CHAPTER 10 ACQUISITION AND DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT TRUE-FALSE—Conceptu! An"#e$ F T F T F T F F F T T T T F F T T F F T
No% 1. 2. 3. 4. ". $. '. (. *. 1. 11. 12. 13. 14. 1". 1$. 1'. 1(. 1*. 2
De"c$&pt&on Nature of property, plant, and equipment. Nature of property, plant, and equipment. Cost of removing old building. Insurane on equipment pur!ased. #ounting for speial assessments. %ver!ead osts in self&onstruted assets. %ver!ead osts in self&onstruted assets. Interest apitali)ation. +ualifying assets for interest apitali)ation. #voidable interest. Interest apitali)ation on land pur!ase. -eferred&payment ontrats. #ounting for nonmonetary e!anges. Nonmonetary e!anges. /eogni)ing lo losses on on no nonmonetary e e!anges. Costs subsequent to aquisition. -efinition of improvements. %rdinary repairs benefit period. Involuntary onversion gains0losses. oss from srapped asset.
MULTIPLE CHOICE—Conceptu! An"#e$ d b d d a b b d d d a a b
No% 21. 22. 23. 24. 2". 2$. 2'. 2(. 2*. 3. 3. 31. 31. 32. 33. 34. 3". 3$. 3'.
De"c$&pt&on -efinition of plant assets. C!arateristis of plant assets. C!arateristis of plant assets. Composition of land ost. Composition of land ost. -etermination of land ost. -etermine ost of land used as a paring lot. -etermine ost of ma!inery. Classifiation of fenes and paring lots. /eo /eord rdin ing g plant plant ass asset ets s at !is !isto tori ria all ost ost.. #o #oun unti ting ng for for ove over! r!ea ead d ost osts. s. -etermine osts apitali)ed fo for self&onstruted assets. #ssets !i! qualify for interest apitali)ation. #ssets !i! qualify for interest apitali)ation. -efinition of 5avoidable in interest.5 6eriod of of time ov over ! !i! in interest may be a apitali)ed. 7aimum amount of annual interest t!at may be apitali)ed.
10 -
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
MULTIPLE CHOICE—Conceptu! .cont%/ An"#e$ b d d a b d d a b b d d a d a d
No% 3(. 3*. 3*. 4. 41. 41. 42. 42. 6 43. 43. 44. 4". 4$. 4'. 4(. 4*. ". "1. "2. "3. "4. 6 "". "". "$. "$. "'. "'. "(. "*.
De"c$&pt&on Interest a apitali)ation8eig!ted&average fa fator. Clas lassif sifiat iatio ion n of of int inter eres estt ear earne ned d on seur euriities ties pur pur!a !as sed it! it! bor borro ro ed fund funds. s. 9rite&off of apitali)ed interest osts. Cond Condit itio ions ns for for intere interest st ap apit ital ali) i)at atio ion. n. :aluat luatio ion n of nonm nonmon onet etar ary y asse asset. t. ;ain ;ain re reog ogni niti tion on on on plan plantt asse assett e! e!an ange. ge. :aluation of plant assets. 6lant as asset a aquired by by issuane of of sto. :aluation of nonmonetary e!anges. ;ain reognition on a nonmonetary e!ange. ;ain reognition on a nonmonetary e!ange. #ounting for donated assets. :aluation of donated assets. Identify o onditions fo for a apital e ependitures. Capital e ependiture. Identifiation of of a apital e ependiture. Identifiation of of a apital e ependiture. #o #oun unti ting ng for for reve revenu nue e ep epen endi ditu ture res. s. #o #oun unti ting ng for for api apita tall ep epen endi ditu ture res. s. ;ain ;ain or loss loss on plan plantt ass asset et disp dispos osal al.. -etermine loss on sale of depreiable asset.
6
T!ese questions also appear in t!e 6roblem&olving urvival ;uide. T!ese questions also appear in t!e tudy ;uide.
MULTIPLE CHOICE—Co*putt&on! An"#e$ b d d d d a b a b a b a d a b
No% $. $1. $2. $3. $4. $". $$. $'. $(. $*. '. '1. '2. '3. '4. '". '$. ''. '(. '*.
De"c$&pt&on -etermine ost of land. -etermine ost of building. Calulate ost of land and building. Calulate ost of equipment. Calulate ost of equipment. %ver!ead inluded in self&onstruted asset. %ver!ead inluded in self&onstruted asset. Calulate interest to be apitali)ed. Calulate average aumulated ependitures. Calulate interest to be apitali)ed. Calulate average aumulated ependitures. Calulate average aumulated ependitures. Calulate amount of interest to be apitali)ed. Calulate eig!ted&average aumulated ependitures. Calulate eig!ted&average aumulated ependitures. Calulate eig!ted&average aumulated ependitures. Calulate atual interest ost inurred during year. Calulate amount of interest to be apitali)ed. Calulate amount of interest to be apitali)ed. Calulate ost of land aquired.
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
MULTIPLE CHOICE—Co*putt&on! .cont%/ An"#e$ No% (. (1. b (2. d (3. b (4. d (". b ($. b ('. a ((. (*. a *. d *1. b *2. a *3. b *4. b *". d *$. b *'. d *(. **. 1. b 11. b 12.
De"c$&pt&on -etermine ost of pur!ased ma!ine. Calulate ost of tru pur!ased. Calulate ost of ma!ine pur!ased. #lloation of ost of a lump sum pur!ase. Calulate ost of equipment. #quisition of equipment by e!ange of of sto !eld as as an investment. =!ange laing ommerial substane. =!ange laing ommerial substane 0gain. =!ange laing ommerial substane 0gain. :aluation of a nonmonetary e!ange. =!ange laing ommerial substane0gain. :aluation of a nonmonetary e!ange. ;ain reognition of a nonmonetary e!ange. :aluation of a nonmonetary e!ange. :aluation of a nonmonetary e!ange. Calulate gain on nonmonetary e!ange. Calulate loss on nonmonetary e!ange. Calulate gain on nonmonetary e!ange. Calulate loss on nonmonetary e!ange. Calulate as! reeived from sale of ma!inery. Calulate a as! re reeived fr from sale of of ma!inery. Calulate loss on sale of ma!ine. Calulate gain on sale of equipment.
MULTIPLE CHOICE—CPA A+pt A+pte+ e+ An"#e$ b b a a b d a
No% 13. 14. 1". 1$. 1'. 1(. 1*. 11.
De"c$&pt&on -etermine ost of land. Classifiation of sale of building. -etermine in interest ost to be a apitali)ed. :aluation of a nonmonetary e!ange. =!ange laing ommerial substane. #ounting for donated assets. Costs subsequent to aquisition. :aluation of replaement equipment.
EERCISES I te * =1&111 =1& =1&1 112 =1&1 1&11 13 =1&114 =1&11" =1&11$ =1&1 1&11 1'
De"c$&pt&on 6lant as asset a aounting. 9eig 9eig!t !ted ed&av &aver erag age e au aumu mula late ted d epe epend ndit itur ures es.. Capit apital ali) i)at atio ion n of of inte intere res st. Nonmonetary e!ange. Nonmonetary e!ange. -onated as assets. Capit apital ali) i)in ing g vs. vs. epe epens nsin ing. g.
10 - 2
10 - 6
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
PRO'LEMS I te * 61& 61&1 11( 61& 61&1 11* 61& 61&12 12 61&121 61&12 &122 61&12 &123 61&12 &124 61&12 &12" 61&12 &12$
De"c$&pt&on Capi Capita talili)i )ing ng aqu aquis isit itio ion n ost osts. s. Capit apital ali) i)at atio ion n of of inte intere res st. Capit apital ali) i)at atio ion n of inte intere res st. #sset aquisition Nonmonetary e!ange. Nonmonetary e!ange. Nonmonetary e!ange. Nonmonetary e!ange. Nonmonetary e!ange.
CHAPTER LEARNIN3 O'4ECTI5ES 1.
-es -esri ribe be prop proper erty ty,, plan plant, t, and and equi equipm pmen ent. t.
2.
Identify Identify t!e t!e osts osts to inlud inlude e in t!e initial initial valuation valuation of property property,, plant, plant, and equipmen equipment. t.
3.
-esribe -esribe t!e aounting aounting problems problems assoiated assoiated it! it! self& self&onstr onstruted uted assets. assets.
4.
-esribe -esribe t!e aounting aounting problems problems assoiated assoiated it! it! interes interestt apital apitali)ati i)ation. on.
".
>nders >nderstan tand d aount aounting ing issue issues s related related to aqui aquirin ring g and valuin valuing g plant plant assets assets..
$.
-esri -esribe be t!e aou aounti nting ng treatm treatment ent for for osts osts subseq subsequen uentt to aquis aquisiti ition. on.
'.
-esribe -esribe t!e t!e aount aounting ing treatme treatment nt for for t!e disposal disposal of of property property,, plant, plant, and and equipmen equipment. t.
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - :
SUMMARY SUMMARY OF LEARNIN3 O'4ECTI5ES 'Y QUESTIONS Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
7C 7C 7C
13. 14. 111.
7C 7C =
11'. 11(.
= 6
7C 7C 7C 7C 7C
1". 111. 113. 11'. 11*.
7C = = = 6
12.
6
7C 7C 7C 7C 7C 7C 7C
1(. 111. 114. 11". 11$. 11'. 121.
7C = = = = = 6
122. 123. 124. 12". 12$.
6 6 6 6 6
7C 7C
11. 111.
7C =
11'.
=
Le$n&n O78ect&9e 1
1.
TF
2.
TF
21.
3. 4. ".
TF TF TF
24. 2". 2$.
7C 7C 7C
2'. 2(. 2*.
$. '.
TF TF
31. 32.
7C 7C
$". $$.
(. *. 1. 11. 33.
TF TF TF TF 7C
34. 3". 3$. 3'. 3(.
7C 7C 7C 7C 7C
3*. 4. 41. $'. $(.
12. 13. 14. 1". 42. 6 43. 44.
TF TF TF TF 7C 7C 7C
4". 4$. 4'. 4(. 4*. ". '*.
7C 7C 7C 7C 7C 7C 7C
(. (1. (2. (3. (4. (". ($.
1$. 1'.
TF TF
1(. "1.
TF 7C
"2. "3.
1*. 2.
TF TF
7C 7C
"*. **.
Note?
"'. "(.
