ACCOUNTING 502|QUIZ 1 December 3, 2018

Instructions: D. Examination of transfer tax

Write your answers on the DATE COLUMN of Page 1 ONLY. Use the 14. S1.Goodwill can arise even without business
numbering on the left most portion of the column. Answers for combination S2. Goodwill will be amortized with its
multiple choice written on either Page 2 or Page 3 will not be own useful life
considered. Erasures, superimpositions, or any form of alterations will A. S1 only is correct
invalidate your answers. Solutions for the multiple choice problems are B. S2 only is correct
not required. (2 points each) C. Both statements are correct
D. Both statements are wrong
THEORY PART 15. S1. All intangible assets can be recorded in only one
Use the choices below for items 1-7 (Letters only) account, “Intangibles” S2. Goodwill is the only
P – Presentation and Disclosure unidentifiable intangible asset
C – Completeness A. S1 only is correct
E – Existence/Occurrence B. S2 only is correct
V – Valuation/Measurement C. Both statements are correct
R – Rights and Obligations D. Both statements are wrong
1. Examining supporting documents that give evidence that the
Company has the right to the patent. R PROBLEM 1
2. Recalculation of amortization expense of Intangible Assets. V Wendel, the lazy accountant of Kuripot Company recorded
3. A major consideration in verifying the ending balances of the following in one account, “Intangibles.” The senior
auditor asked Dela Cruz to check each of the transactions.
long lives assets is the possibility of existing legal
1. Attorney’s fees to obtain patent P50,000
encumbrances. Tests to identify possible legal 2. Duplication of product masters for computer 80,000
encumbrances. P software
4. Cross referring amount from subsidiary ledger to trial 3. Labor and material costs incurred in 55,500
producing a prototype of computer software
balance. C
4. Costs incurred for coding and testing to 60,000
5. Analysis if all retired property, plant and equipment are establish technological feasibility of computer
recorded. E software
5. Coding costs after establishment of 220,000
6. Vouching source documents if all additional property, plant
technological feasibility of computer software
and equipment are recorded. C 6. Computer software acquired in order for the 10,000
7. Auditing additional intangibles recorded for the period. E computer to be used
8. Examining documentation of the purchase of intangible 7. Packaging of the product 110,000
8. Cost of conference for the introduction of this 90,000
assets. E
new product
9. In assessing control risk for purchases, an auditor vouches 9. Equipment purchased for current and future 30,000
a sample of entries in the voucher register to the supporting projects’ research and development (3yrs
documents. E useful life)
10. Testing costs after establishment of 25,000
10. Analysis of the recorded items in the repairs and technological feasibility of computer software
maintenance that might be capitalized as part of the 11. Other cost of registering patent 58,000
Property, plant and equipment account. C or V 12. Salaries of employees doing the research of 33,500
computer software
Multiple Choice 13. Equipment purchased for current project’s 200,000
research and development with no alternative
11. It is ordinarily not necessary to examine supporting use (5yrs useful life)
documentation for each addition to long-lived asset, 14. Modification to the formulation of the program 45,000
but it is customary to verify; I. All large transactions, II.
15. Advertising expense to introduce a new 33,000
All unusual transactions, III. A sample of typical product
additions 16. Attorney’s fees paid defending the patent P50,000
A. I only successfully
B. III only
C. I and II Requirements:
D. I, II and III Compute for the balance of the following:
12. Which of the following is best likely test relating to the 16. Patent
audit of long-lived operating assets? A. 108,000
B. 158,000
A. Observe of current year disposals
B. Send confirmation letters to suppliers of property, C. 50,000
plant and equipment D. 100,000
C. Verification of retired and additional property plant 17. Computer Software
A. 300,500
and equipment
B. 255,000
D. Observe of current year additions
C. 325,000
13. Which of the following is the best evidence of
D. 245,000
continuous ownership of property
A. Examination of deed 18. Amount to be reported as Expense
B. Examination of lease contractual agreements or A. 517,000
B. 567,000
occupancy permit
C. 597,000
C. Examination of the title policy
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ACCOUNTING 502|QUIZ 1 December 3, 2018

