PROBLEM 22-1

1.)

Land held by the parent for undetermined use P5,000,000

A vacant building owned by the parent and to be 3,000,000
leased out under an operating lease
Building owned by a subsidiary and for which the 1,500,000
subsidiary provides security and maintenance
services to the lessees
Property under construction for use as 6,000,000
investment property
15,500,000

2.)

Property held by a subsidiary, a real estate firm, Owner-occupied property

in the ordinary course of business
Property held by the parent for use in production Owner-occupied property
Land leased by the parent to a subsidiary under Owner-occupied property
an operating lease
Land held for future factory sale Owner-occupied property

PROBLEM 22-2

Cost Model

2020
Jan. 1 Investment Property 50,000,000
Cash 50,000,000

Dec. 31 Depreciation Expense 1,800,000

Accumulated Depreciation 1,800,000

2021
Dec. 31 Depreciation Expense 1,800,000
Accumulated Depreciation 1,800,000

2022
Dec. 31 Depreciation Expense 1,800,000
Accumulated Depreciation 1,800,000
Fair Value Method

2020
Jan. 1 Investment Property 50,000,000
Cash 50,000,000

Dec. 31 Investment Property 5,000,000

Gain from change in fair value 5,000,000

2021
Dec. 31 Loss from change in fair value 2,000,000
Investment Property 2,000,000

2022
Dec. 31 Investment Property 7,000,000
Gain from change in fair value 7,000,000

PROBLEM 22-3

1.) Answer: A. 865,000 gain

Cost, Jan. 1, 2021 2,200,000

Accumulated Depreciation (2,200,000/40 x 3) 165,000

Carrying Amount, Dec. 31, 2023 2,035,000

Sales Price 2,900,000

Carrying amount, Dec. 31, 2023 2,035,000

Gain on disposal of property 865,000

PROBLEM 22-4

1.) Answer: B. (150,000)

Fair Value Fair Value Gain (loss)

Dec. 31, 2021 Dec. 31, 2022
Property 1 3,200,000 3,500,000 300,000
Property 2 3,050,000 2,850,000 (200,000)
Property 3 3,850,000 3,600,000 (250,000)
Net loss change (150,000)
in fair value
PROBLEM 25-5

1) Answer: A. 8,400,000 and 300,000

Cost, Jan. 1, 2021 9,000,000

Accumulated depreciation (9,000,000/30x2) 600,000

Carrying amount – Dec. 31, 2022 8,400,000

Depreciation expense, 2022 (9,000,000/30) 300,000

PROBLEM 22-6

Answer: B. 100,000 and 145,000

Fair Value Model

Fair value, Dec. 31, 2021 5,900,000

Fair value, Dec. 31, 2022 6,000,000

Loss from change in fair value (100,000)

Cost Model

Depreciation expense (5,800,000/40) 145,000

PROBLEM 22-7

Answer: A. 400,000

Fair Value 8,000,000

Acquisition Cost 7,600,000

Gain from change in fair value 400,000

PROBLEM 22-8

Answer: D. 4,750,000

Cost, Jan. 1, 2021 5,000,000

Accumulated depreciation (5,000,000/20) (250,000)

Carrying amount, Dec. 31, 2021 4,750,000

PROBLEM 22-9

1) Answer: A. 198,900,000

Purchase Price 200,000,000

Non-refundable transfer taxes 20,000,000

Legal Cost 1,000,000

Total Cost 221,000,000

Initial cost of investment property (221,000,000 x 9/10) 198,900,000

2) Answer: B. 4,420,000

Total Cost 221,000,000

Initial Cost of investment property 198,900,000

Cost of land and building 22,100,000

Initial cost of land (22,100,000 x 20%) 4,420,000

3) Answer: C. 17,680,000

Initial cost of building (22,100,000 x 80%) 17,680,000

4) Answer: D. 26,100,000

Fair value – Dec. 31, 2021 (25,000,000 x 9units) 225,000,000

Carrying amount of investment property 198,900,000

Gain from increase in fair value 26,100,000

5) Answer: A. 353,600

Depreciation of building (17,680,000 / 50years) 353,600

PROBLEM 22-10
1) Answer: C. 15,000,000

FV of building 35,000,000

Carrying amount of building (20,000,000)

