1. Merry Co.

purchased a machine costing ₱125,000 for its manufacturing operations and paid shipping
costs of ₱20,000. Merry spent an additional ₱10,000 testing and preparing the machine for use. What
amount should Merry record as the cost of the machine?
a. 155,000
b. 145,000
c. 135,000
d. 125,000

Solution:
Purchase price 125,000
Transportation cost 20,000
Testing cost 10,000
Initial cost of machine 155,000

ANSWER: A.155,000

2. Peterson, Inc. purchased a machine under a deferred payment contract on December 31,
20x1. Under the terms of the contract, Peterson is required to make eight annual payments
of ₱140,000 each beginning December 31, 20x2. The appropriate interest rate is 8%. The
purchase price of the machine is
a. 1,389,190
b. 1,120,000
c. 868,900
d. 804,520

Solution:
Present value of note payable
Future cash flow (140k/8) 17,500
Multiply by: PV of ordinary annuity of Ᵽ1 @8%, n=8 5.746638
Initial cost of machine 100,566
Multiply by: 8 annual payments 8
Purchase price of machine 804,529

ANSWER: D. 804,520

3. Marburg Manufacturing Company purchased a machine on January 2, 20x2. The invoice price of the
machine was ₱40,000, and the vendor offered a 2 percent discount for payment within ten days. The
following additional costs were incurred in connection with the machine:

Transportation-in 1,200
Installation cost 700
Testing costs prior to regular operation 550

If the invoice is paid within the discount period, Marburg should record the acquisition cost of
the machine at
a. 41,650
b. 41,100
c. 40,400
d. 39,200

Solution:
Invoice price 40,000 40,000
Multiply by: 2% less: 800
800 Acquisition cost 39,200
ANSWER: D. 39,200

4. On July 1, 20x1, Town Company purchased for ₱540,000 a warehouse building and the land on which it
is located. The following data were available concerning the property:
Current appraised value Seller’s original cost
Land 200,000 140,000
Warehouse building 300,000 280,000
Totals 500,000 420,000

Town should record the land at

a. 140,000
b. 180,000
c. 200,000
d. 216,000

Solution: land warehouse

Purchase price (540k x 200k/500k);(540k x 300/500) 216,000 324,000
Totals 216,000 324,000

ANSWER: D. 216,000

5. The Oscar Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum
price of ₱180,000. At the time of acquisition, Oscar paid ₱12,000 to have the assets appraised. The appraisal
disclosed the following values:
Land 120,000
Buildings 80,000
Equipment 40,000

What cost should be assigned to the land, buildings, and equipment, respectively?
a. 64,000, 64,000, and 64,000
b. 90,000, 60,000, and 30,000
c. 96,000, 64,000, and 32,000
d. 120,000, 80,000, and 40,000

Solution: Land Buildings Equipment

Purchase price(192k x120k/240k);(192kx80k/240k);(192kx40k/240k) 96,000 64,000 32,000
Totals 96,000 64,000 32,000

ANSWER: C. 96,000, 64,000 and 32,000

6. On December 1, 20x1, Boyd Co. purchased a ₱400,000 tract of land for a factory site. Boyd razed an old
building on the property to make way for the construction of the new factory. Boyd sold the materials it
salvaged from the demolition. Boyd incurred additional costs and realized salvage proceeds during
December 20x1 as follows:
Demolition of old building ₱50,000
Legal fees for purchase contract and recording ownership 10,000
Title guarantee insurance 12,000
Proceeds from sale of salvaged materials 8,000

In its December 31, 20x1 statement of financial position, Boyd should report a balance in the land account
of
a. 464,000
b. 460,000
c. 442,000
d. 422,000
Solution:
Acquisition cost 400,000
Legal fees for purchase contract and recording ownership 10,000
Title guarantee insurance 12,000
Total 422,000

ANSWER: D. 422,000

7. On February 12, Laker Company purchased a tract of land as a factory site for ₱175,000. An
existing building on the property was razed and construction was begun on a new factory
building in March of the same year. Additional data are available as follows:
Cost of razing old building 35,000
Title insurance and legal fees to purchase land 12,500
Architect's fees 42,500
New building construction cost 875,000

The recorded cost of the completed factory building should be

a. 910,000
b. 917,500
c. 930,000
d. 952,500

Solution:
Cost of razing old building 35,000
Architect's fees 42,500
New building construction cost 875,000
Total 952,500

ANSWER: D. 952,500

8. Amble, Inc. exchanged a truck with a carrying amount of ₱12,000 and a fair value of ₱20,000 for a truck
and ₱5,000 cash. The fair value of the truck received was ₱15,000. At what amount should Amble record the
truck received in the exchange?
a. 7,000
b. 9,000
c. 12,000
d. 15,000

Solution;
Fair value given up 20,000
Less Cash received 5,000
Cost of asset received by Amble, Inc. 15,000

ANSWER: D. 15,000

9. On March 31, 20x1, Winn Company traded in an old machine having a carrying amount of
₱16,800, and paid a cash difference of ₱6,000 for a new machine having a total cash price of
₱20,500. On March 31, 20x1, what amount of loss should Winn recognize on this exchange?
a. 0
b. 2,300
c. 3,700
d. 6,000
ANSWER: A.0

10. On October 1, Takei, Inc. exchanged 8,000 shares of its ₱25 par value ordinary share for a
parcel of land to be held for a future plant site. Takei's ordinary share had a fair value of ₱80 per share on the
exchange date. Takei received ₱36,000 from the sale of scrap when an existing building on the site was
razed. The land should be carried at

a. 200,000
b. 236,000
c. 604,000
d. 640,000

Solution:
Shares 8,000
Multiply by: 80
Total 640,000

ANSWER: D. 640,000