1

PRACTICAL ACCOUNTING 1 – REVIEW

PROPERTY, PLANT & EQUIPMENT

PROF. U.C. VALLADOLID

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. The following items relate to the acquisition of a new machine by Kris Corporation in 2020:

Invoice price of machinery P2,000,000

Cash discount not taken 40,000
Freight on new machine 10,000
Cost of removing the old machine 12,000
Loss on disposal of the old machine 150,000
Gratuity paid to operator of the old machine who
was laid off 70,000
Installation cost of new machine 60,000
Repair cost of new machine damaged in the
process of installation 8,000
Testing costs before machine was put into regular 15,000
operation

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Salary of engineer for the duration of the trial run 40,000

er as
Operating cost during first month of regular use 250,000

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Cash allowance granted because the new machine
eH w
proved to be of inferior quality 100,000

o.
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How much should be recognized as cost of the new machine?
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a. P1,985,000 c. P1,930,000
b. P1,993,000 d. P2,025,000

2. Joshtin Company incurred the following costs at the beginning of the current year:
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 Cost of land 10,000,000

aC s

 Cost of building 11,500,000

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 Remodeling and repairs prior to occupancy 600,000

 Escrow fee 300,000
 Property tax for period prior to acquisition 150,000
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 Real estate commission 70,000

ed d
ar stu

What is the cost of the building?

a.)12,378,140 c.)12,620,000
b.)12,260,000 d.)12,100,000
is

3. Alden Company provided the following information about property, plant and equipment at year-end:
Th

Plant assets acquired from Aldub Company 7,500,000

Repairs made on building prior to occupancy 200,000
Special tax assessment 30,000
Construction of platform for machinery 70,000
sh

Remodeling of office space in building 400,000

Purchase of new machinery 800,000
Total property, plant and equipment 9,000,000

In exchange for the plant assets of Aldub Company, Alden Company issued 50,000 shares with P100
par value.

On the date of purchase, the share had quoted price of P150 and the plant assets had the following fair
value:

Land 500,000
Building 4,000,000
Machinery 1,500,000

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What is the cost of land, building and machinery respectively?

1. Cost of Land
a) 250,000
b) 530,000
c) 459,000
d) 350,000

2. Cost of Building
a) 4,500,000
b) 4,600,000
c) 4,620,000
d) 4,250,000

3. Cost of Machinery
a) 2,120,000
b) 2,370,000
c) 2,477,000
d) 2,465,000

4. Patrick Company incurred the following costs during the current year in relation to property, plant and
equipment:

m
er as
Cash paid for purchase of land 3,500,000

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Mortgage assumed on the land purchased, including
eH w
interest accrued 1,400,000

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Realtor commission 500,000
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Legal fees, realty taxes and documentation expenses 40,000
ou urc

Amount paid to relocate persons squatting on the property 150,000

Cost of tearing down an old building on the land to
make room for construction of new building 350,000
Salvage value of the old building demolished 50,000
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Cost of fencing the property 110,000

aC s

Amount paid to contractor for the building constructed 4,500,000

vi re

Building permit fee 40,000

Excavation 45,000
Architect Fee 200,000
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Interest that would have been earned had the money used
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during the period of construction been invested 150,000

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Invoice cost of machine acquired 2,500,000

Freight, unloading and delivery charges 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation, paid to foreign
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technicians during installation and test run of machine 500,000

Th

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

a. 5,450,000 c. 5,440,000
b. 5,590,000 d. 5,550,000
sh

2. What amount should be capitalized as cost of building?

a. 5,000,000 c. 5,235,000
b. 5,085,000 d. 4,885,000

3. What amount should be capitalized as cost of machine?

a. 3,060,000 c.3,140,000
b. 3,200,000 d.3,000,000

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5. Coco Company incurred the following expenditures related to the construction of a new home office:

Cost of Land, which included usable old apartment

building with fair value of P200,000 3,000,000 – 2,800,000
Legal fees, including fee for title search 20,000
Payment of land mortgage and related interest due
at time of sale 60,000
Payment of delinquent property taxes 15,000
Cost of razing the apartment building 45,000
Grading and drainage on land site 20,000
Architect fee on new building 250,000
Payment to building contractor 7,000,000
Interest cost on specific borrowing during construction 200,000
Payment of medical bills of employees accidentally
injured while inspecting building construction 30,000
Cost of paving driveway and parking lot 70,000
Cost of trees, shrubs, and other landscaping 65,000
Cost of installing light in parking lot 8,000
Premium for insurance on building during construction 22,000
Cost of open house party to celebrate opening of building 80,000

1. What is the cost of land?

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a. 2,720,000 c. 3,205,000

er as
b. 2,915,000 d. 2,950,000

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2. What is the cost of building?
eH w
o.
a. 7,517,000 c. 7,495,000
rs e
b. 7,537,000 d. 7,525,000
ou urc

3. What is the cost of land improvement?

a. 200,000 c. 143,000
b. 203,000 d. 0
o
aC s

6. John Company is constructing a building. Construction began on January 1 and was completed on
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December 31. Expenditures were 2,400,000 on March 1, 1,980,000 on June 1, and 3,000,000 on
December 31. John Company borrowed 1,200,000 on January 1 on a 5-year, 12% note to help
finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year,
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2,400,000 note payable and an 11%, 4-year, 4,500,000 note payable.

ed d
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1. What are the weighted-average accumulated expenditures?

a. 4,380,000
b. 3,155,000
c. 7,380,000
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d. 3,690,000
Th

2. What is the weighted-average interest rate used for interest capitalization purposes?
a. 11%
b. 10.85%
c. 10.5%
sh

d. 10.65%

3. What is the avoidable interest for John Company?

a. 144,000
b. 463,808
c. 164,281
d. 352,208

4. What is the actual interest for John Company?

a. 879,000
b. 891,000
c. 735,000
d. 352,208

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5. What amount of interest should be charged to expense?

a. 382,792
b. 735,000
c. 526,792
d. 415,192

6. The cost of Building = P7,732,208 (2,400,000 + 1,980,000 + 3,000,000 + 352,208)

7. Two independent companies, Hager Co. and Shaw Co., are in the home building business. Each owns a
tract of land held for development, but each would prefer to build on the other's land. They agree to
exchange their land. An appraiser was hired, and from her report and the companies' records, the
following information was obtained:
Hager's Land Shaw's Land
Cost and book value 192,000 120,000
Fair value based upon appraisal 220,000 210,000

The exchange was made, and based on the difference in appraised fair values, Shaw paid 10,000 to
Hager. The exchange has commercial substance.

1. For financial reporting purposes, Hager should recognize a gain on this exchange of
a. 0.

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b. 28,000.

er as
c. 10,000.

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d. 90,000. eH w
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2. The new land should be recorded on Hager's books at
rs e
a. 210,000.
ou urc

b. 192,000.
c. 240,000.
d. 168,000.
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3. The new land should be recorded on Shaw's books at

aC s

a. 120,000.
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b. 220,000.
c. 150,000.
d. 210,000.
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ed d

8. Gabrielle Inc. and Lucci Company have an exchange with no commercial substance. The asset given up
ar stu

by Gabrielle has a book value of 120,000 and a fair value of 135,000. The asset given up by Lucci has a
book value of 220,000 and a fair value of 200,000. Boot of 65,000 is received by Lucci.

1. What amount should Gabrielle record for the asset received?

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a. 110,000
b. 135,000
Th

c. 185,000
d. 200,000

2. The journal entry made by Lucci to record the exchange will include
sh

a. a debit to Gain on Exchange for 20,000.

b. a debit to Cash for 65,000.
c. a credit to Equipment for 200,000.
d. a debit to Loss Exchange for 20,000.

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9. On January 2, 2020, Rapid Delivery Company traded in an old delivery truck for a newer model. Data
relative to the old and new trucks follow:
Old Truck
Original cost 24,000
Accumulated depreciation as of January 2, 2020 16,000
Average published retail value 7,000
New Truck
List price 40,000
Cash price without trade-in 36,000
Cash paid with trade-in 30,000
What should be the cost of the new truck for financial accounting purposes?
a. 30,000.
b. 36,000.
c. 38,000.
d. 40,000.