TF @ Tr True&False 7C @ 7ultiple C!oie 6 @ 6roblem = @ =erise
7C 22. 7C 23. Le$n&n O78ect&9e 7C 3. 7C $2. 7C $. 7C $3. 7C $1. 7C $4. Le$n&n O78ect&9e 2 7C 112. = 7C 113. = Le$n&n O78ect&9e 6 7C $*. 7C '4. 7C '. 7C '". 7C '1. 7C '$. 7C '2. 7C ''. 7C '3. 7C '(. Le$n&n O78ect&9e : 7C ('. 7C *4. 7C ((. 7C *". 7C (*. 7C *$. 7C *. 7C *'. 7C *1. 7C *(. 7C *2. 7C 1$. 7C *3. 7C 1'. Le$n&n O78ect&9e ; 7C "4. 7C "$. 6 7C "". 7C 1*. Le$n&n O78ect&9e < 7C 1. 7C 12. 7C 11. 7C
7C
7C
10 - ;
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
TRUE-FALSE—Conceptu! 1. #ssets #ssets lassi lassifie fied d as 6roperty 6roperty,, 6lant, 6lant, and =quipment =quipment an be eit!er eit!er aquire aquired d for use in operations, or aquired for resale. 2. #ssets #ssets lassified lassified as 6roperty 6roperty,, 6lant, 6lant, and =quipment =quipment must must be bot! long&term long&term in nature nature and possess p!ysial substane. 3. 9!en land land it! an old old building building is pur!ase pur!ased d as a future future building building site, site, t!e ost ost of removin removing g t!e old building is part of t!e ost of t!e ne building. 4. Insurane Insurane on equipmen equipmentt pur!ased, pur!ased, !ile !ile t!e equipme equipment nt is in transi transit, t, is part part of t!e t!e ost of of t!e equipment. ". peial peial assessment assessments s for loal loal improvements improvements su! as street street lig!ts lig!ts and seers seers s!ould s!ould be aounted for as land improvements. $. :ariabl :ariable e over!ead osts osts inurred inurred to self& self&onstr onstrut ut an asset asset s!ould s!ould be inluded inluded in t!e ost of t!e asset. '. Companies Companies s!ould s!ould assign assign no portion portion of fied over!ead over!ead to self&ons self&onstrut truted ed assets. assets. (. 9!en 9!en apitali apitali)in )ing g intere interest st during during onstru onstrutio tion n of an asset, asset, an imputed imputed interest interest ost ost on sto finaning must be inluded. *. #sse #ssets ts under under ons onstr tru uti tion on for for a omp ompan anyA yAs s on on use use do not qual qualif ify y for for inte intere rest st ost apitali)ation. 1. #voidable #voidable interest interest is t!e t!e amount of of interest interest ost t!at t!at a ompany ompany ould t!eoret t!eoretiall ially y avoid if it !ad not made ependitures for t!e asset. 11. 11. 9!en 9!en a ompan ompany y pur!ase pur!ases s land it! t!e intentio intention n of develop developing ing it for a parti partiula ularr use, interest osts assoiated it! t!ose ependitures qualify for interest apitali)ation. 12. #ssets #ssets pur!ased pur!ased on long&term long&term redit redit ontra ontrats ts s!ould s!ould be reorded reorded at t!e present present value value of t!e onsideration e!anged. 13. Companies Companies aount aount for t!e t!e e!ange e!ange of nonmonet nonmonetary ary assets assets on t!e t!e basis of t!e t!e fair value value of t!e asset given up or t!e fair value of t!e asset reeived. 14. If a nonmon nonmoneta etary ry e!ang e!ange e las las ommer ommerial ial substa substane ne,, and as! as! is reeived reeived,, a partial partial gain or loss is reogni)ed. 1". 1". 9!en 9!en a omp ompan any y e! e!an ange ges s nonm nonmon onet etary ary asset assets s and and a loss loss resu result lts, s, t!e t!e omp ompan any y reogni)es t!e loss only if t!e e!ange !as ommerial substane. 1$. Costs Costs inurre inurred d subseque subsequent nt to t!e aquis aquisiti ition on of an asset asset are apita apitali) li)ed ed if t!ey t!ey provide provide future benefits. 1'. Improvements Improvements are often often referred referred to as better betterments ments and and involve involve t!e substi substitution tution of a better better asset for t!e one urrently used.
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - <
1(. 9!en an an ordinary ordinary repair repair ours ours,, several several periods periods ill usually usually benefi benefit. t. 1*. Companies Companies alays alays treat treat gains or losses losses from from an involunta involuntary ry onversion onversion as etrao etraordinar rdinary y items. 2. If a ompany ompany sraps sraps an asset asset it!out it!out any as! as! reovery reovery,, it reogni) reogni)es es a loss equal equal to t!e assetAs boo value.
T$ue T$ue F!"e An"#e$"— Conceptu! Ite*
An"%
Ite*
An"%
Ite*
An"%
Ite*
1. 2. 3. 4. ".
F T F T F
$. '. (. *. 1.
T F F F T
11. 12. 13. 14. 1".
T T T F F
1$. 1'. 1(. 1*. 2.
An"%
T T F F T
MULTIPLE CHOICE—Conceptu! 21. 21.
6lan 6lantt ass asset ets s may prop properl erly y inl inlud ude e a. deposi deposits ts on ma! ma!ine inery ry not yet yet reei reeived ved.. b. idle idle equip equipmen mentt aa aaiti iting ng sale. sale. . land land !eld for for possi possible ble use use as a futur future e plant plant site. site. d. none none of t!e t!es se.
22. 22.
9!i 9!i! ! of t!e t!e foll follo oin ing g is is not a a maBor !arateristi of a plant asset a. 6osses 6ossesses ses p!ysi p!ysial al subs substan tane e b. #qu #quir ired ed for for res resal ale e . #qu #quir ired ed for for use use d. Dield Dields s servi servies es over over a numbe numberr of year years s
23.
9!i 9!i! of t!ese is not a a maBor !arateristi of a plant asset a. 6osses 6ossesses ses p!ysi p!ysial al subs substan tane e b. #quir #quired ed for for use in operat operation ions s . Dield Dields s servi servies es over over a numbe numberr of year years s d. #ll of t!ese are maBor maBor !arate !arateristi ristis s of a plant asset. asset.
24. 24.
Cott Cotton on Eotel Eotel Corpo Corpora rati tion on reent reently ly pur! pur!as ased ed Eolid Eoliday ay Eotel Eotel and t!e land land on !i !i! ! it is loated it! t!e plan to tear don t!e Eoliday Eotel and build a ne luury !otel on t!e site. T!e ost of of t!e Eoliday Eotel Eotel s!ould be a. depre depreiat iated ed over t!e period period from from aquisit aquisition ion to t!e date t!e !otel !otel is s!edul s!eduled ed to be torn don. b. ritten ritten off off as an etraord etraordinary inary loss loss in t!e t!e year year t!e !otel !otel is torn torn don. don. . apita apitali) li)ed ed as part part of of t!e ost ost of of t!e land. land. d. apitali)e apitali)ed d as part of t!e ost of t!e t!e ne !otel. !otel.
10 - =
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
2".
T!e T!e os ost of land land does does not inlude inlude a. osts of gradin grading, g, filling filling,, draining, draining, and learing. learing. b. osts osts of of remov removing ing old buildi buildings ngs.. . osts osts of impro improvem vement ents s it! it! limited limited lives lives.. d. spe speia iall ass asses essm smen ents ts..
2$.
T!e ost ost of land typiall typially y inludes inludes t!e t!e pur!ase pur!ase prie prie and and all of of t!e folloing folloing osts osts eept eept a. grading, grading, fillin filling, g, draini draining, ng, and and learing learing osts. osts. b. street street lig!ts, lig!ts, seers, seers, and and drainage drainage systems systems ost. ost. . privat private e drive driveays ays and and pari paring ng lots. lots. d. assumption assumption of of any liens liens or or mortgages mortgages on t!e property property..
2'.
If a orpora orporatio tion n pur!as pur!ases es a lot and build building ing and subse subseque quentl ntly y tears tears don don t!e buildi building ng and uses t!e property as a paring lot, t!e proper aounting treatment of t!e ost of t!e building ould depend on a. t!e signifi signifiane ane of t!e ost ost alloated alloated to t!e building building in relation relation to t!e ombine ombined d ost of t!e lot and building. b. t!e lengt! lengt! of time time for for !i! !i! t!e building building as as !eld prior prior to its demolition demolition.. . t!e ont ontemp emplat lated ed futur future e use of t!e t!e parin paring g lot. lot. d. t!e intention intention of managem management ent for t!e t!e property property !en t!e t!e building building as aquired. aquired.
2(.
T!e debit debit for for a sales sales ta ta properly properly levied levied and paid paid on t!e pur!as pur!ase e of ma!ine ma!inery ry preferab preferably ly ould be a !arge to a. t!e t!e ma! ma!in iner ery y ao aoun unt. t. b. a separ separate ate defe deferre rred d !arg !arge e aoun aount. t. . misellane misellaneous ous ta epense epense !i! !i! inludes inludes all taes taes ot!er ot!er t!an t!ose t!ose on inomeG. inomeG. d. aumu aumulat lated ed depre depreiat iation ion&&m &&ma! a!ine inery ry..
2*.
Fenes Fenes and and pari paring ng lots lots are repo reporte rted d on t!e t!e balan balane e s!ee s!eett as a. urr urren entt asse assets ts.. b. land land impr improv ovem emen ents ts.. . land. d. prop proper erty ty and and equi equipm pmen ent. t.
3.
Eistor Eistoria iall ost is t!e basis basis advoat advoated ed for reordi reording ng t!e aquisi aquisitio tion n of property property,, plant, plant, and equipment for all of t!e folloing reasons except a. at t!e t!e date of of aquisit aquisition, ion, ost ost reflet reflets s fair fair maret maret value. value. b. proper property ty,, plant, and equipm equipment ent items are alays alays aquir aquired ed at t!eir t!eir original original !istor !istoria iall ost. . !istorial !istorial ost ost involves involves atual atual transat transations ions and, and, as su!, is is t!e most most reliable reliable basis. basis. d. gains and and losses losses s!ould not not be antiipat antiipated ed but s!ould s!ould be reogni)ed reogni)ed !en !en t!e asset asset is sold.
31. 31.
To be ons onsis iste tent nt it! it! t!e t!e !ist !istor ori ial al ost ost prin prini ipl ple, e, over over!e !ead ad ost osts s inu inurr rred ed by an enterprise onstruting its on building s!ould be a. alloa alloated ted on t!e t!e basis basis of lost lost prod produt ution ion.. b. eliminated eliminated omplet ompletely ely from from t!e t!e ost ost of of t!e asset. asset. . alloa alloated ted on on an oppor opportun tunity ity ost ost basi basis. s. d. alloated alloated on a pro pro rata basis basis betee beteen n t!e asset asset and normal normal operatio operations. ns.
