A.

Ocean Company recently acquired several items of property, plant and equipment. The transactions are as follows: 

1. Purchases a building for P1, 000, 000 in cash and 50, 000 shares of Ocean company with P100 par value which sold for P120 on transaction date. 

2. Received a parcel of land located in Davao City from a philanthropist as an inducement to locate a plant in the city. The land has a fair value of P1, 500, 000. 

3. Acquired a machinery for cash. The machinery was priced at P800, 000 and a 5% cash discount is allowed.

4. Acquired an equipment for P200, 000 by issuing a 60-day, 12% note. 

 

Required: 

Determine the cost of the ff: 

Building_____________________ 

Land______________________ 

Machinery_________________ 

Equipment_____________________

 

B.

Smile company exchanged used equipment for another equipment of Frown Company. The following information pertains to the exchange: 

                                                                          Smile                                         Frown 

Equipment                                                  2, 400, 000                              2, 200, 000 

Accumulated Depreciation                       2, 000, 000                              1, 750, 000 

Fair value of equipment                            500, 000                                   500, 000 

 

Required: Journal entries on the books of smile and frown

Building - P 7,000,000

Land -  P 1,500,000

Machinery - P 760,000

Equipment - P 200,000

Please see solutions and journal entries for Letter B below.

Hope it helps! Goodluck on your studies!

Thank you!

Step-by-step explanation

Date Particular Debit Credit Building To record Building Purchase Price P 1,000,000.00 Building 7,000,000.00 Issuance of shares (50,000 sh x P120) 6,000,000.00 Cash 1,000,000.00 Initial Cost, Building P 7,000,000.00 Ordinary Shares Capital (50K x P 100) 5,000,000.00 Ordinary Shares Premium (50K x P 20) 1,000,000.00 Land Fair Value Land P 1,500,000.00 To record Land Land 1,500,000.00 Machinery Donated Capital 1,500,000.00 Purchase Price P 800,000.00 multiply by discount rate 5% To record Machinery Discount 40,000.00 Machinery 760,000.00 Cash 760,000.00 Purchase Price P 800,000.00 Discount (40,000.00) To record Equipment Initial Cost, Machinery P 760,000.00 Equipment 200,000.00 Notes Payable 200,000.00 Equipment Issue price of Notes Payable P 200,000.00 Building - We computed price of the building based on the issue price of the stock at date of transaction (which is P120 per share) Land - Fair value of the stock are used in measuring donated asset Machinery - We always deduct the discount if taken in computing price of machinery. Take note that discounts are not reflected in our books. Equipment - Value of equipment is based on the price of the note. Any interest expense that will be incur shall be form part of expenses.

Date Particular Debit Credit M Equipment — Received 500,000.00 Accumulated Depreciation 2,000,000.00 Equipment , Exchanged 2,400,000.00 Gain on exchange 100,000.00 Books of Frown Equipment — Received 500,000.00 Accumulated Depreciation 1,750,000.00 Equipment , Exchanged 2,200,000.00 Gain on exchange 50,000.00 Smile Equipment Accumulated Depreciatior Carrying Value Asset Received Carrying Value Gain on Exchange P 2,400,000.00 (2,000,000.00) 400,000.00 500,000.00 (400,000.00) I 00,000.00 Frown Equipment P2,200,000.00 Accumulated Depreciation (1,750,000.00) Carrying Value 450,000.00 Asset Received 500,000.00 Carrying Value (450,000.00) Gain on Exchange 50,000.00 First we compute the carrying value of the assets to be exchanged, then any difference versus the value of asset to be received shall be recognized as gainfloss