Revaluation Surplus 15,000,000

2) Answer: C. 5,000,000

FV of land 15,000,000

Carrying amount of land (10,000,000)

Gain on reclassification 5,000,000

PROBLEM 22-11

2021
Jan. 1 Life insurance expense 60,000
Cash 60,000
2022
Jan. 1 Life insurance expense 60,000
Cash 60,000
2023
Jan. 1 Life insurance expense 60,000
Cash 60,000

Dec. 31 Cash surrender value 60,000

Life Insurance (60k x 1/3) 20,000
Retained Earnings 40,000
2024
Jan. 1 Life insurance expense 60,000
Cash 60,000

Dec. 31 Cash surrender value 24,000

Life insurance expense 24,000

Balance, Dec. 31, 2024 84,000

Less: Balance, Dec. 31, 2023 60,000
Increase in cash surrender value for 2024 24,000
2025
Jan. 1 Life insurance expense 60,000
Cash 60,000

June 30 Cash surrender value 16,000

 Life insurance expense 16,000

Balance, Dec. 31, 2025 116,000

Less: Balance, Dec. 31, 2024 84,000
Increase in cash surrender value for 2024 32,000
Increase from Jan. 1 to June 30 (32k x ½) 16,000

July 31 Cash
Cash surrender value (60K+24K+16K) 2,000,000
Life insurance expense (60Kx1/2) 100,000
Gain on sale of life insurance settlement (2m – 30,000
(100k+30k)
1,870,000

PROBLEM 22-12

2021
Jan. 1 Life insurance expense 80,000
Cash 80,000
2022
Jan. 1 Life insurance expense 80,000
Cash 80,000
2023
Jan. 1 Life insurance expense 80,000
Cash 80,000

Dec. 31 Cash 5,000

Life insurance expense 5,000

Dec. 31 Cash surrender value 42,000

Life Insurance (42k x 1/3) 14,000
Retained Earnings 28,000
2024
Jan. 1 Life insurance expense 80,000
Cash 80,000

Dec. 31 Cash 6,000

Life insurance expense 6,000

Dec. 31 Cash surrender value 5,000

Life insurance expense 5,000

Balance, Dec. 31, 2024 47,000

Less: Balance, Dec. 31, 2023 42,000
Increase in cash surrender value for 2024 5,000
PROBLEM 22-13

1) Journal entries

A. Life insurance policy (10,000 x 6/12) 5,000

Cash surrender value 5,000

B. Prepaid life insurance (28,000 x 1/12) 14,000

Life insurance 14,000

C. Interest expense 4,500

Accrued interest expense (50,000 x12% x 9/12) 4,500

D. Dividend income 2,000

Dividend receivable 2,000

2) Financial Statement Classification of the accounts

Prepaid life insurance 14,000 Current Asset

Cash surrender value 85,000 Investment

Loan Payable 50,000 Current liabilities

Accrued interest payable 45,000 Current liabilities

Problem 22-14

Answer: C. 6,500

Annual premium paid 20,000

Increase in cash surrender value (54,000-43,500) (10,500)

Dividend received (3,000)

Life insurance expense 6,5000

PROBLEM 22-15

Answer: C. 19,000

Premium paid 40,000

Increase in cash surrender value (108,000-87,000) 21,000

Life insurance expense 19,000

PROBLEM 22-16

1) Answer: A. 1,962,000

Cash surrender value – Dec. 31, 2020 15,000

Increase in cash surrender value from Jan. 1 to Oct. 1 (4,000 x 9/12) 3,000

Cash surrender value – Oct. 1, 2021 18,000

Face of policy 2,000,000

Cash surrender value (18,000)

Unexpired premium (80,000 x 3/12) (20,000)

Gain on life insurance settlement 1,962,000

2) Answer: D. 57,000

Annual premium paid – Jan. 1, 2021 80,000

Unexpired premium on Oct. 1, 2021 (20,000)

Increase in cash surrender value from Jan. 1 to Oct. 2021 (3,000)

Life insurance expense for 2021 57,000

PROBLEM 22-17 Multiple choice

1) C

2) B

3) D

4) B

PROBLEM 22-18 Multiple choice

1) C

2) A

3) C

4) D

5) A