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - >
32.
9!i! of t!e folloing folloing osts osts are are apita apitali)ed li)ed for self&onst self&onstrute ruted d assets assets a. 7ate 7ateri rial als s and and lab labor or only only b. abo aborr and and over over!e !ead ad only only . 7ate 7ateri rial als s and and over over!e !ead ad onl only y d. 7ateri 7aterials als,, labor labor,, and over!e over!ead ad
33. 33.
9!i 9!i! ! of t!e t!e fol follo lo ing ing asse assets ts do do not qualify qualify for apitali)ation of interest osts inurred during onstrution of t!e assets a. #ssets #ssets under under onstru onstrution tion for for an enterpriseH enterpriseHs s on on use. b. #ssets #ssets intended intended for sale sale or lease lease t!at t!at are produed produed as disrete disrete proBets proBets.. . #ssets #ssets finaned finaned t!roug! t!roug! t!e issuane issuane of of long&ter long&term m debt. debt. d. #ssets #ssets not urrentl urrently y underg undergoin oing g t!e ativit ativities ies neessar neessary y to prepare prepare t!em for t!eir t!eir intended use.
34.
#ssets #ssets t!at t!at qual qualify ify for for inter interest est ost ost api apital tali)a i)ation tion inl inlude ude a. assets assets under under onstru onstrution tion for a ompanyHs ompanyHs on use. use. b. assets assets t!at are ready ready for t!eir t!eir intended intended use use in t!e earnings earnings of t!e ompany ompany.. . assets assets t!at are not urren urrently tly being being used beaus beause e of eess eess apaity apaity.. d. #ll of t!ese t!ese assets assets qualify qualify for interest interest ost apita apitali)at li)ation. ion.
3".
9!en 9!en omputi omputing ng t!e amoun amountt of interes interestt ost ost to be apital apitali)e i)ed, d, t!e one onept pt of 5avoid 5avoidabl able e interest5 refers to a. t!e total total inter interest est ost ost atua atually lly inur inurred red.. b. a ost ost of apital apital !arge !arge for for sto! sto!olders oldersHH equity equity.. . t!at t!at portion portion of total total interest interest ost ost !i! ould ould not !ave !ave been been inurr inurred ed if epend ependitu itures res for asset onstrution !ad not been made. d. t!at t!at port portio ion n of aver averag age e au aumu mula late ted d epe ependi nditu tures res on !i !i! ! no inte interes restt ost ost as as inurred.
3$.
T!e peri period od of time time durin during g !i! !i! intere interest st must must be api apital tali)e i)ed d ends !en !en a. t!e asset asset is substan substantiall tially y omplete omplete and ready ready for for its intended intended use. use. b. no furt! furt!er er inter interest est ost ost is is being being inurr inurred. ed. . t!e asset is abandon abandoned, ed, sold, sold, or fully fully depreiated depreiated.. d. t!e t!e ati ativi viti ties es t!at are neess neessar ary y to get t!e t!e asse assett ready ready for its intend intended ed use !ave !ave begun.
3'.
9!i! of t!e t!e follo folloing ing statem statements ents is true true regardi regarding ng apital apitali)ati i)ation on of interest interest a. Inte Interes restt ost ost apit apital ali) i)ed ed in onne onneti tion on it! it! t!e t!e pur pur!a !ase se of land land to be used used as a building site s!ould be debited to t!e land aount and not to t!e building aount. b. T!e amount amount of interest interest ost ost apitali)ed apitali)ed during during t!e period period s!ould s!ould not eeed eeed t!e atual atual interest ost inurred. . 9!en eess eess borroed borroed funds funds not immedia immediately tely needed needed for onstru onstrution tion are tempora temporarily rily invested, any interest earned s!ould be offset against interest ost inurred !en determining t!e amount of interest ost to be apitali)ed. d. T!e T!e mini minimu mum m amou amount nt of inte intere rest st to be api apita talili)e )ed d is dete determ rmin ined ed by mult multip iply lyin ing g a eig!ted average interest rate by t!e amount of average aumulated ependitures on qualifying assets during t!e period.
10 - 10
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
3(.
Constr Construt ution ion of of a qualif qualifyi ying ng asset asset is star started ted on on #pri #prill 1 and fini finis!e s!ed d on -eem -eember ber 1. T!e frati fration on used used to multip multiply ly an epen ependit diture ure made made on #pril #pril 1 to find find eig! eig!ted ted&ave &averag rage e aumulated ependitures is a. (0(. b. (012. . *012. d. 11012.
3*.
9!en funds funds are are borroe borroed d to pay pay for onstruti onstrution on of assets assets t!at t!at qualify qualify for apita apitali)at li)ation ion of interest, t!e eess funds not needed to pay for onstrution may be temporarily invested in interest&bearing seurities. Interest earned on t!ese temporary investments investments s!ould be a. offset offset against against interes interestt ost ost inurred inurred during during onstr onstrutio ution. n. b. used to redue redue t!e t!e ost ost of assets assets being being onstru onstruted. ted. . multip multiplie lied d by an appropria appropriate te interes interestt rate to determine determine t!e amount amount of interest interest to be apitali)ed. d. reogn reogni)e i)ed d as reve revenue nue of of t!e t!e period period..
4. 4.
Inte Intere rest st os ostt t!at t!at is is api apita talili)e )ed d s!ou s!ould ld a. be ritte ritten n off over t!e remain remaining ing term term of t!e debt. b. be aumulate aumulated d in a separate separate deferred deferred !arge aount aount and and ritten ritten off equally equally over over a 4&year period. . not be ritten ritten off off until until t!e related related asset is fully fully depreiate depreiated d or disposed disposed of. of. d. none none of t!e t!es se.
41.
9!i 9!i! ! of t!e follo ollo ing ing is not not a ond ondiition tion t!at !at mus must be sat satisf isfied ied befo before re inter nteres estt apitali)ation an begin on a qualifying asset a. Intere Interest st ost ost is bein being g inur inurred red.. b. =pend =penditu itures res for for t!e asse assets ts !ave !ave been made made.. . T!e interest interest rate is equal to to or greater greater t!an t!e t!e ompanyH ompanyHs s ost of of apital. apital. d. #ti #tivi viti ties es t!at are neess neessar ary y to get t!e t!e asse assett read ready y for for its its inte intend nded ed use use are are in progress.
42.
T!e ost ost of a nonmo nonmonet netary ary asset asset aqui aquired red in e!a e!ange nge for for anot!er anot!er nonmo nonmonet netary ary asset asset and t!e e!ange !as ommerial substane is usually reorded at a. t!e fair fair value value of t!e asset asset given given up, and and a gain or or loss is is reogni)ed reogni)ed.. b. t!e fair fair value value of t!e asset asset given given up, and and a gain but but not a loss loss may be reogni)e reogni)ed. d. . t!e fair value value of t!e asset asset reeived reeived if it is is equally reliabl reliable e as t!e fair value value of t!e asset asset given up. d. eit!er eit!er t!e fair value value of t!e asset asset given up or t!e asset asset reeived, reeived, !i!ev !i!ever er one results results in t!e largest gain smallest lossG to t!e ompany.
6
43.
T!e
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - 11
44.
6lant assets assets pur!as pur!ased ed on long&term long&term redit redit ontra ontrats ts s!ould s!ould be aount aounted ed for for at at a. t!e tota totall value value of t!e t!e futu future re paym payment ents. s. b. t!e futu future re amount amount of of t!e futur future e paymen payments. ts. . t!e pres present ent valu value e of t!e t!e future future paym payment ents. s. d. none none of t!e t!es se.
4".
9!en 9!en a plant asset asset is is aquire aquired d by issuan issuane e of ommon ommon sto sto,, t!e ost ost of t!e plant plant asset asset is properly measured by t!e a. par par val value ue of t!e t!e sto sto .. b. stat stated ed val value ue of of t!e t!e sto sto. . . boo boo valu value e of t!e t!e sto sto .. d. mar maret et val value ue of of t!e t!e sto sto. .
4$. 4$.
9!en 9!en a los losel ely y !eld !eld orpo orpora rati tion on issue issues s prefer preferre red d sto sto for for land land,, t!e t!e land land s!oul s!ould d be reorded at t!e a. total total par par value value of of t!e t!e sto sto issued issued.. b. total total boo boo value value of of t!e sto sto issu issued. ed. . total total liqui liquidat dating ing value value of of t!e sto sto issued issued.. d. fair fair mare marett valu value e of t!e land. land.
4'. 4'.
#o #oun unti ting ng reog eogni niti tion on s!ou s!oulld be giv given to some some or all all of t!e t!e gain gain real reali) i)ed ed on a nonmonetary e!ange of plant assets except !en !en t!e e!ange !as a. no ommer ommerial ial substa substane ne and and additional additional as! is paid. paid. b. no ommer ommerial ial substa substane ne and and additional additional as! is reeive reeived. d. . ommerial ommerial substane substane and additi additional onal as! is paid. paid. d. ommerial ommerial substane substane and additio additional nal as! as! is reeived. reeived.
4(.
For a nonmon nonmoneta etary ry e!a e!ange nge of plant plant asse assets, ts, ao aounti unting ng reogn reogniti ition on s!ould s!ould not be be given to a. a loss loss !en !en t!e e!ange e!ange !as !as no ommerial ommerial substane substane.. b. a gain gain !en !en t!e e!ange e!ange !as ommerial ommerial substane. substane. . part of a gain !en !en t!e e!ang e!ange e !as no ommer ommerial ial substan substane e and as! as! is paid. paid. d. part of a gain gain !en t!e e!ang e!ange e !as no ommerial ommerial substa substane ne and as! as! is reeived. reeived.
4*.
9!en an enterpris enterprise e is t!e reipi reipient ent of a donated donated asset, asset, t!e aoun aountt redited redited may be a a. paid paid&in &in ap apit ital al ao aoun unt. t. b. reve revenu nue e a aou ount nt.. . defe deferr rred ed rev reven enue ue a aou ount nt.. d. all all of of t!es t!ese. e.
". ".
