Problem 1
JOJO Co. commenced operations early in 2018. During its first nine months, JOJO acquired real
estate for the construction of a building and other facilities. Operating equipment was purchased and
installed, and the company began operating activities in April 2018. The company’s accountant, who
was not sure how to record some of the transactions, opened a Property, Plant and Equipment (PPE)
ledger account and recorded debits and (credits) to this account as follows:
1. Cost of real estate purchased as a building site
Fair value of building was nil.) P1,700,000
2. Paid architect’s fee for design of new building 230,000
3. Paid for the demolition of an old building on the building site (1) 280,000
4. Paid property tax not paid by previous owner on the real estate
purchased as a building site in 1 17,000
5. Paid excavation costs for the new building 150,000
6. Made the first payment to the building contractor 2,500,000
7. Paid for equipment to be installed in the new building 1,480,000
8. Received from sale of salvaged materials from demolishing the
old building (68,000)
9. Made final payment to the building contractor 3,500,000
10. Imputed interest on Kithara’s own construction fund 220,000
11. Paid freight on equipment purchased 19,000
12. Paid installation costs of equipment 42,000
13. Paid for repair of equipment damaged during installation 27,000
PPE Ledger account balance 10,097,000
Based on the preceding information, determine the amount to be charged to each of the following:
1. Land
2. Land improvements
3. Building
4. Manufacturing equipment
Problem 2
Ezra, INC. completed the following transactions during 2012:
Jan. 1 Purchased real property for P18,847,500, which included a charge of P547,500 representing
property tax for the current year that had been prepaid by the vendor. Of the total purchase
price, 20% is determined to be applicable to land and the balance to buildings. A mortgage of
P11,250,000 was assumed by Ezra on the purchase. Cash was paid for the balance.
Feb. 5 Ezra expended P888,000 to recondition the building because previous owners had neglected
the normal maintenance and repair requirement on the building
May 20 The garage in the rear of the building was demolished, P135,000 being recovered on the
salvage material. Ezra immediately constructed a warehouse. The cost of such construction
was P2,028,000, which was not materially different from the bids made on the construction,
city inspectors discovered that Ezra failed to comply with the building safety code and thus
ordered the company to make extensive modifications to the warehouse. The cost of such
modifications, which could have been avoided, was P288,000.
June 1 The company acquired a new machine in exchange for its own ordinary shares with a market
value of P600,000 (par P90,000). The new machine has a market value of P750,000
July 1 Another machine was acquired by Ezra. Payment was made by issuing bonds with a face
value of P1,500,000 and by paying cash of P540,000. The machine’s fair value is P1,950,000
Nov. 20On September 1, the company engaged an independent contractor for parking lots and
landscaping at a cost of P1,638,000. The work was completed and paid for on November 20
Dec. 31Because the company’s financial year-end is December 31, the business was closed to permit
taking the year – end inventory. On this same date, required redecorating and repairs were
completed at a cost of P225,000
1. The journal entry to record the acquisition of real property on January 1 ?
2. The transactions completed during 2012 should result in a net increase in the Buildings Account of?
3. The total additions to Machinery should be?
4. The entry to record the acquisition of new machine on June 1
5.The entry to record the acquisition of new machine on July 1