D. 577,000 23. Total expense for 2014

19. Property, plant and equipment A. 195,988
A. 30,000 B. 245,988
B. 40,000 C. 133,253
C. 240,000 D. 199,987
D. 230,000
PROBLEM II
PROBLEM I Sakura Company has been monitoring the value of his
Jonathan Maria was hired as the auditor of Q&A Mark, Inc. favorite machinery that he uses for his manufacturing
At the end of the year, Maria analyzed the following operations. The machinery was acquired on January 1,
transactions relating to the Company’s intangible assets at 2010 for a price of P380,600. The Company should have
the end of 2014. availed of P20,000 discount if they have paid it on time but
 On January 1, 2014, the Company acquired Q&A such was forfeited by the seller due to late payment.
Advincula Inc., for P25,572,000 Freight charges of P17,000 and installation costs of
 . At the date of the business combination, the fairvalue P120,000 were also paid. Sakura tested the machinery and
of the assets of Advincula is P44,172,000 while its incurred P5,000 for the sample products and sold it for
P2,600. Salvage value was estimated to be P50,000 and
liabilities is P19,100,000. The goodwill will benefit the
useful life is 10 years.
Company for 10 years as forecasted by the Company. On December 31, 2011, the machinery was tested for
 The Company spent P400,000 to apply for and obtain a impairment. The fair value on such date is P290,000 and
patent on a newly developed product on January 1, its cost to sell is P30,000. Additionally, it was estimated
2008,. The patent had an estimated useful life of 10 also that it will generate annual P45,000 net cash inflow
years. At the beginning of 2013, the Company paid (inclusive of salvage value for its remaining years, effective
rate is 8%.
P100,000 for a competitive patent, with 7 years useful
On December 31, 2015, the recoverable value increased.
life, to protect its own from the market. Also, on The Company remeasured the asset and came out with
January 1, 2013, the Company spent P60,000 in accurate estimate. Net inflows to be generated from such
successfully prosecuting an attempted patent machinery increased to P73,000 for each of the remaining
infringement. At the beginning of 2014, the Company years with 8% effective rate and the fair value less cost to
purchased for P250,000, a patent that was expected to sell is increased to P235,000.
prolong the life of its patent by 4 years.
Requirements:
 On January 2, 2014, the Company signed an
24. Compute for the initial cost of machinery
agreement to operate as a franchise of Potang, Inc. for
A. 500,000
an initial fee of P500,000. The agreement requires
B. 520,000
payment of P200,000 on January 1, 2014, with the
C. 502,600
balance payable in three equal annual installment of
D. 522,600
P100,000 payable at the end of each year starting 25. Compute for the depreciation expense for 2012
December 31, 2014. Discount rate for similar A. 28,355
transaction is 10%. The agreement also specifies that B. 26,250
Kabunyan will pay 5% of its annual revenue to Potang. C. 26,074
2013 Revenue P300,000 and 2014 Revenue P300,000. D. 33,043
Also, the Company paid P50,000 cost of training 26. Compute for the gain on remeasurement for 2015
employees. The franchise will benefit the Company for A. 75,000
10 years. B. 80,223
C. 80,000
Requirements: D. 72,536
Compute for the following 27. Compute for the depreciation expense for 2016
20. Carrying value of Goodwill as of December 31, 2014 A. 47,500
A. 450,000 B. 43,200
B. 500,000 C. 45,260
C. 19,600,000 D. 45,000
D. 17,640,000
21. Carrying value of Patent as of December 31, 2014 PROBLEM III
A. 488,750 On March 1, 2016, the Company exchanged a machine for
B. 367,500 office furniture that had a fair value of P125,000 at the
date of exchange. Additionally, the Company received
C. 428,750
P18,000 cash. The fair value of the machinery at the date
D. 210,000 of exchange was P135,000. The machinery has an original
22. Total expense related to the franchise cost of P430,000 and accumulated depreciation of 317,250
A. 69,000 with useful life of 10 years, purchased last Jan. 1, 2012.
B. 138,737 The office furniture originally cost P360,000 and to the
C. 134,738 date of exchange, had been depreciated by P241,000 in the
D. 119,883 previous owner’s books. The Company estimated the office