# plan plantt site site donate donated d by a tons tons!ip !ip to a manufa manufat tur urer er t!at t!at plans plans to open a ne ne fato fatory ry s!ould be reorded on t!e manufaturerHs boos at a. t!e nomi nominal nal ost ost of of tain taing g title title to it. it. b. its its mar mare ett val value ue.. . one dollar dollar sine sine t!e site ost ost not!ing not!ing but s!ould s!ould be inluded inluded in t!e t!e balane balane s!eetG. s!eetG. d. t!e value value assigned assigned to it by t!e ompany ompanyHs Hs direto diretors. rs.
"1.
In order order for for a ost ost to to be apitali)ed apitali)ed apital apital ependit ependitureG, ureG, t!e follo folloing ing must must be present? present? a. T!e useful useful life life of of an asset must be inreas inreased. ed. b. T!e quan quantit tity y of asset assets s must must be inrea inreased sed.. . T!e qual quality ity of of asset assets s must must be inre inrease ased. d. d. #ny #ny one one of t!es t!ese. e.
10 - 1
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
"2. "2.
#n impro improve veme ment nt made to a ma! ma!in ine e inr inrea ease sed d its its fair fair maret maret value value and its produ produti tion on apaity by 2" it!out etending t!e ma!ineHs useful useful life. T!e ost of t!e improvement s!ould be a. epensed. b. debite debited d to aumu aumulat lated ed depre depreia iatio tion. n. . apita apitali) li)ed ed in in t!e t!e ma!i ma!ine ne ao aount unt.. d. alloated alloated beteen beteen aumul aumulated ated depreia depreiation tion and t!e t!e ma!ine ma!ine aount. aount.
"3.
9!i! 9!i! of t!e follo folloing ing is a api apital tal epend ependitu iture re a. 6aymen 6aymentt of of an an ao aount unt payable payable b. /etire /etiremen mentt of of bonds bonds payabl payable e . 6aymen 6aymentt of Federa Federall ino inome me taes taes d. None one of t!es t!ese e
"4. "4.
9!i 9!i! ! of t!e t!e foll follo oin ing g is is not a a apital ependiture a. /epairs /epairs t!at t!at maintai maintain n an asset in operatin operating g onditio ondition n b. #n ad addition . # bett better erm ment ent d. # rep repla la emen ementt
6
"". "".
In ao aoun unti ting ng for for plan plantt asse assets ts,, !i! !i! of t!e t!e foll follo oin ing g outl outlay ays s made made subs subseq eque uent nt to aquisition s!ould be fully epensed in t!e period t!e ependiture is made a. =penditure =penditure made made to inrease inrease t!e effiieny effiieny or effeti effetivenes veness s of an eisting eisting asset b. =penditure =penditure made made to etend etend t!e useful useful life life of an eisting eisting asset asset beyond beyond t!e time frame frame originally antiipated . =pend =penditu iture re made to maintai maintain n an eisti eisting ng asset asset so t!at t!at it an funti funtion on in t!e manner manner intended d. =pend =penditu iture re made made to add add ne asset asset serv servie ies s
"$.
#n ependitu ependiture re made in onneti onnetion on it! it! a ma!in ma!ine e being being used by an enterprise enterprise s!ould s!ould be a. epen epensed sed immedia immediatel tely y if it merely merely etend etends s t!e useful useful life but does not improve improve t!e quality. b. epensed epensed immediate immediately ly if it merely merely improves improves t!e t!e quality quality but does not not etend etend t!e useful useful life. . apitali)e apitali)ed d if it maintai maintains ns t!e ma!ine ma!ine in in normal operating operating ondition ondition.. d. apitali)e apitali)ed d if it inreases inreases t!e t!e quantity quantity of units produe produed d by t!e ma!ine. ma!ine.
"'.
9!en 9!en a plant plant asset asset is disp dispose osed d of, a gain gain or loss loss may resu result. lt. T!e T!e gain gain or loss loss ould ould be lassified as an etraordinary item on t!e inome statement if it resulted from a. an invo involu lunt ntary ary onv onver ersi sion on and and t!e t!e ond ondit itio ions ns of t!e t!e disp dispos osit itio ion n are are unus unusua uall and and infrequent in nature. b. a sale prior prior to t!e t!e ompletio ompletion n of t!e estima estimated ted useful useful life life of t!e t!e asset. asset. . t!e sale sale of a fully fully depr deprei eiate ated d asset. asset. d. an aba aband ndon onme ment nt of t!e t!e asse asset. t.
"(.
T!e sale sale of a depre depreiab iable le asset asset resul resultin ting g in a loss indi indiate ates s t!at t!e t!e proee proeeds ds from from t!e sale ere a. less less t!an t!an urre urrent nt maret maret value. value. b. grea greate terr t!a t!an n os ost. t. . grea greate terr t!a t!an n boo boo val value ue.. d. less less t!an t!an boo boo valu value. e.
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment "*.
10 - 12
9!i! 9!i! of t!e t!e follo folloing ing state statemen ments ts about about invo involun luntary tary onv onvers ersion ions s is false? a. #n involunta involuntary ry onversion onversion may result result from from ondemnat ondemnation ion or fire. fire. b. T!e gain gain or loss from from an involun involuntary tary onversi onversion on may be reporte reported d as an etraordi etraordinary nary item. . T!e gain gain or loss loss from an involunt involuntary ary onvers onversion ion s!ould s!ould not be reogni) reogni)ed ed !en t!e enterprise reinvests in replaement assets. d. #ll #ll of t!es t!ese. e.
Mu!t&p!e Co&ce An"#e$" —Conceptu! Ite*
21. 22. 23. 24. 2". 2$.
An"%
d b d
Ite*
2'. 2(. 2*. 3. 31. 32.
An"%
d a b b d d
Ite*
33. 34. 3". 3$. 3'. 3(.
An"%
d a a b b
Ite*
3*. 4. 41. 42. 43. 44.
An"%
d d a b
Ite*
4". 4$. 4'. 4(. 4*. ".
An"%
Ite*
d d a b b
"1. "2. "3. "4. "". "$.
An"%
Ite*
d d a d
"'. "(. "*.
An"%
a d
olutions to t!ose 7ultiple C!oie questions for !i! t!e anser is Jnone of t!ese.K 21.
ong&li ong&lived ved tang tangibl ible e assets assets used used in in t!e enter enterpri priseA seAs s operat operation ions. s.
4.
Capita Capitali) li)ed ed intere interest st is depre depreia iated ted over over t!e relat related ed assetA assetAs s useful useful life. life.
"3.
Capita Capitall epend ependitu itures res inlude inlude addition additions, s, betterme betterments nts,, improv improveme ements nts,, and etraor etraordin dinary ary repairs.
MULTIPLE CHOICE—Co*putt&on! >se t!e folloing information for questions $ and $1. eiler Co. pur!ased land as a fatory site for L$,. eiler paid L$, to tear don to buildings on t!e land. alvage as sold for L",4. egal fees of L3,4( ere paid for title invest investiga igatio tion n and maing maing t!e pur!as pur!ase. e. #r!i #r!ite tetHs tHs fees fees ere ere L31,2 L31,2. . Title Title insuran insurane e ost ost L2,4, and liability insurane during onstrution ost L2,$. =avation ost L1,44. T!e ontrator as paid L2,2,. #n assessment made by t!e ity for pavement as L$,4. Interest osts during onstrution ere L1',. $.
$.b $ .b $1.
T!e ost ost of t!e t!e land land t!at t!at s!ould s!ould be be reord reorded ed by eiler eiler Co. Co. is is a. L$$,4(. b. L$$$,((. . L$$*,((. d. L$'$,2(. L$ L$ , , M L$ L$, , L", L",4 4 M L3, L3,4( 4( M L2, L2,4 4 M L$, L$,4 4 @ L$$ L$$$, $,(( ((. . T!e ost ost of t!e t!e build building ing t!at t!at s!ould s!ould be be reord reorded ed by eiler eiler Co. Co. is is a. L2,4 L2,43 3,( ,( .. b. L2,4 L2,44 4,( ,(4 4.. . L2,413,2.
10 - 16
$1.d $1 .d $2.
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
d. L2, L2,414, 414,24 24. . L31, L3 1,2 2 M L2, L2,$ $ M L1 L1,4 ,44 4 M L2 L2,2 ,2 , , M L1 L1' ', , @ L2 L2,4 ,414 14,2 ,24 4.. %n Februa February ry 1, 2', 2', 7orga 7organ n Corporat Corporation ion pur! pur!ase ased d a parel parel of land as a fato fatory ry site site for L2,. L2,. #n old building on t!e property as demolis!ed, demolis!ed, and onstruti onstrution on began on a ne building !i! as ompleted on November 1, 2'. Costs inurred during t!is period are listed belo? -emolition of old building L 2, #r!itetHs fees 3", egal fees for title investigation an and pur!ase ontrat ", Constrution osts 1,*, alvaged materials resulting from demolition ere sold for L1,.G
$2.d $2 .d $3.
$3. $4.
$4. $". $".
7organ s!ould reord t!e ost of t!e land and ne ne building, respetively, as a. L22" L22", , and L1,1 L1,11 1", ",. . b. L21 L21, , and and L1,1 L1,13 3, , .. . L21 L21, , and and L1, L1,12 12", ", . . d. L21" L21", , and and L1,1 L1,12" 2", , .. and a nd?? L2 L2 , , M L2 L2, , M L" L", , L1 L1, , @ L2 L21" 1", , .. Ouilding? L3", M L1,*, @ L1,12", L1,12",.. Tyson Tyson C!and C!andler ler Compan Company y pur!ase pur!ased d equipmen equipmentt for L1, L1,.. ales ta ta on t!e pur!as pur!ase e as L". %t!er osts inurred ere freig!t !arges of L2, repairs of L3" for damage during installation, and installation osts of L22". 9!at is t!e ost of t!e equipment a. L1, b. L1," . L1,*2" d. L11,2'"
L1, M L" M L2 M L22" @ L1,*2".
Carpen Carpenter ter Compa Company ny pur!as pur!ased ed equipme equipment nt for L12, L12,. . ales ales ta on t!e t!e pur!ase pur!ase as as L$. %t!er osts inurred ere freig!t !arges of L24, repairs of L42 for damage during installation, and installation osts of L2'. 9!at is t!e ost of t!e equipment a. L12,. b. L12,$. . L13,11. d. L13,"3.
L12, M L$ M L24 M L2' @ L13,11.
