ADAMSON UNIVERSITY

INTERMEDIATE ACCOUNTING 1
PROPERTY, PLANT, & EQUIPMENT
QUIZ – ANSWER KEY
USE THE FOLLOWING INFORMATION FOR NOS. 1 AND 5

Zamboanga Company purchased on account a machine with an invoice price of

P5,000,000 subject to a cash discount of 10% which was not taken. Zamboanga incurred
P50,000 freight and insurance during the shipment and P150,000 installation cost.
Supplies for the machine were acquired at a cost of P80,000. It was estimated that the
residual value of the machine is 10% of its total cost, while its estimated useful life is 5
years.

1. The cost of the new machine should be

a. 5,200,000
b. 5,280,000
c. 4,700,000
d. 4,780,000

Invoice Price 5,000,000

Less: 10% Discount (500,000)
---------------
Net Price 4,500,000
Freight and Insurance 50,000
Installation Cost 150,000
---------------
Total cost of welding machine 4,700,000
Discounts, whether taken or not, are deducted from the Invoice Price

2. The discount not taken by Zamboanga should be charged to

a. Purchase Discount Lost
b. Machinery
c. Sales Discount Forfeited
d. Accounts Payable

3. The depreciable cost of the new machine would be

a. 4,230,000
b. 4,302,000
c. 4,680,000
d. 4,752,000

Total cost of welding machine 4,700,000

Less: Residual Value
P4,700,000 X 10% 470,000
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Depreciable cost 4,230,000

4. How much is the yearly depreciation using the straight line method?
a. 950,400
b. 936,000
c. 860,400
d. 846,000

Yearly depreciation using straight line method

P4,700,000 – 470,000 / 5 846,000

5. Using the sum of years’ digits method, how much is the depreciation for the first year?
a. 1,560,000
b. 1,584,000
c. 1,410,000
d. 1,434,000

Yearly depreciation using sum of years’ digits method

SYD = 5 (5 + 1) / 2 = 15
P4,700,000 – 470,000 x 5 / 15 1,410,000

USE THE FOLLOWING INFORMATION FOR NOS. 6 AND 7

On January 1, 2021, Capiz Company purchased factory equipment for P8,000,000.
Estimated salvage value was P320,000. Estimated useful life of the equipment is 10
years and will be depreciated using the double declining balance method.
6. What is the depreciation rate of the factory equipment?
a. 20%
b. 19.20%
c. 10%
d. 9.60%

Yearly depreciation using straight line method

P8,000,000 – 320,000 / 10 768,000
Depreciation rate – straight line method
P768,000 / 7,680,000 10%
Depreciation rate – double declining balance method
10% X 2 20%

7. What is the amount of depreciation to be recognized in year 2022?

a. 768,000
b. 1,228,800
c. 1,280,000
d. 1,536,000

2021 Depreciation – P8,000,000 X 20% 1,600,000

2021 Carrying amount of equipment after deducting
accumulated depreciation
P8,000,000 – 1,600,000 6,400,000

2022 Depreciation – P6,400,000 X 20% 1,280,000

2022 Carrying amount of equipment after deducting
accumulated depreciation
P6,400,000 – 1,280,000 5,120,000

8. Cancer Company buys a van with a list price of P3,000,000. 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. Irrevocable taxes amount to P40,000, and the entity paid an extra
P30,000 to have a special compartment installed. What should be the recorded cost of
the van?
a. 2,499,000
b. 2,539,000
c. 2,564,500
d. 2,569,000

List Price 3,000,000

Less: Trade discount P3,000,000 X 15% 450,000
---------------
Invoice Price 2,550,000
Less: Cash discount P2,550,000 X 2% 51,000
---------------
Cost of van less applicable discounts 2,499,000
Add: Irrevocable taxes 40,000
Add: Special compartment 30,000
---------------
Total cost of the van 2,569,000

9. An old cooler with a recorded cost of P150,000 and accumulated depreciation of

P140,000 was sold for P4,000. A new cooler with marked price of P200,000 was
purchased on February 10, 2022. Freight charge of P3,000 and installation cost of P6,000
were paid. The new cooler shall be recorded at a cost of:
a. 200,000
b. 204,000
c. 209,000
d. 213,000

Marked price of cooler 200,000

Add: Freight charge 3,000
Add: Installation cost 6,000
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Total cost of the cooler 209,000

10. On December 1, 2022, Charity Company purchased a P4,000,000 tract of land for a
factory site. The entity razed the old building on the property and sold the materials it
salvaged from the demolition. The entity incurred additional costs and realized salvage
proceeds during December 2022 as follows:
Payment to tenants to vacate the premises - 200,000
Demolition of old building - 100,000
Legal fees for the purchase contract and recording ownership - 50,000
Title guarantee insurance - 30,000
Proceeds from sale of salvaged materials - 10,000
What is the carrying amount of land on December 31, 2022?
a. 4,350,000
b. 4,370,000
c. 4,380,000
d. 4,390,000

Purchase price 4,000,000

Add: Capitalizable costs
Payment to tenants to vacate the premises 200,000
Demolition of old building 100,000
Legal fees for the purchase contract and recording ownership 50,000
Title guarantee insurance 30,000
---------------
Total 4,380,000
Less: Proceeds from sale of salvaged materials 10,000
---------------
Carrying amount of Land 4,370,000