10. Lee Company received an HK 1,800,000 subsidy from the government to purchase manufacturing
equipment on January 2, 2020. The equipment has a cost of HK 3,000,000, a useful life a six years, and
no salvage value. Lee depreciates the equipment on a straight-line basis.

1. If Lee chooses to account for the grant as deferred revenue, the grant revenue recognized will

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be:

er as
a. Zero in the first year of the grant's life.

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b. HK 300,000 per year for the years 2020-2023. (3,000,000 – 1,800,000 / 4)
eH w
c. HK 500,000 per year for the years 2020-2023.

o.
d. HK1,800,000 in 2020.
rs e
2. If Lee chooses to account for the grant as deferred revenue, the amount of depreciation
ou urc

expense recorded in 2020 will be:

a. HK 0.
b. HK 200,000.
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c. HK 300,000.
aC s

d. HK500,000. (3,000,000 / 6)
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3. If Lee chooses to account for the grant as an adjustment to the asset, the amount of
depreciation expense recorded in 2020 will be:
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a. HK 0.
ed d

b. HK 200,000. (3,000,000 – 1,800,000 / 6)

c. HK 300,000.
ar stu

d. HK500,000.

4. If Lee chooses to account for the grant as an adjustment to the asset, the book value of the asset
is

on the 2019 statement of financial position will be:

a. HK 800,000.
Th

b. HK 1,200,000.
c. HK 2,800,000.
d. HK2,400,000.
sh

5. Whether Lee chooses to account for the grant as deferred revenue or as an adjustment to the
asset, the combined impact of deferred grant revenue recognition and/ or depreciation expense
recorded per year will be:
a. decrease to net income of HK 200,000.
b. decrease to net income of HK 300,000.
c. increase to net income of HK 500,000.
d. increase to net income of HK 100,000.

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11. On March 31, year 4, 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. The cash flows
from the new machine are expected to be significantly different from the cash flows from the old
machine. On March 31, year 4, what amount of loss should Winn recognize on this exchange?
a. 0
b. 2,300 (20,500 – 16,800 – 6,000)
c. 3,700
d. 6,000

12. On January 2, year 4, Lem Corp. bought machinery under a contract that required a down payment of
10,000, plus twenty-four monthly payments of 5,000 each, for total cash payments of 130,000. The cash
equivalent price of the machinery was 110,000. The machinery has an estimated useful life of ten years
and estimated salvage value of 5,000. Lem uses straight-line depreciation. In its year 4 income
statement, what amount should Lem report as depreciation for this machinery?
a. 10,500 (110,000 – 5,000 / 10)
b. 11,000
c. 12,500
d. 13,000

13. On January 2, year 1, Union Co. purchased a machine for 264,000 and depreciated it by the straight-line
method using an estimated useful life of eight years with no salvage value. On January 2, year 4, Union
determined that the machine had a useful life of six years from the date of acquisition and will have a

m
salvage value of 24,000. An accounting change was made in year 4 to reflect the additional data. The

er as
accumulated depreciation for this machine should have a balance at December 31, year 4, of

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a. 176,000 eH w
b. 160,000

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c. 154,000
rs e
d. 146,000
ou urc

14. During year 4, King Company made the following expenditures relating to its plant building:
Continuing and frequent repairs 40,000
Repainted the plant building 10,000
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Major improvements to the electrical wiring system 32,000

aC s

Partial replacement of roof tiles 14,000

vi re

How much should be charged to repair and maintenance expense in year 4?

a. 96,000
b. 82,000
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c. 64,000
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d. 54,000
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15. On June 18, year 4, Dell Printing Co. incurred the following costs for one of its printing presses:
Purchase of collating and stapling attachment 84,000
Installation of attachment 36,000
is

Replacement parts for overhaul of press 26,000

Labor and overhead in connection with overhaul 14,000
Th

The overhaul resulted in a significant increase in production. Neither the attachment nor the overhaul
increased the estimated useful life of the press. What amount of the above costs should be capitalized?
a. 0
b. 84,000
sh

c. 120,000
d. 160,000

16. Orton Corporation, which has a calendar year accounting period, purchased a new machine for 40,000
on April 1, 2015. At that time Orton expected to use the machine for nine years and then sell it for 4,000.
The machine was sold for 22,000 on Sept. 30, 2020. Assuming straight-line depreciation, no
depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain
to be recognized at the time of sale would be
a. 4,000.
b. 3,000.
c. 2,000.
d. 0.