-uri -uring ng self self& &on onst stru rut tio ion n of an asse assett by Panner Pannero o 6arg 6argo o Comp Company any,, t!e t!e foll follo oing ing ere ere among t!e osts inurred? Fied over!ead for t!e year 6ortion of L1,, fied over!ead t!at ould be alloated to asset if it ere normal prodution :ariable over!ead attributable to self&onstrution
L1,, 4, 3",
9!at amount of over!ead s!ould be inluded in t!e ost of t!e self&onstruted asset a. L && b. L3",
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
$". $$.
10 - 1:
. L4, d. L'", d L4, M L3", @ L'",. -uring -uring self& self&ons onstru truti tion on of an asset by 7it!e 7it!ells llson on Company Company,, t!e follo folloing ing ere ere among t!e osts inurred? Fied over!ead for t!e year 6ortion of L1,, fied over!ead t!at ould be alloated to asset if it ere normal prodution :ariable over!ead attributable to self&onstrution
L1,, $, "",
9!at amount of over!ead s!ould be inluded in t!e ost of t!e self&onstruted asset a. L && b. L "", . L $ $, d. L11", $$. $'. $'.
$'.
d
L$, M L"", @ L11",.
Oen Oen ;ord ;ordon on Corp Corpor orat atio ion n ons onstr tru ute ted d a buil buildi ding ng at a ost ost of L1, L1, , , . . #vera verage ge aumulated ependitures ere L4,,, atual interest as L$,, and avoidable interest as L3,. If t!e salvage value is L(,, and t!e useful life is 4 years, depreiation epense for t!e first full year using t!e straig!t&line met!od is a. L23',". b. L24",. . L2"',". d. L33',". a
QL1,, M L3,G L(,R S 4 @ L23',".
. $(. $(.
$(.b $( .b $*. $*.
$*.
eet eet
10 - 1;
'. '.
'. '1. '1.
'1. '2.
'2. '3.
'3. '4.
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
Ea Eale lema man n Comp Compan any y is onst onstru ruti ting ng a buil buildi ding ng.. Cons Constr tru uti tion on began began in 2( and t!e buildi building ng as omple ompleted ted 120310 120310(. (. Eale Ealeman man made made paymen payments ts to t!e onstr onstrut ution ion ompany of L1,", on '01, L3,3, on *01, and L3,, on 12031. #verage aumulated ependitures ere a. L1, L1,"'", "'", . . b. L1, L1,(", (", . . . L4,(,. d. L', L',(, (, . . b L1,", $012G M L3,3, 4012G @ L1,(", %n 7ay 1, 2' 2',, /oys /oyste terr Comp Company any bega began n ons onstr tru uti tion on of a buil buildi ding ng.. =pe =pend ndit itur ures es of L12, ere inurred mont!ly for " mont!s beginning on 7ay 1. T!e building as omp omple lete ted d and and ready ready for for ou oupa pan ny y on ept eptem embe berr 1, 2' 2'.. For For t!e t!e purpo purpose se of determ determini ining ng t!e amount amount of intere interest st ost ost to be apita apitali) li)ed, ed, t!e average average aumu aumulat lated ed ependitures on t!e building during 2' ere a. L1,. b. L12,. . L4(,. d. L$,. a
L12, 4012G M L12, 3012G M L12, 2012G M L12, 1012G @ L1,.
-uring -uring 2', 2', ;annon ;annon Co. inurr inurred ed average average aumu aumulat lated ed ependi ependitur tures es of L4, L4, during during onstrution of assets t!at qualified for apitali)ation of interest. T!e only debt outstanding during 2' as a L",, 1, "&year note payable dated Panuary 1, 2". 9!at is t!e amount of interest t!at s!ould be apitali)ed by ;annon during 2' a. L. b. L1,. . L4,. d. L",.
L4, .1 @ L4,.
%n 7ar! 7ar! 1, Carr Carr Co. began began onstr onstrut ution ion of a small small buildi building. ng. 6aymen 6ayments ts of L12, L12, ere ere made mont!ly for t!ree mont!s beginning 7ar! 1. T!e building as ompleted and ready ready for for ou oupa pan ny y on Pune Pune 1. In dete determ rmin inin ing g t!e t!e amou amount nt of inte intere rest st ost ost to be apitali)ed, t!e eig!ted&average aumulated ependitures are a. L3,. b. L$,. . L12,. d. L24,. b L12, 3012 M 2012 M 1012G @ L$,. %n 7ar! 7ar! 1, Oaen Oaen Co. Co. began began onstru onstruti tion on of a small small buildin building. g. 6ayment 6ayments s of L1(, L1(, ere made mont!ly for four mont!s beginning 7ar! 1. T!e building as ompleted and ready ready for for ou oupa pan ny y on Pune Pune 1. In dete determ rmin inin ing g t!e t!e amou amount nt of inte intere rest st ost ost to be apitali)ed, t!e eig!ted&average aumulated ependitures are
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment a. b. . d. '4.
10 - 1<
L*,. L1(,. L3$,. L'2,. a L1(, 3012 M 2012 M 1012G @ L*,.
>se t!e folloing information for questions '" t!roug! ''. %n 7ar! 1, 2', -ennis Company pur!ased land for an offie site by paying L"4, as!. -ennis began onstrution on t!e offie building on 7ar! 1. T!e folloing ependitures ere inurred for onstrution? -ate =penditures 7ar! 1, 2' L 3$, #pril 1, 2' "4, 7ay 1, 2' *, Pune 1, 2' 1,44, T!e offie offie as ompleted ompleted and ready for oupany oupany on Puly 1. To !elp pay for onstrution, onstrution, L'2, L'2, as borroe borroed d on 7ar! 7ar! 1, 2' 2' on a *, 3&year 3&year note payable payable.. %t!er %t!er t!an t!e onstrution note, t!e only debt outstanding during 2' as a L3,, 12, $&year note payable dated Panuary 1, 2'. '".
'". '$.
'$. ''.
''.
T!e eig!te eig!ted&av d&avera erage ge aumul aumulate ated d ependit ependiture ures s on t!e onstr onstrut ution ion proBe proBett during during 2' ere a. L3(4,. b. L2,* L2,*34 34, , .. . L312,. d. L$*$,. d
L*, 4012G M L"4, 3012G M L*, 2012G M L1,44, 1012G @ L$*$,. T!e atual atual intere interest st ost ost inurr inurred ed duri during ng 2' 2' as as a. L*,. b. L1,(. . L",4. d. L(4,. a
L'2, * 1012G M L3, 12G @ L*,.
#ssume #ssume t!e eig!t eig!ted&a ed&aver verage age aumu aumulat lated ed ependit ependiture ures s for t!e onstru onstrutio tion n proBet proBet are L(',. T!e amount of of interest ost to be apitali)ed during 2' is a. L'(,3. b. L(2,(. . L*,. d. L1,(. b L'2, .*G M L1", .12G @ L(2,(.
10 - 1=
'(.
'(. '*. '*.
'*. (. (.
(. (1.
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
-uring -uring 2', 2', #ber #ber Corporat Corporation ion onstru onstrute ted d assets assets osting osting L1,, L1,, .. T!e eig!te eig!ted& d& average aumulated ependitures on t!ese assets during 2' as L$,. To !elp pay for onstrution, L44, as borroed at 1 on Panuary 1, 2', and funds not needed for onstrution ere temporarily invested in s!ort&term seurities, yielding L*, in interest revenue. %t!er t!an t!e onstrution funds borroed, t!e only ot!er debt outstanding during t!e year as a L",, 1&year, * note payable dated Panuary 1, 21. 9!at is t!e amount of interest t!at s!ould be apitali)ed by b y #ber during 2' a. L$,. b. L3,. . L"(,4. d. L*4,4. L44, .1G M L1$, .*G @ L"(,4. %n -ee -eemb mber er 1, 9ynne 9ynne Corp Corpor orat atio ion n e! e!an ange ged d 2, 2, s!ar s!ares es of its its L2" L2" par par valu value e ommon sto !eld in treasury for a parel of land to be !eld for a future plant site. T!e treasury s!ares ere aquired by 9ynne at a ost of L4 per s!are, and on t!e e!ange date t!e ommon s!ares of 9ynne !ad a fair maret value of L" per s!are. 9ynne reeived L$, for selling srap !en an eisting building on t!e property as removed from t!e site. Oased on t!ese fats, t!e t!e land s!ould be apitali)ed at a. L'4,. b. L(,. . L*4,. d. L1,. 2, L"G L$, @ L*4,. Carl Carly y Corp Corpor orat atio ion n pur pur!a !ase sed d a ne ne ma! ma!in ine e on %to %tobe berr 31, 31, 2' 2'.. # L1,2 L1,2 do don paymen paymentt as as made made and t!ree mont!ly mont!ly installm installment ents s of L3,$ L3,$ ea! are to be made made beginning on November 3, 2'. T!e as! prie ould !ave been L11,$. Carly paid no installation !arges under t!e mont!ly payment plan but a L2 installation !arge ould !ave been inurred it! a as! pur!ase. pur!ase. T!e amount to be apitali)ed apitali)ed as t!e ost of t!e ma!ine on %tober 31, 2' ould be a. L12,2. b. L12,. . L11,(. d. L11,$.
L11,$ M L2 @ L11,(.
Taylor Taylor Company Company buys buys a delivery delivery van it! it! a list list prie prie of of L3,. L3,. T!e dealer grants a 1" redution in list prie and an additional 2 as! disount on t!e net prie if payment is made in 3 days. ales taes amount to L4 and t!e ompany paid an etra L3 to !ave a speial !orn installed. 9!at s!ould be t!e reorded ost of t!e van
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment a. b. . d. (1. (2.
(2. (3. (3.
(3.
(4.
(4.
10 - 1>
L24,**. L2",$4". L2",$*. L2",3*.
L3, .(" .*(G M L4 M L3 @ L2",$*.
%n #ugu #ugust st 1, 2', 2', imon imon Corpora Corporatio tion n pur!as pur!ased ed a ne ma!in ma!ine e on a deferred deferred paym payment ent basis. # don payment of L3, as made and 4 mont!ly installments of L2," ea! are to be made beginning on eptember 1, 2'. T!e as! equivalent prie of t!e ma!ine as L12,. imon inurred and paid installation osts amounting to L". T!e amount to be apitali)ed as t!e ost of t!e ma!ine is a. L12,. b. L12,". . L13,. d. L13,". b
L12, M L" @ L12,".
