Problem 26-22 (IAA)On December 31, 2020, Scarce Company showed the followingaccount for machinery that it has assembled for own use.MachineryCost of dismantling old machine 20,000 Cash proceeds from saleRaw materials usedLabor in constructionCost of installationMaterials spoiled in trial runProfit on constructionPurchase of machine toolsof old machine14,000600,000400,000 Depreciation for 202060,00030,000100,00090,00010% of P1,286,000 128,600An analysis of the details in the account disclosed the following:1. The old machine, which was removed in the installation ofthe new one had been fully depreciated.2. The discount received on the payment of materials used inconstruction totaled P40,000 and this was reported in thepurchase discount account.3. The factory overhead account shows a balance of P2,500,000for the year ended December 31, 2020. This balance exceedsnormal overhead on plant activities by Pl150,000 and isattributable to machine construction.4. A profit was recognized on construction for the differencebetween cost incurred and the price at which the machinecould have been purchased.5. Machine tools have a useful life of 3 years.6. Machinery has a useful life of 10 years and was used forproduction beginning September 1, 2020.Required:a. Determine the cost of the machinery.b. Prepare journal entries to adjust the machinery account onDecember 31, 2020. Problem 26-15 (IAA)During the current year, Sacrosanct Company purchased asecond-hand machine at a price of P3,200,000.A cash payment of P500,000 was made and a two-year,noninterest bearing note was issued for the balance.Recent transactions involving similar machinery indicate thatthe used machine has a fair value of P2,400,000. A new machinewould cost P4,000,000.The following costs were incurred during the year:Cost of removing old machine that is replacedCash proceeds from sale of the old machinereplacedGeneral overhaul and repairs to reconditionmachine prior to useCost of spare parts to cover breakdownsCost of installationCost of testing machine prior to useCost of hauling machine from vendor to entitypremisesCost of repairing damage to machine causedwhen machine was dropped during installation 30,000Repairs incurred during first year of operationsSafety device added to the machineCost of training workers to operate the machine30,00010,000150,000200,00080,000110,00010,00090,000250,00020,000What total amount should be capitalized as cost of the secondhand machine?a. 3,000,000b. 2,750,000c. 3,200,000d. 3,800,000

Journal entry is a primary entry that records the financial transactions initially.

Answered: On December 31, 2020, Scarce Company…

Business

Accounting

On December 31, 2020, Scarce Company showed the followine account for machinery that it has assembled for own use.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter7: Operating Assets

Section: Chapter Questions

Problem 43E

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