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17. On January 1, 2020, the Accumulated Depreciation—Machinery account of a particular company

showed a balance of 370,000. At the end of 2020, after the adjusting entries were posted, it showed a
balance of 395,000. During 2020, one of the machines which cost 125,000 was sold for 60,500 cash.
This resulted in a loss of 4,000. Assuming that no other assets were disposed of during the year, how
much was depreciation expense for 2020?
a. 85,500
b. 93,500
c. 25,000
d. 60,500

18. Archer Company purchased equipment in January of 2010 for 90,000. The equipment was being
depreciated on the straight-line method over an estimated useful life of 20 years, with no residual value.
At the beginning of 2020, when the equipment had been in use for 10 years, the company paid 15,000
to overhaul the equipment. As a result of this improvement, the company estimated that the useful life of
the equipment would be extended an additional 5 years. What should be the depreciation expense
recorded for this equipment in 2020?
a. 3,000
b. 4,000
c. 4,500
d. 5,500

19. On January 1, 2019, Fredrichs Inc. purchased equipment with a cost of 3,060,000, a useful life of 12

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er as
years and no salvage value. The company uses straight-line depreciation. At December 31, 2019, the
company determines that impairment indicators are present. The fair value less cost to sell the asset is

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estimated to be 2,600,000. The asset’s value-in-use is estimated to be 2,365,000. There is no change in
eH w
the asset’s useful life or salvage value

o.
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1. The 2019 income statement will report Loss on Impairment of
ou urc

a. 0.
b. 205,000.
c. 440,000.
d. 460,000.
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aC s

2. The 2020 (second year) income statement will report depreciation expense for the equipment of
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a. 216,667.
b. 236,364.
c. 255,000.
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d. 260,000.
ed d
ar stu

20. On January 2, 2019, Q. Tong Inc. purchased equipment with a cost of HK10,440,000, a useful life of 10
years and no salvage value. The company uses straight-line depreciation. At December 31, 2019 and
December 31, 2020, the company determines that impairment indicators are present. The following
information is available for impairment testing at each year end:
is

12/31/2019 12/31/2020
Fair value less costs to sell HK9,315,000 Hk8,850,000
Th

Value-in-use HK9,350,000 HK8,915,000

There is no change in the asset’s useful life or salvage value. The 2020 income statement will report
a. no Impairment Loss or Recovery of Impairment Loss.
sh

b. Impairment Loss of HK435,000.

c. Recovery of Impairment Loss of HK40,889.
d. Recovery of Impairment Loss of HK603,889.

The impairment loss for 2019 is: HK46,000

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21. Percy Resources Company acquired a tract of land containing an extractable mineral resource. Percy is
required by its purchase contract to restore the land to a condition suitable for recreational use after it
has extracted the mineral resource. Geological surveys estimate that the recoverable reserves will be
2,000,000 tons, and that the land will have a value of 1,200,000 after restoration. Relevant cost
information follows:
Land 9,000,000
Estimated restoration costs 1,800,000
If Percy maintains no inventories of extracted material, what should be the charge to depletion expense
per ton of extracted material?
a. 3.90
b. 4.50
c. 4.80
d. 5.40

22. In March, 2020, Maley Mines Co. purchased a coal mine for 6,000,000. Removable coal is estimated at
1,500,000 tons. Maley is required to restore the land at an estimated cost of 720,000, and the land
should have a value of 630,000. The company incurred 1,500,000 of development costs preparing the
mine for production. During 2020, 450,000 tons were removed and 300,000 tons were sold. The total
amount of depletion that Maley should record for 2020 is
a. 1,374,000.
b. 1,518,000.

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c. 2,061,000.

er as
d. 2,277,000.

