

b. 300,000 d. 390,200
7. On December 30, 2019, Eagle Company purchased a machine from Power Corporation in
exchange for a noninterest bearing note requiring eight payments of P300,000. The first
payment was made on December 30, 2019, and the others are due annually on December 30. At
date of insurance, the prevailing rate of interest for this type of note was 11%. Present value
factors are as follows:

Period Present value of ordinary annuity of 1

At 11% Present value of annuity in advance of 1 at 11%

7 4.712 5.231

8 5.146 5.712

On December 31, 2019 statement of financial position, the note payable to Power was

a. 1,243,800 c. 1,413,600

b. 1,269,300 d. 1,713,600

8. A piece of land is acquired by B Company by issuing 25,000 share of common stock with par
value of P60. At the time of acquisition, the fair value of the land is properly determined to be
P2,000,000 and the stock is quoted at P100 per share. The entry to record the acquisition
includes a debit to land at

a. 2,500,000 c. 1,000,000

b. 1,500,000 d. 2,000,000

9. Alaska Company acquired several fixtures for its new building, including display cases, shelves
and hanging racks. The invoice price of the fixtures was P800,000. The company received a 3%
cash discount by paying within the discount period. Freight and insurance during shipment
totaled P5,000. Costs of assembling and installing fixtures were P5,000. While installing a display
case, a new employee carelessly broke a glass top. This top was replaced at a cost of P5,000.
What is the total cost of the fixtures?

a. 791,000 c. 781,000

b. 786,000 d. 776,000
EXCHANGE OF ASSETS

10. XYZ and ABC exchanged equipment as follows:

XYZ ABC

Equipment 1,500,000 2,000,000

Accumulated depreciation 600,000 1,100,000

Book value 900,000 900,000

Fair value 800,000 1,100,000

Cash paid by XYZ to ABC 300,000 300,000

The expected cash flows of the asset received differ from the cash flows of asset transferred The
acquisition cost of the new equipment in the books of XYZ is

a. 1,200,000 c. 1,100,000
b. 900,000 d. 800,000

11. In No. 10, the acquisition cost of the new equipment in the books of ABC is.

a. 1,200,000 c. 1,100,000

c. 900,000 d. 800,000

12. Company X and Company Y exchanged equipment as follows:

Company X Company Y

Equipment 600,000 750,000

Accumulated depreciation 330,000 375,000

Book value 270,000 375,000

Fair value 300,000 400,000

Cash paid by X to Y 30,000 transferred

The expected cash flows of the asset received do not differ from the cash flows of asset transferred.

The acquisition cost of the new equipment in the books of X is

a. 300,000 c. 330,000

b. 270,000 d. 375,000

13. In No. 12, the acquisition cost of the new equipment in the books of Y is.
a. 345,000 c. 400,000
c. 300,000 d. 405,000

14. In October 2019 Iloilo Company exchanged an old packaging machine, which cost P1,400,000
and was 50% depreciated, for another used machine and paid a cash difference of P200,000.
The fair value of the old packaging machine was determined to be P800,000. What is the cost of
the new asset acquired?

a. 800,000 c. 900,000

b. 1,000,000 d. 700,000

15. A Company traded an old equipment with a dealer for newer model. The pertinent data are: Old
equipment:

The acquisition cost in the books of A is

a. 300,000 c. 1,600,000

b. 2,050,000 d. 1,900,000
16. Y Company and Z Company are fuel oil distributors. To facilitate the delivery, of oil to their
customers, Y and Z exchanged ownership of 1,000 barrels of oil without physically moving the
oil. Y paid Z P500,000 to compensate for a difference in the grade of oil. It is reliably determined
that the exchange lacks commercial substance. On the date of the exchange, cost and market
value of the oil were as follows:

Y Company Z Company

Cost 2,000,000 2,300,000

Market value 2,200,000 2,700,000

Y Company shall record the oil inventory received in exchange at.

a. 2,000,000 c. 2,300,000

b. 2,500,000 d. 1,800,000

17. In No. 16, Z Company shall record the oil inventory received in exchange at

a. 1,800,000 c. 2,000,000

b. 2,300,000 d. 2,700,000

***END***

GOVERNMENT GRANTS

18. ABC Company receives a grant of P10,000,000 from the national government for the purpose of
defraying safety and environmental expenses over the period of three years. The safety and
environmental expenses will be incurred by ABC as follows:

First year 1,000,000

Second year 3,000,000

Third year 4,000,000

8,000,000

The deferred income balance at the end of first year is

a. 0 c. 8,000,000
b. 8,750,000 d. 10,000,000
19. ABC Company receives a grant of P20,000,000 from the Australian government for the
acquisition of a chemical facility with an estimated cost of P50,000,000 and useful life of 5 years.
The deferred income balance at the end of first year is

a. 0 c. 20,000,000
b. 30,000,000 d. 16,000,000

20. ABC Company is granted a large tract of land in Mindanao by the national government. The fair
value of the land is P50,000,000. The grant requires that ABC should construct a refinery on the
site. The cost of the refinery is estimated to be P80,000,000 and the useful life is 25 years. The
deferred income balance at the end of first year is

a. 0 c. 50,000,000
b. 2,000,000 d. 48,000,000

21. ABC Company receives grant of P20,000,000 from the USA government to compensate for
massive losses incurred because of a recent earthquake. The deferred income balance at the
end of the year the grant was given

a. 0 c. 10,000,000
b. 20,000,000 d. 15,000,000

***END***

BORROWING COST

22. On January 1 of the current year, ABC Company obtained a loan of P2,000,000 at an interest
rate of 12%, especially to finance the construction of its new building.

Availments from the loan were made quarterly in equal amounts. Total borrowing cost amounted to
P150,000 for the current year.

Prior to their disbursement, the proceeds of the borrowing were temporarily invested and earned
interest income of P20,000.

The capitalizable borrowing cost is

a. 130,000 c. 240,000
b. 150,000 d. 170,000
23. ABC Company had the following borrowings on January 1 of the current year. The borrowings
were made for general purposes and the proceeds were partly used to finance the construction
of a new building.

Principal Borrowing cost

10% bank loan 1,800,000 180,000

10% short-term note 1,500,000 150,000

12% long-term loan 2,500,000 300,000

. 5,800,000 630,000

The construction of the building was started on January 1 and was completed on December 31 of the
current year. Expenditures on the building were made as follows:

January 1 300,000

March 31 1,000,000

June 30 1,000,000

September 30 1,000,000

December 31 200,000

Total cost 3,500,000

The capitalizable borrowing cost is

a. 197,327 c. 195,517
b. 380,172 d. 630,000

24. On January 1 of the current year, ABC Company borrowed P1,200,000 at an interest of 12%
specifically for the construction of a new building. The actual borrowing cost on this loan is
P144,000 but interest of P24,000 was earned from the temporary investment of the proceeds
prior to their disbursement.

ABC Company also had the following other loans in the current year which were borrowed for general
purposes but the proceeds were used in part for the construction of the building.

Principal Borrowing cost

10% short-term note 1,000,000 50,000

12% long-term note 1,500,000 180,000

2,500,000 230,000

The construction of the building was started on January 1 and was completed on December 31 of the
current year. Expenditures on the construction were made as follows:
January 1 250,000

April 1 500,000

May 1. 900,000

September 1 900,000

December 31 250,000

Total cost 3,000,000

The capitalizable borrowing cost is

a. 144,000 c. 149,900
b. 120,000 d. 260,300

***END***

LAND AND BUILDING

25. Bare Company acquired land on April 1, 2019 on which a new building will be immediately
constructed. The costs related to the acquisition include:

Cash payment 3,000,000

Broker’s fee 70,000

Option paid for the land acquired 30,000

Option paid for an alternative land not acquired 20,000

Delinquent property taxes for 2018 assumed and paid 40,000

Property taxes for 2019 which will be paid on or before December 31, 2019 50,000

What is the proper cost of the land?

a. 3,140,000 c. 3,190,000
b. 3,152,500 d. 3,200,000
26. Wee Company acquired land and building for P6,000,000 on October 1, 2019. The land was
appraised at P2,600,000 and the building at P3,900,000. Unpaid property taxes assumed by Wee
amounted to P300,000. Additional costs incurred were:

Building renovation 600,000

Option on alternative land and building not acquired 60,000

Cost of survey 10,000

What is the proper cost of the land for financial accounting purposes?

A. 2,410,000 c. 2,520,000

c. 2,525,000 d. 2,530,000

27. B Company purchased a P5,000,000 tract of land for a factory site. The entity razed an old
building on the property to make room for the construction of new building and sold the
materials salvaged from the demolition. The entity incurred additional costs and realized salvage
proceeds as follows:

Demolition of old building. 300,000

Legal fees for purchase contract and recording ownership 200,000

Title guarantee insurance 70,000

Proceeds from sale of salvaged materials 30,000

What is carrying amount of the land?

a. 5,540,000 c. 5,200,000
b. 5,270,000 d. 5,570,000

28. During the current year, C Company had the following transactions pertaining to a new office
building:

Purchase price of land 700,000

Legal fees for contract to purchase land 30,000

Architect fee 100,000

Demolition of old building on site to make room for

Construction of new building 80,000

Sale of scrap from old building. 20,000

Construction cost of new building fully completed. 4,000,000

What amount should be reported as cost of building?

a. 4,160,000 c. 4,000,000

b. 4,200,000 d. 4,180,000

***END***