MITCH T.

MINGLANA
BSA 301

Problem 1

Irene Inc., holds a valuable patent on a precipitator that prevents certain types of air pollution. Irene
does not manufacture or sell the products and process it develops. Instead, it conducts research and
develops products and processes which its patents, and then assigns to manufactures on a royalty basis.
Occasionally it sells patents. The following presents the summary of the activities in relation to the
aforementioned patent:

2021-2022 Research aimed at the discovery of the new technology 3,840,000

1/1/2023 Design and construction of a prototype 876,000
3/15 Testing the prototype models 420,000
1/2/2024 Legal and other professional fees to process the patent
Application (useful life = 18 yrs) 558,000
12/10/2026 Legal fees paid to successfully defending the device patent 357,000
1/1/2028 Acquisition of a competitive patent aimed at protecting old
Patent that resulted in an increased revenue 406,000
1/1/2029 Acquisition of the related patent which extended the life
Of the patents for additional 2 years 420,000
12/31/2031 Legal fees paid in unsuccessful patents infringement suit
Against a competitor 250,000
Compute for:

a. Cost of the patent upon initial recognition

= ₱ 558,000
b. Carrying value of the patent on December 31 2024
= ₱ 527,000

Cost of Patent (2024) 558,000

Useful life = 18 Years /18
Amortization 31,000

Cost of Patent (2024) 558,000

Less: Amortization (31,000)
Carrying Value (2024) 527,000

c. Carrying value of the patent on December 31 2028

= ₱ 787,500

Carrying Value of Patent, beg. (2025) 527,000

2025 Amortization (31,000)
2026 Amortization (31,000)
2027 Amortization (31,000)
Carrying Value of Patent, end (2027) 434,000
 Add: Acquisition of related patent (1/1/2028) 406,000
Total 840,000
2028 Amortization 52,500
Carrying Value of Patent, (12/31/2028) 787,500

d. Carrying value of the patent on December 31 2030

= ₱ 1,065,442

Carrying Value of Patent, beg. 2029 787,500

Acquisition of related patent (1/1/2029) 420,000
Total 1,207,500
2029 Amortization 71,029
2030 Amortization 71,029
Carrying Value of Patent, (12/31/2030) 1,065,442

e. Amount in total to be recognized in the P/L in 2031 in relation to the patent

= ₱ 994,413

Carrying Value of Patent, (12/31/2030) 1,065,442

2031 amortization 71,029
Carrying Value of Patent (2031) 994,413
Problem 2

A count of the undeposited receipts under the custody of Irene, cashier of IMC Company, on September
30, 2020 showed the ff composition:
Currency and coins 12,310
Unused postage and documentary stamps 110
Checks:
Date Payee Drawer
3/24/2020 Cash Irene 1,000
9/20/20 IMC Surigao Corp 2,350
9/27/20 IMC Mae 1,960
9/30/20 Smart IMC 900
Cash advance voucher paid out of receipts 1,500
Total per count 20,130
Cashier’s accountability to be 18,470.
Compute: what was the amount of shortage/overage on Sept 30, 2020?
= Cash shortage of ₱ 240

Currency and Coins 12, 310

Unused Postage and documentary stamps 110
Checks payable to IMC Company:
9/20/20 IMC Surigao Corp 2,350
9/27/20 IMC Mae 1,960 4, 310
Cash advance voucher paid out of receipts 1, 500
Total per count 18, 230
Less: Cashier’s Accountability 18, 470
Cash Shortage (240)
Problem 3

Irene Corporation was organized on Jan 15, 2024 and started operation soon thereafter. The company
cashier who acted also as the bookkeeper had kept the accounting records very haphazardly. The
manager suspects of him of defalcation and engaged you to audit his account to find out the extent of
the fraud, if there is any. On November 15, when you started the examination of the accounts, you find
the cash on hand to be 25,700. From inquiry at the bank, it was ascertained that the balance of the
Company’s bank deposit in current account on the same due was 131,640. Verification revealed that the
check issued for 9,260 is not yet paid by the bank. The corporation sells at 40% above cost.