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eH w
23. Istandul Enterprise constructed a building at a cost of 24,000,000. Average accumulated expenditures

o.
were 17,000,000, actual interest was 2,120,000, and avoidable interest was 1,600,000. If the salvage
rs e
value is 4,600,000, and the useful life is 30 years, depreciation expense for the first full year using the
straight-line method is
ou urc

a. 700,000.
b. 717,733.
c. 800,000.
o

d. 870,667.
aC s
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24. On December 1, Miser Corporation exchanged 2,000 shares of its 25 par value ordinary shares held in
treasury for a parcel of land to be held for a future plant site. The treasury shares were acquired by
Miser at a cost of 40 per share, and on the exchange date the ordinary shares of Miser had a fair value
y

of 50 per share. Miser received 6,000 for selling scrap when an existing building on the property was
ed d

removed from the site. Based on these facts, the land should be capitalized at
a. 74,000.
ar stu

b. 80,000.
c. 94,000.
d. 100,000.
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25. Storm Corporation purchased a new machine on October 31, 2020. A 1,200 down payment was made
Th

and three monthly installments of 3,600 each are to be made beginning on November 30, 2020. The
cash price would have been 11,600. Storm paid no installation charges under the monthly payment plan
but a 200 installation charge would have been incurred with a cash purchase. The amount to be
capitalized as the cost of the machine on October 31, 2020 would be
sh

a. 12,200.
b. 12,000.
c. 11,800.
d. 11,600.

26. Horner Company buys a delivery van with a list price of 30,000. The dealer grants a 15% reduction in list
price and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes
amount to 400 and the company paid an extra 300 to have a special horn installed. What should be the
recorded cost of the van?
a. 24,990.
b. 25,645.
c. 25,690.
d. 25,390.

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27. On June 1, 2020, Gold Mining Corp. acquired the rights to a coal mine containing an estimated reserves
of 2,000,000 tons of coal. The company estimated that 25,000 tons of coal would be extracted and sold
each month. Cost allocable to coal was P7,000,000.

Also on June 1, 2020, the company purchased an equipment to be used in the production, costing
P190,000 which has an estimated useful life of 10 years. The equipment was expected to become
obsolete after all the coal deposits had been extracted from the mine and only P10,000 selling price of
the equipment could be expected. Production was in full blast since June 2, 2020.

Based on the above data, answer the following:

1. What would be the depletion expense for the year ended December 31, 2020?
a. P1,050,000 c. P306,250
b. P 525,000 d. P612,500

2. What would be the depreciation expense on the new equipment for the year ended December 31,
2020?
a. P18,000 c. P15,750
b. P 9,000 d. P16,625

28. On December 31, 2019, the statement of financial position of Dundas Company showed the following
property and equipment after charging depreciation:

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er as
Building P3,000,000

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Accumulated depreciation eH w (1,000,000) P2,000,000

o.
Equipment 1,200,000
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Accumulated depreciation (400,000) 800,000
ou urc

The company has adopted the revaluation model for the valuation of property and equipment. This has
resulted in the recognition in prior periods of an asset revaluation surplus for the building of P150,000.
On December 31, 2019, an independent valuation assessed the fair value of the building to be
o

P1,600,000 and the equipment to be P900,000.

aC s
vi re

The building and equipment had remaining useful lives of 25 years and 4 years, respectively, as of
December 31, 2019.
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Based on the above information, determine the following: (Ignore deferred tax consequence)
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1. Revaluation surplus as of December 31, 2019, after recording the revaluation

a. P250,000 c. P100,000
b. P150,000 d. P 0
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2. Amount to be recognized in 2019 profit or loss related to the revaluation of property and equipment
a. P400,000 c. P250,000
Th

b. P300,000 d. P150,000

3. Total depreciation in 2020

a. P289,000 c. P100,000
sh

b. P625,000 d. P420,000

4. Carrying amount of property and equipment as of December 31, 2020

a. P2,500,000 c. P2,080,000
b. P2,400,000 d. P2,211,000

5. Revaluation surplus as of December 31, 2020

a. P100,000 c. P144,000
b. P 75,000 d. P 0

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