%n #pri #prill 1, /enn /enner er Corpo Corpora rati tion on pur! pur!as ased ed for L("", L("", a trat trat of land land on !i! !i! as loated a are!ouse and offie building. T!e folloing data ere olleted onerning t!e property? Current #ssessed :aluation:endorAs :aluation:endorAs %riginal Cost and L3, L2(, 9are!ouse 2, 1(, %ffie building 4, 34, L*, L(, 9!at are t!e appropriate amounts t!at /enner s!ould reord for t!e land, are!ouse, and offie building, respetively r espetively a. and, L2(, L2(,U U are!ouse are!ouse,, L1(,U L1(,U offie offie buildi building, ng, L34,. L34,. b. and, L3, L3,U U are!ouse are!ouse,, L2,U L2,U offie offie buildi building, ng, L4,. L4,. . and, L2**,2"U L2**,2"U are!ou are!ouse, se, L1*2,3'"U L1*2,3'"U offie offie building building,, L3$3,3'". L3$3,3'". d. and, L2(", L2(",U U are!ouse are!ouse,, L1*,U L1*,U offie offie buildi building, ng, L3(,. L3(,. d and? 3 3 0* L("", @ L2(",. 9are!ouse? 20* L("", @ L1*,. %ffie Ouilding? Ouilding? 40* L("", @ L3(,. %n #ugus #ugustt 1, 2', 2', Ta Tanner nner Corporati Corporation on pur!ase pur!ased d a ne ma!ine ma!ine on a deferred deferred paym payment ent basis. # don payment of L2, as made and 4 annual installments of L$, ea! are to be made beginning on eptember 1, 2'. T!e as! equivalent prie of t!e ma!ine as L23,. -ue to an employee strie, Tanner Tanner ould not install t!e ma!ine immediately, and t!us inurred L3 of storage osts. Costs of installation eluding t!e storage ostsG amounted to L(. T!e amount to be apitali)ed as t!e ost of t!e ma!ine is a. L23,. b. L23,(. . L24,1. d. L2$,. b
L23, M L( @ L23,(.
10 - 0
(". (".
(". ($.
($.
('.
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
Eerm Eerman an Comp Compan any y e! e!an ange ged d 4 4 s!ar s!ares es of -ail -aily y Comp Compan any y omm ommon on sto sto, , !i! !i! Eerman as !olding as an investment, for equipment from 9est Company. T!e -aily Company ommon sto, !i! !ad been pur!ased by Eerman for L" per s!are, !ad a quoted maret value of L"( per s!are at t!e date of e!ange. T!e equipment !ad a reorded amount on 9estHs boos of L21,. 9!at 9 !at Bournal entry s!ould Eerman mae to reord t!is e!ange a. =qui =quipm pmen entt .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ..... .. 2, 2, Investment in -aily Co. Common to ..................... 2, b. =qui =quipm pmen entt .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... 21, 21, Investment in -aily Co. Common to ..................... 2, ;ain on -isposal of Investment ................................. 1, . =qui =quipm pmen entt .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... 21, 21, oss oss on -is -ispo posa sall of Inve Invest stme ment nt .... ...... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ..... .. 2,2 2,2 Investment in -aily Co. Common to ..................... 23,2 d. =qui =quipm pmen entt .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... 23,2 23,2 Investment in -aily Co. Common to ..................... 2, ;ain on -isposal of Investment ................................. 3,2 d
L23,2 L2, @ L3,2 gainG.
%n Panuar Panuary y 2, 2', 2', +ui +ui -eliv -elivery ery Compa Company ny traded traded in an old old deliver delivery y tru tru for a neer neer model. T!e e!ange laed ommerial substane. -ata relative to t!e old and ne trus follo? %ld Tru %riginal ost L24, #umulated depreiation as of Panuary 2, 2, 2' 1$, #verage publis!ed retail value ', Ne Tru ist prie L4, Cas! prie it!out trade&in 3$, Cas! paid it! trade&in 3, 9!at s!ould be t!e ost of t!e ne tru for finanial aounting purposes pur poses a. L3,. b. L3$,. . L3(,. d. L4,. b Fair maret value of ne tru @ L3$,. oss? L3$, L3,G L4, @ L2,. Ne 7a!ine? L(, M L3, L2, @ L3$,. %n -eemb -eember er 1, 2', 2', Fiene Fiene Compa Company ny aquir aquired ed a ne deliv delivery ery tru tru in in e!an e!ange ge for an old delivery tru t!at it !ad aquired in 24. T!e old tru as pur!ased for L3", and !ad a boo value of L13,3. %n t!e date of t!e e!ange, t!e old tru !ad a maret value of L14,. In addition, Fiene paid L4"," as! for t!e ne tru, !i! !ad a list prie of L$3,. T!e e!ange laed ommerial sunstane. #t !at amount s!ould Fiene reord t!e ne tru for finanial aounting purposes a. L4",". b. L"(,(. . L"*,". d. L$3,
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
('.
b
10 - 1
L13,3 M L4"," @ L"(,(.
. >se t!e folloing information for questions (( and (*. # ma!ine ma!ine ost L12,, !as annual depreiation of L2,, L2,, and !as aumulated depreiation of L*, on -eember 31, 2$. %n #pril 1, 2', !en t!e ma!ine !as a maret value of L2',", it is e!anged for a ma!ine it! a fair value of L13", and t!e proper amount of as! is paid. T!e e!ange laed ommerial substane. ((. ((.
((. (*. (*.
(*. (* .
T!e T!e gai gain n to be re reor orde ded d on on t!e t!e e e!a !ange nge is a. L. b. L2," L2," gain gain.. . L", ga gain. d. L1", L1", gai gain. n. a
L, gain on e!ange of of similar asset !en as! is paid.
T!e T!e ne ne ma! ma!in ine e s!o s!oul uld d be be re reor orde ded d at at a. L1',". b. L122,". . L132,". d. L13",. L12 L1 2, , L*" L*", , @ L2 L2", ", U U L2 L2', '," " L2 L2", ", @ L2 L2," ," L13", L2," @ L132,".
>se t!e folloing information for questions * and *1. =quipment t!at ost L$$, and !as aumulated depreiation of L3, is e!anged for equipment it! a fair value of L4(, and L12, as! is reeived. T!e e!ange laed ommerial substane. *. *.
*.
*1. *1.
*1.d
T!e T!e gain gain to to be re reog ogni ni)e )ed d from from t!e t!e e e!a !ang nge e is a. L4,( L4,( gain gain.. b. L$, L$, gain gain.. . L1(, L1(, gain gain.. d. L24, L24, gai gain. n. L12, a 888888888 L24, @ L4,(. L12, M L4(,
T!e T!e ne ne equi equipm pmen entt s!o s!oul uld d be be re reor orde ded d at at a. L4(,. b. L3$,. . L3,. d. L2(,(. L4(, L24, L4,(G @ L2(,(.
10 -
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
>se t!e folloing information for questions *2 t!roug! *4. To independent ompanies, 7int) Co. and 6ine Co., are in t!e !ome building business. =a! ons a trat of land !eld for development, but ea! ould prefer to build on t!e ot!erHs land. T!ey T!ey agree agree to e!an e!ange ge t!eir t!eir land. land. #n apprai appraiser ser as !ired, !ired, and from from !er report report and t!e ompaniesH reords, t!e folloing information as obtained? 7int)Hs and 6ineHs and Cost and boo value L1*2, L12, Fair value based upon appraisal 24, 21, T!e e!ange as made, and based on t!e differene in appraised fair values, 6ine paid L3, to 7int). T!e e!ange laed ommerial substane. *2.
*2. *3.
*3.
For finan finania iall reportin reporting g purposes purposes,, 7int) 7int) s!ould s!ould reogni) reogni)e e a pre&ta pre&ta gain on t!is t!is e!ang e!ange e of a. L. b. L$,. . L3,. d. L4(,. b
L3, 888888888 L4(, @ L$,. L3, M L21,
T!e ne land land s!oul s!ould d be reord reorded ed on on 7int 7int)Hs )Hs boos boos at a. L1$(,. b. L1*2,. . L21,. d. L24,. a
L21, L4(, L$,G @ L1$(, or L3, L1*2, 88888 L1*2, @ L1$(,.
G
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment *4. *4.
*4. *". *".
*". *$. *$.
*$. *'. *'.
*'. *(. *(.
10 - 2
T!e T!e ne ne land land s!o s!oul uld d be reo reorde rded d on 6in 6ineH eHs s boo boos s at a. L12,. b. L1",. . L21,. d. L24,. b
L12, M L3, @ L1", or L24, L21, L12,G @ L1",.
Einr Einri i! ! Comp Compan any y trad traded ed ma!i ma!ine nery ry it! it! a boo boo value value of L12, L12, and a fair fair value value of L2,. It reeived in e!ange from Noa! Company a ma!ine it! a fair value of L1(, and as! of L2,. Noa!As ma!ine !as a boo value of L1*,. 9!at amount of gain s!ould Einri! reogni)e on t!e e!ange a. L && b. L(, . L2, d. L(, b
L2, L12,G QL2, S L2, M L1(,GR @ L(,.
Noa Noa! ! Comp Compan any y traded traded ma!i ma!ine nery ry it! it! a boo boo value value of L1*, L1*, and a fair fair value value of L1(,. It reeived in e!ange from Einri! Company a ma!ine it! a fair value of L2,. Noa! also paid as! of L2, in t!e e!ange. Einri!As ma!ine !as a boo value of L1*,. 9!at amount of gain or loss s!ould Noa! reogni)e on t!e e!ange a. L2, L2, gain gain b. L &&. . L1, loss d. L1, L1, los loss d L1(, L1*, @ L1,G. 7arl 7arlin in Compa Company ny trade traded d ma!in ma!inery ery it it! ! a boo valu value e of L1( L1(, , and a fair fair value value of L3,. It reeived in e!ange from
L3, L1(,G QL3, S L3, M L2',GR @ L12,.
10 - 6
*(. **.
**. 1. 1.
1.
11. 11.
11. 12.
12.
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
d
L2', L2(", @ L1",G.
Oobby Oobby Pens Pens Compan Company y pur!as pur!ased ed ma!in ma!inery ery for L1$, L1$, on Panuary Panuary 1, 1, 24. trai traig!t g!t&& line depreiation !as been reorded based on a L1, salvage value and a "&year useful life. T!e ma!inery as sold on 7ay 1, 2( at a gain of L3,. Eo mu! as! did Oobby Pens reeive from t!e sale of t!e ma!inery a. L23, b. L2', . L33, d. L43,
QL1$, L1,G S "R 4 103 @ L13, L1$, L13,G M L3, @ L33,.