Your examination of the available records disclosed the ff information:

a. Share capital issued at par for cash 1,600,000

b. Real estate purchased and paid in full 1,000,000
c. Mortgage liability secured by real estate 400,000
d. Furniture and fixture (gross) brought on which
There is still balance unpaid of 30,000 145,000
e. Outstanding notes due to bank 160,000
f. Total amount owed to creditors on open account 231,420
g. Total sales 1,615,040
h. Total amount still due from customers 426,900
i. Inventory of merchandise on November 15 at cost 469,600
j. Operating expenses paid 303,780

Based on the above and result of your audit, compute the ff as of November 15, 2024

a. Collections from sales

= ₱ 1,188,140

Sales 1,615,040
Less: AR, 11/15 426,900
Collection from sales 1,188,140

b. Payments for purchases

= ₱ 1,391,780

Cost of Sales (1,615,040/1.4) 1,153,600

Add: Merchandise inventory, 11/15 469,600
Purchases 1,623,200
Less: AP, 11/15 231,420
Payments for Purchases 1,391,780
 c. Total cash disbursements
= ₱ 2,810,560

Purchase of Real estate 1,000,000

Payment for furniture and fixtures (145k-30k) 115,000
Expenses paid 303,780
Payments for purchases (b.) 1,391,780
Total cash disbursements 2,810,560

d. Adjusted cash balance

= ₱ 148,080

Unadjusted bank balance 131,640

Add: Deposit in Transit 25,700
Less: Outstanding checks (9,260)
Adjusted Cash Balance 148,080

e. Cash shortage
= ₱ 389,500

Proceeds from issuance of common stock 1,600,000

Proceeds from mortgage payable 400,000
Proceeds from notes payable – bank 160,000
Collections from sales (a.) 1,188,140
Total cash receipts 3,348,140
Less: Cash disbursements (c.) 2,810,560
Unadjusted Cash balance 537,580

Adjusted Cash balance (d.) 148,080

Less: Unadjusted Cash balance 537,580
Cash Shortage (389,500)

Problem 4

On Jan 1 2020, Irene Mfg. Co. began construction of a building to be used as its office headquarters. The
building was completed on June 30, 2026.
Expenditures on the project were as follows
1/1/ 2,500,000
3/31 3,000,000
6/30 4,000,000
10/31 3,000,000
1/31/2021 1,500,000
3/31/2021 2,500,000
5/31/2021 3,000,000
On Jan 3, 2021 the company obtained a 5 million construction loan with a 10% interest rate. The loan
was outstanding all of 2020 and 2021. The company’s other interest-bearing debts included a long-term
note of P 25 million with an 8% interest rate, and a mortgage of 15 million on another building with an
interest rate of 6%. Both debts were outstanding during all of 2020 and 2021. The company’s fiscal year
end is December 31.
a. Capitalizable interest in 2020
b. Capitalizable interest in 2021
c. Interest Expense in 2020
d. Interest Expense in 2021
e. Total cost of the building including interest capitalized in 2020 and 2021

Problem 5
Information pertaining to Irene Corporation’s property, plant and equipment for 2021 is presented
below:
Account balances at Jan 1, 2021
Debit Credit
Land 150,000
Building 1,200,000
Accum depn 263,100
Machinery and Equipment 900,000
Accum depn 250,000
Automotive equipment 115,000
Accum depn 84,600
Depreciation methods used and useful life
Building – 150% declining balance; 25 years
Machinery and equipment – SL; 10 years
Automotive equipment – SYD; 4 years
The salvage value of the assets is immaterial. Dep’n is computed to the nearest month.
Transactions during 2021 and other information”
a. On Jan 1, 2021, Irene purchased a new car for 10,000 cash and trade in of a two year old car
with a cost of 9,000 and a book value of 2,700. The new car has a cash price of 12,000; market
value of trade ins is not known.
b. On April 1 2021, a machine purchased for 23,000 on April 1 2016 was destroyed by fire. Irene
recovered 15,500 from its insurance company.
c. On July 1, 2021 machinery and equipment were purchased at a total invoice cost of 280,000;
additional costs of 5,000 for freight and 25,000 for installation were incurred.
d. Irene determined that the automotive equipment comprising the 115,000 balance at Jan 1, 2021
would have been depreciated at a total amount of 18,000 for the year ended December 31,
2021/

Compute for:
a. Depreciation expense for 2021 – Building
= ₱ 56,214

Book Value 1/1/2021 (P1,200,000-PP263,100) 936,900

Multiplied by: Declining rate (1/25x150%) 6%
Depreciation for the year 56,214
b. Depreciation expense for 2021 – Machinery and equipment
= ₱ 103,775