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ACCOUNTING 502|QUIZ 1 December 3, 2018

furniture’s useful life and residual value at 8 years and  Notes payable specifically for the construction of the
P5,400, respectively. building, 12% P1,000,000, 5-year note dated January
28. Compute for the gain or loss on exchange 1, 2017 with simple interest; interest payable annually
A. 22,250 gain on December 31
B. 40,250 gain
 General barrowing: Notes payable, 8% P500,000, 5-
C. 10,000 loss
year note dated January 2, 2017 with simple interest;
D. 10,000 gain
interest payable annually on December 31
29. Compute for the carrying value of Machinery at the end
 General barrowing: Notes payable, 10% P1,300,000, 5-
2016
year note dated January 2, 2017 with simple interest;
A. 107,000
B. 105,375 interest payable annually on December 31
C. 117,000
On April 1, 2018, Opolinto purchased and installed several
D. 96,417 lighted furniture and fixture items costing P800,000 from
30. Compute for the total depreciation for 2016 relating to high-end furniture manufacturer and dealer under the
the problem as a whole terms 5/20, n/30. In addition, Opolinto incurred freight
A. 11,625 and installation costs amounting to P10,000 and P15,000,
B. 13,950 respectively. Asset is expected to have a useful life 8 years
C. 23,950 with P100,000 residual value and will be depreciated using
D. 24,315 the double declining balance. On January 1, 2019,
Opolinto’s accountant advised that they are going to
LONG PROBLEMS change their depreciation method to SYD to reflect its true
Instruction: Write a SUMMARY OF ANSWERS on the long problems on depreciation expense, residual value will be 0 and
the first few rows of Page 1 ONLY. Erasures on the Summary of Answers remaining useful life will be revised to 7 years.
are not allowed. In case you do not have any answer on any item, write Requirements:
Compute for the following:
“NO ANSWER”. Answers in the Summary of Answers should have a
1. Initial cost of Land. 6,743,000
corresponding solution in good accounting form to be given credit. (5
2. Initial cost of Building 3,422,750
points each)
3. Interest expense for 2017 106,250
4. Total depreciation expense for 2018 272,097.50
PROBLEM I
5. Carrying value of the furniture and fixture for 2019
Opolinto Nalito, an exotic painting artist builds its own
478,359.38
Museum in Bakakeng for profit purposes. The following
PROBLEM II
costs are incurred in 2017:
As an auditor of Corinas a Rose flower shop, you have been
Purchase of land and old building 6,455,000
Fair value of Building is immaterial asked to audit its intangible assets for 2018. The following
information was provided for your analysis:
Reservation fee of the property 155,000
a. The Company has a Franchise account which
Land survey 30,000
Special assessment of land 68,000 represents the total of the cash paid to acquire it on
Legal fees to transfer title 35,000 January 1, 2017, P200,000 plus a note payable in 5
Demolition costs of the old building 124,000 annual installments of P200,000 due every January 1
Building permit fees 8,000 starting 2018. Yield rate on the note is 12% based on
Temporary quarters built for construction crews 50,000
the equivalent cash price if the Franchise when
Excavation of basement for construction 57,000
Damages awarded for injuries sustained in the 23,000
purchased. The franchise will benefit the Company for
demolition where no insurance carried 20 years.
Savings from construction 78,000 Entries made:
Opolinto has no intention to use the old building, thus, 2017
demolished it immediately just after the acquisition. Franchise 1,200,000
Cash 200,000
In the same year, Opolinto contracted with Engr. Dave to Notes Payable 1,000,000
construct a building for P3,000,000. The buiding was 2018
completed exactly on December 31, 2017, with useful life of Notes Payable 200,000
25 years, residual value of P300,000 and will be Cash 200,000
depreciated using the straight line method. b. On April 1, 2016, the Company capitalized its
organizational cost for P200,000 and prepared entries
Opolinto made the following payments for the construction:
February 1 1000,000 for 5-year amortization for years 2016, 2017 and 2018.
March 1 300,000 Requirements:
June 30 500,000 Prepare for the compound adjusting journal entries for
August 1 500,000 2018 (nos. 6 and 7) assuming errors were just
December 1 600,000 discovered in such year.
December 31 100,000 6. To adjust (a) Franchise
Discount 119,633.75
Interest Expense 72,896.38
Opolinto had the following debt outstanding at December
Amortization Expense 46,047.76
31, 2012. (Round off final answers to 2 decimal places but Retained Earnings 132,562.39
no rounding off for rates used to compute for the interests) Franchise 371,140.28

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ACCOUNTING 502|QUIZ 1 December 3, 2018

7. To adjust (b) Organizational cost

Retained Earnings 130,000.00
Organizational Cost 90,000.00
Amortization expense 40,000.00
8. Compute for the carrying value of the Franchise on
December 31, 2018 828,859.72