Reference no: EM132743477

Question: Presented below are five independent situations.

1) Principles of Intermediate Transportation purchased a ship on January 1, 2019, for P20,000,000. The useful life of the ship is 40 years, but it is subject to a government-mandated major overhaul every 4 years with a total projected cost of P4,000,000. The present value related to these payments is P3,200,000. Explain how this transaction should be accounted for at January 1, 2019, and at December 31, 2019. Prepare the journal entries to record all appropriate entries related to the ship in 2019. Principles of Intermediate uses the straight-line method of depreciation and assumes no residual value for the ship.

2) Math 1-2-3 Company signs a 5-year lease related to office space at an annual rental of P30,000. At the end of the second year, the company decides to close its operation in this part of country. Its lease is non-cancelable, and the penalty for non-payment is P62,000. The present value of future payments on the lease is estimated to be P81,000. The company does not believe that it can sublet these facilities. Explain how this transaction should be accounted for at December 31, 2019. Prepare the journal entry to record this entry on December 31, 2019.

3) Simplified Chinese Group operates a nuclear power plant. The plant cost P40,000,000 on January 2, 2020. It is estimated that the present value of dismantling the plant and the ensuing clean-up will be P1,000,000. Explain how this transaction should be accounted for on January 2, 2020. Prepare the journal entry to record this transaction on January 2, 2020.

4) Repilot Corporation signed as guarantor for P200,000 loan by PNB to Pilot Company, a principal supplier of Repilot. By reason of financial difficulties, it is probable that Repilot Corporation shall pay the P200,000 loan with only a 60% recovery anticipated from Pilot Company. Prepare the journal entry to recognize any provision for the current yearend.

5) On July 1, 2019, G.I. Jeff, Inc. became involved in a tax dispute with the BIR pertaining to 2018 income tax. On December 31, 2019, a judgment for P400,000 was assessed against G.I. Jeff, Inc. by the tax court. G.I. Jeff, Inc. is appealing the amount of the judgment. The tax advisor and legal counsel of G.I. Jeff, Inc. believed that it is probable that the assessment can be reduced on appeal by 50%. Prepare the journal entry to recognize any provision for the current yearend.

Required: Prepare the explanation and journal entry required for each situation.