7organ 7organste stern rn Compan Company y pur!as pur!ased ed ma!in ma!inery ery for for L32, L32, on Panua Panuary ry 1, 24 24.. traig traig!t& !t& line depreiation !as been reorded based on a L2, salvage value and a "&year useful life. T!e ma!inery as sold on 7ay 1, 2( at a gain of L$,. Eo mu! as! did 7organstern reeive from t!e sale of t!e ma!inery a. L4$,. b. L"4,. . L$$,. d. L($,. QL32, L2,G S "R 4 103 @ L2$, L32, L2$,G M L$, @ L$$,. Peter Peter Compan Company y pur!as pur!ased ed a ne ma!in ma!ine e on 7ay 1, 1**( 1**( for L1'$, L1'$, .. #t t!e t!e time time of aquisition, t!e ma!ine as estimated to !ave a useful life of ten years and an estimated salvage value of L(,. T!e ompany !as reorded mont!ly depreiation using t!e straig!t&line met!od. %n 7ar! 1, 2', t!e ma!ine as sold for L24,. 9!at s!ould be t!e loss reogni)ed from t!e sale of t!e ma!ine a. L. b. L3,$. . L(,. d. L11,$. b L1'$, L(,G S 1 12G @ L1,4 per mont! L24, QL1'$, L1,4 1$ mo.GR @ L3,$. %n Panuary Panuary 1, 1, 1***, 1***, Eite Eite Corporati Corporation on pur!ase pur!ased d for L1"2,, L1"2,, equipme equipment nt !aving !aving a useful useful life of ten years and an estimated salvage value of L(,. Eite !as reorded mont!ly depreiation of t!e equipment on t!e straig!t&line met!od. %n -eember 31, 2', t!e equipment as sold for L2(,. #s a result of t!is sale, Eite s!ould reogni)e a gain of a. L. b. L",$. . L13,$. d. L2(,. b
L1"2, L(,G S 1 12G @ L1,20mo.U L2(, QL1"2, L1,2 1(GR @ L",$.
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - :
Mu!t&p!e Co&ce An"#e$"— Co*putt&on! Ite*
$. $1. $2. $3. $4. $". $$.
An"%
b d d d d
Ite*
$'. $(. $*. '. '1. '2. '3.
An"%
a b a b a b
Ite*
'4. '". '$. ''. '(. '*. (.
An"%
a d a b
Ite*
(1. (2. (3. (4. (". ($. ('.
An"%
b d b d b b
Ite*
((. (*. *. *1. *2. *3. *4.
An"%
Ite*
An"%
Ite*
An"%
a a d b a b
*". *$. *'. *(. **. 1. 11.
b d b d b
12.
b
10 - ;
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
MULTIPLE CHOICE—CPA A+pt A+pte+ e+ 13.
%n -eember -eember 1, 2', 2', ogan ogan Co. Co. pur!ased pur!ased a trat trat of land land as a fatory fatory site site for for L(,. L(,. T!e old buildi building ng on t!e proper property ty as ra)ed, ra)ed, and salvag salvaged ed materi materials als result resulting ing from from demolition ere sold. #dditional osts inurred and salvage proeeds reali)ed during -eember 2' ere as follos? Cost to ra)e old building egal fees for pur!ase ontrat and to reord oners!ip Title guarantee insurane 6roeeds from sale of salvaged materials
L', 1, 1$, (,
In ogan Hs -eember 31, 2' balane s!eet, !at amount s!ould be reported as land a. L(2$,. b. L($2,. . L(((,. d. L(*$,. 14. 14.
and and as pur!a pur!ased sed to be be used as t!e t!e site site for t!e t!e onstr onstrut ution ion of a plant plant.. # buil buildin ding g on t!e property as sold and removed by t!e buyer so t!at onstrution on t!e plant ould begin. T!e proeeds from t!e sale of t!e building s!ould be a. lassi lassifie fied d as as ot!er ot!er inome inome.. b. dedut deduted ed from from t!e t!e ost ost of of t!e t!e land. land. . netted netted against against t!e t!e osts osts to lear lear t!e t!e land and epensed epensed as as inurred. inurred. d. netted netted against against t!e osts osts to lear t!e t!e land and amorti) amorti)ed ed over t!e life life of t!e plant. plant.
1". 1".
# ompa ompany ny is ons onstr tru uti ting ng an asse assett for for its its on on use. use. Const Constru rut tio ion n bega began n in 2$. 2$. T!e T!e asset is being finaned entirely it! a speifi ne borroing. Constrution ependitures ere made in 2$ and 2' at t!e end of ea! quarter. T!e total amount of interest ost apitali)ed in 2' s!ould be determined by applying t!e interest rate on t!e speifi ne borroing to t!e a. total aumulated aumulated ependiture ependitures s for t!e asset asset in in 2$ and and 2'. 2'. b. average average aumula aumulated ted ependit ependitures ures for for t!e asset asset in 2$ and 2'. 2'. . averag average e ependi ependitur tures es for for t!e asset asset in in 2'. 2'. d. total total epen ependit diture ures s for t!e t!e asset asset in 2'. 2'.
1$. 1$.
;ray ;ray Footb Footbal alll Co. Co. !ad a play player er ontr ontra att it! it! :ane ne t!at t!at is reor reorde ded d in its its boos boos at L3,$, on Puly 1, 2'. -ay Football Co. !ad a player ontrat it! imms t!at is reorded reorded in its boos at L4,", L4,", on Puly 1, 2'. %n t!is date, ;ray traded traded :ane to -ay for imms and paid a as! differene of L4",. T!e fair value of t!e imms ontra ontrat t as as L",4 L",4, , on t!e e!an e!ange ge date. date. T!e e!ang e!ange e !ad no ommer ommeria iall substane. #fter #fter t!e e!ange, t!e imms ontrat s!ould be reorded in ;rayHs boos at a. L4, L4,", ", . . b. L4, L4,", ", . . . L4,*",. d. L", L",4, 4, . .
1'. 1'.
/eed /eed Co. e!an e!anged ged nonmon nonmoneta etary ry assets assets it! it! 9ilto 9ilton n Co. No as! as! as as e!ang e!anged ed and t!e t!e e! e!an ange ge !ad !ad no omm ommer eria iall subs substa tan ne. e. T!e T!e arr arryi ying ng amou amount nt of t!e t!e asse assett surrendered by /eed eeeded bot! t!e fair value of t!e asset reeived and 9iltonHs arrying amount of t!at asset. /eed s!ould reogni)e t!e differene beteen t!e arrying amount of t!e asset it surrendered and
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment a. b. . d.
10 - <
t!e fair fair value value of of t!e asset it reeiv reeived ed as a loss. loss. t!e fair fair value value of of t!e asset it reeiv reeived ed as a gain. gain. 9iltonHs 9iltonHs arryi arrying ng amount amount of t!e asset asset itit reeived reeived as a loss. loss. 9iltonHs 9iltonHs arryi arrying ng amount amount of t!e asset asset itit reeived reeived as a gain. gain.
1(. 1(.
6etty 6etty County County oned oned an idle idle parel parel of real estate estate onsi onsisti sting ng of land and a fatory fatory buil buildin ding. g. 6etty 6etty gave title title to t!is t!is realty realty to arson arson Co. as an inent inentive ive for arson arson to establ establis! is! manufaturing operations in t!e County. arson paid not!ing for t!is realty, !i! !ad a fair fair mar maret et valu value e of L2" L2", , at t!e t!e date date of t!e t!e grant grant.. ars arson on s!ou s!ould ld reo reord rd t!is t!is nonmonetary transation as a a. memo memo entr entry y onl only y. b. redit redit to Contr Contribu ibutio tion n /evenue /evenue for for L2", L2",.. . redit redit to etra etraord ordina inary ry inome inome for for L2", L2",. . d. redit redit to to -onate -onated d Capital Capital for for L2", L2",. .
1*. 1*.
%n epte eptemb mber er 1, 2', 2', Flint Flint Co. inurr inurred ed t!e follo folloi ing ng osts osts for one of its its prin printi ting ng presses? 6ur!ase of atta!ment L"", Installation of atta!ment ", /eplaement parts for renovation of press 1(, abor and over!ead in onnetion it! renovation of press ', Neit!er t!e atta!ment nor t!e renovation inreased t!e estimated useful life of t!e press. Eoever, t!e renovation resulted in signifiantly inreased produtivity. produtivity. 9!at amount of t!e osts s!ould be apitali)ed a. L. b. L$',. . L'(,. d. L(",.
11. 11.
%n Panuary Panuary 2, 2', 2', /enn /enn Corp. Corp. replaed replaed its its boiler boiler it! it! a more effiient effiient one. T!e folloing information as available on t!at date? 6ur!ase prie of ne boiler Carrying amount of old boiler Fair value of old boiler Installation ost of ne boiler
L1", 1, 4, 2,
T!e old boiler as sold for L4,. 9!at amount s!ould /enn apitali)e as t!e ost of t!e ne boiler a. L1',. b. L1$$,. . L1$,. d. L1",.
Mu!t&p!e Co&ce An"#e$"— CPA A+pte+ Ite*
An"%
Ite*
An"%
Ite*
An"%
Ite*
An"%
13. 14.
b
1". 1$.
b a
1'. 1(.
a b
1*. 11.
d a
10 - =
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
DERI5ATIONS — Co*putt&on! No% An"#e$
De$&9t&on
DERI5ATIONS — Co*putt&on! .cont%/ No% An"#e$
De$&9t&on
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
DERI5ATIONS — Co*putt&on! .cont%/ No% An"#e$
De$&9t&on
DERI5ATIONS — CPA C PA A+pte+ No% An"#e$ 13.
De$&9t&on L(, M L', M L1, M L1$, L(, @ L(((,.
14.
b
Coneptual.
1".
b
Coneptual.
1$.
a
L",4, L4",G L3,$, @ L1,3", d deferred gainG L",4, L1,3", @ L4,", OasisG.
1'.
a
Coneptual.
1(.
b
Coneptual.
1*.
d
L"", M L", M L1(, M L', @ L(",.
11.
a
L1", M L2, @ L1',.
10 - >
10 - 20
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
EERCISES E?% 10-11186lant asset aounting.
-uring 2$ and 2', ;orman Corporation eperiened several transations involving plant assets. assets. # number number of errors ere made in reording some of t!ese transation transations. s. For ea! item listed belo, indiate t!e effet of t!e error if anyG in t!e blans provided by using t!e folloing odes? % @ %verstateU > @ >nderstateU N= @ No =ffet If no error as made, rite N= in ea! of t!e four olumns.