Balance 1/1/2021 900,000

Less: machine destroyed by fire 23,000
877,000
Divided by: 10 years 87,700

Dep’n of the machine destroyed by fire:

(P23,000/10x3/12) 575
Dep’n of the machine purchase for the year:
(P310,000/10x6/12) 15,500

Total depreciation 103,775

c. Depreciation expense for 2021 – Automotive equipment

= ₱ 24,000

Depreciation on P115,000 balance, 1/1/2021 9,000

Less: depreciation on car traded in
(P9,000x2/10) 1,800

Adjusted depreciation on the beg. Bal. 14,400

Dep’n on the 1/2/2021 purchase:
(P12,000x4/10) 9,600

Total depreciation expense 24,000

d. Accumulated Depreciation as of Dec 31, 2021 – Building

= ₱ 319,314

Book Value 1/1/2021 (P1,200,000-PP263,100) 936,900

Multiplied by: Declining rate (1/25x150%) 6%

Depreciation for the year 56,214

Add: Accumulated depreciation 1/1/2021 263,100

Accumulated Depreciation- 12/31/2021 319,314

e. Accumulated Depreciation as of Dec 31, 2021 – Machinery and equipment

= ₱ 342,275

Balance 1/1/2021 900,000

Less: machine destroyed by fire 23,000
877,000
Divided by: 10 years 87,700
 Dep’n of the machine destroyed by fire:
(P23,000/10x3/12) 575
Dep’n of the machine purchase for the year:
(P310,000/10x6/12) 15,500

Total depreciation 103,775

Add: accumulated depreciation, 1/1/2021 250,000
Less: accumulated depreciation- destroyed by fire (11,500)

Accumulated depreciation- 12/31/2021 342,275

f. Accumulated Depreciation as of Dec 31, 2021 – Automotive equipment

= ₱ 96,000

Depreciation on P115,000 balance, 1/1/2021 9,000

Less: depreciation on car traded in
(P9,000x2/10) 1,800

Adjusted depreciation on the beg. Bal. 14,400

Dep’n on the 1/2/2021 purchase:
(P12,000x4/10) 9,600

Total depreciation expense 24,000

Add: accum. Depreciation, 1/1/2021 84,600
Less: accum. Dep’n- traded equipment (12,600)

Accumulated Depreciation, 12/31/2021 96,000

Problem 6
Irene Factory started operations in 2020. Irene manufactures both towels 60% of the production are
“ABC” which sell for 500 per dozen and 40% are “XYZ” which sell for 250 per dozen. During 2020, 6,000
dozens were produced at an average cost of 360 per dozen. The inventory at the end of the year was as
follows:
220 dozens “ABC” @ 360 79,200
300 dozens “XYZ” @ 360 108,000

Using relative sales value method, which management considers as a more equitable basis of cost
distribution.
a. How much of the total cost should be allocated to Class ABC
= ₱ 1, 620, 000
b. How much of the total cost should be allocated to Class XYZ
= ₱ 540, 000

Total Cost of production (6, 000 dozens x P360) 2, 160, 000

Total sales price:
 ABC (6, 000 x 60% = 3, 600 x P500) 1, 800, 000
XYZ (6, 000 x 40% = 2, 400 x P250) 600,000 2, 400,000
Cost Ratio 90%

ABC (P1, 800, 000 x 90%) 1, 620, 000

XYZ (P600, 000 x 90%) 540, 000

c. How much is the value of inventory as of December 31, 2020

= ₱ 166,500

ABC (220x P500 x 90%) 99, 000

XYZ (300x P250 x 90%) 67, 500
Inventory, 12/ 31 / 20 166, 500

d. How much is the cost of sales for the year 2020

= ₱ 1,993,500

Total cost of production (6, 000 dozens x P360) 2, 160, 000

Less inventory, 12/31/2020 166, 500
Cost of Sales 1, 993, 500

e. How much is the gross profit for the year 2020

= ₱ 221,500

Sales of ABC [(3, 600 – 220) x P500] 1,690, 000

Sales of XYZ [(2, 400 – 300) x P250] 525, 000
Total Sales 2,215, 000
Less cost of sales 1,993, 500
Gross profit 221, 500