Transation
2$ Net Ooo :alue of 6lant 2$ #ssets at Net 120310$ Inome
2' Net Ooo :alue of 6lant 2' #ssets at Net 120310' Inome
1. T!e T!e ost ost of ins install tallin ing g a ne ne om omput puter system in 2$ as not reorded in 2$. VVVV VVVVVV VVVV VV It as !arged to epense in 2'.
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
2. In 2' 2' ler leri ial al ore orers rs ere ere trai traine ned d to use t!e ne omputer system at a ost of L1",, L1",, !i! !i! as erroneously erroneously apital& i)ed. T!e ost is to be ritten off over t!e epeted life of t!e ne omputer system. VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
3. # maBor maBor over!a over!aul ul of fato fatory ry ma!i ma!ine nery ry in 2$, !i! etended its useful life by " years ears,, as !ar !arge ged d to a aumul umulat ate ed depreiation in 2$. VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
4. Intere Interest st ost ost qualify qualifying ing for apita apitali) li)ati ation on in 2$ as !arged to interest epense in 2$. VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
". In 2$ 2$ land land as as boug!t boug!t for for an employ employee ee paring paring lot. lot. T!e L2, L2, title title sear! sear! fee as !arged to epense in 2$. VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
$. T!e ost ost of of moving moving severa severall manufa manufatu turin ring g faili failitie ties s from from metrop metropoli olitan tan loati loations ons to suburban areas in 2$ as apitali)ed. T!e ost as ritten off over a 1&year period beginning in 2$. VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
VVVV VVVVVV VVVV VV
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - 21
So!ut&on 10-111
1. 2. 3. 4. ". $.
Net Ooo :alue of 6lant #ssets at 120310$ > N= N= > > N=
2$ Net Inome % N= N= > > N=
Net Ooo :alue of 6lant #ssets at 120310' > % N= > > N=
2' Net Inome > % N= % N= N=
E?% 10-11 89eig!ted&#verage #umulated =penditures.
%n #pril 1, Tyler Co. began onstrution of a small building. 6ayments of L12, ere made mont!ly mont!ly for four four mont!s mont!s beginnin beginning g on #pril #pril 1. T!e building building as as omple ompleted ted and ready ready for oupany on #ugust 1. For t!e purpose of determining t!e amount of interest ost to be apita apitali) li)ed, ed, alul alulate ate t!e eig!t eig!ted&a ed&aver verage age aumu aumulat lated ed epend ependitu itures res on t!e buildi building ng by ompleting t!e s!edule belo? -ate
=penditures =pendit ures
Capitali)ation Capital i)ation 6eriod
9eig!ted&#verage 9eig!ted &#verage =penditures =pendit ures
=penditures =pendit ures L12, 12, 12, 12,
Capitali)ation Capital i)ation 6eriod 4012 3012 2012 1012
9eig!ted&#verage 9eig!ted &#verage =penditures =pendit ures L 4, 3, 2, 1, L1,
So!ut&on 10-11
-ate #pril 1 7ay 1 Pune 1 Puly 1
E?% 10-112 8Capitali)ation of interest.
%n 7ar! 1, ;att Co. began onstrution of a small building. T!e folloing ependitures ere inurred for onstrution? 7ar! 1 7ay 1 Puly 1
L '", 1(, 1,
#pril 1 Pune 1
L '4, 2',
T!e building as ompleted and oupied on Puly 1. To !elp pay for onstrution L", as borroed on 7ar! 1 on a 12, t!ree&year note payable. T!e only ot!er debt outstanding outstanding during t!e year as a L",, 1 note issued to years ago. In"t$uct&on"
aG Calulate Calulate t!e eig!ted eig!ted&avera &average ge aumulat aumulated ed ependit ependitures. ures. bG Calul Calulate ate avoida avoidable ble intere interest. st.
10 - 2
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
So!ut&on 10-112
aG -ate 7ar! 1 #pril 1 7ay 1 Pune 1 Puly 1 bG
=penditures L '", '4, 1(, 2', 1,
9eig!ted&#verage #um. =pend. L", 4$, L*$,
Capitali)ation 6eriod 4012 3012 2012 1012
/ate .12 .1
9eig!ted&#verage #um. =pend. L2", 1(," 3, 22," L*$,
#voidable Interest L $, 4,$ L1,$
E?% 10-116 8Nonmonetary e!ange.
# ma!ine ost L(,, !as annual depreiation epense of L1$,, and !as aumulated depreiation of L4, on -eember -eember 31, 2$. %n #pril #pril 1, 2', !en !en t!e ma!ine !as a fair value of L32,, it is e!anged for a similar ma!ine it! a fair value of L*$, and t!e proper amount of as! is paid. T!e e!ange laed ommerial substane. In"t$uct&on"
6repare all entries t!at are neessary at #pril 1, 2'. So!ut&on 10-116
-epr -epre eia iati tion on =pen =pense se L1$, L1$, 3012 3012G. G... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ... #umulated -epreiation .................................................. ..................................................
4, 4,
#umulated -epreiation ................................... .............................................................. ........................... 7a!inery 7a!inery .......... ............... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ............ ....... oss oss on -ispos -isposal. al.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ .... 7a!inery ........................................................................... Cas! L*$, L32,G ..................................................
44, *$, *$, 4, 4,
4,
(, $4,
E?% 10-11: 8Nonmonetary e!ange.
=quipment t!at ost L(, and !as aumulated depreiation of L$3, is e!anged for similar equipment it! a fair value of L3", and L1", as! is reeived. T!e e!ange laed ommerial substane. In"t$uct&on"
aG !o t!e t!e alulati alulation on of t!e gain to be be reogni)ed reogni)ed from from t!e e!a e!ange. nge. bG bG 6rep 6repar are e t!e t!e entr entry y for for t!e t!e e! e!an ange ge.. !o !o a !e !e of t!e amount amount reor reorde ded d for for t!e t!e ne ne equipment.
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - 22
So!ut&on 10-11:
aG Cost #umulated depreiation Ooo value Fair value L3", M L1",G ;ain ;ain reogni)ed 1"0" L33,G
L(, $3,G 1', ", L33, L *,*
bG bG #u #umu mula late ted d -epr -epre eia iati tion on.. .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ... =quipm =quipment ent... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ....... ... Cas!.. Cas!..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ ........ .... =quipment.................................................................... ;ain on - is isposal.......................................................... C!e? Fair value ess deferred gain Oasis of ne equipment
$3, $3, 11,* 11,* 1", 1", (, *,*
L3", 23,1G L11,*
E?% 10-11; 8-onated assets.
6ere) Company !as reently deided to aept a proposal from t!e City of Oel #ire t!at publily oned property it! a large are!ouse loated on it ill be donated to 6ere) if 6ere) ill build a bran! plant in Oel #ire. T!e appraised value of t!e property is L4*, and of t!e are!ouse is L*(,. In"t$uct&on"
6repare t!e entry by 6ere) for t!e reeipt of t!e properties.
So!ut&on 10-11;
Ouilding Ouilding 9are!ous 9are!ouseG... eG........ .......... .......... .......... .......... .......... .......... .......... .......... ........... .................. ................ .... and...... and........... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ........... .................. ................... ....... Contribution /evenue..........................................................
*(, *(, 4*, 4*, 1,4',
10 - 26
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
E?% 10-11< 8Capitali)ing vs. =pensing.
Consider ea! of t!e items belo. 6lae t!e proper letter in t!e blan spae provided to indiate t!e nature of t!e aount or aounts to be debited !en reording ea! transation using t!e preferred aounting treatment. 6repayments s!ould be reorded in balane s!eet aounts. -isregard inome ta onsiderations unless instruted ot!erise. a. b. . d. e.
ass assets etsGG onl only y aumulate aumulated d amorti)at amorti)ation, ion, depletion, depletion, or depreia depreiation tion only only epense on only asse asset tsG sG and and ep epen ense se some some ot!er ot!er aoun aountt or ombina ombinatio tion n of aoun aounts ts
VV VVVVVV 1. # motor in one of ;rant CompanyAs trus as over!auled at a ost of L$. It is epeted t!at t!is ill etend t!e life of t!e tru for to years. VV VVVVVV 2. 7a!inery !i! !ad originally ost L13, as rearranged at a ost of L4", inluding installation, in order to improve prodution. VV VVVVVV 3. ong Oie Company reently pur!ased land and to buildings for a total ost of L3",, and entered t!e pur!ase on t!e boos. T!e L1,2 ost of ra)ing t!e smaller building, !i! !as an appraisal value of L$,2, is reorded. VV VVVVVV 4. anders Company traded its old ma!ine it! a net boo value of L3, plus as! of L', for a ne one !i! !ad a fair maret value of L*,. VV VVVVVV ".
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - 2:
So!ut&on 10-11<
1. 2. 3. 4. ".
b a or a e a
$. '. (. *. 1.
a b a e d
PRO'LEMS P$% 10-11= 8Capitali)ing aquisition osts.
7yers 7anufaturing Co. as inorporated on 1020' but as unable to begin manufaturing ativities until (010' beause ne fatory failities ere not ompleted until t!at date. T!e and and Ouilding aount at 120310' per t!e boos as as follos? -ate 10310' 202(0' 4010' "010' "010' "010' (010' (010' 120310'
Item and and dilapidated building Cost of removing building egal fees Fire insurane premium payment peial ta assessment for streets 6artial payment of ne building onstrution Final payment on building onstrution ;eneral epenses #sset rite&up
#mount L2, 4, $, ",4 4," 1", 1", 3, '", L$24,*
#dditional information? 1. To aqu aquire ire t!e land and building building on 10310 10310', ', t!e ompany ompany paid L1, L1, as! as! and 1, 1, s!ares of its ommon sto par value @ L10s!areG !i! is very atively traded and !ad a maret value per s!are of L1'. 2. 9!en 9!en t!e t!e old old buil buildi ding ng as as remo remove ved, d, 7yers 7yers paid paid <i <i -emo -emoliliti tion on Co. Co. L4, L4, ,, but but also also reeived L1," from t!e sale of salvaged material. 3. egal egal fees fees ove overed red t!e t!e foll follo oing ing?? Cost of organi)ation =amination of title overing pur!ase of land egal or in onnetion it! t!e building onstrution
L2," 2, 1," L$,
4. T!e fire insuran insurane e premium premium overed overed premiums premiums for a t!ree&y t!ree&year ear term beginnin beginning g 7ay 1, 2'. ". ;eneral epenses epenses overed overed t!e t!e folloing folloing for for t!e period period 1020' 1020' to (010' (010'.. 6residentHs salary 6lant superintendent overing supervision of ne building
L2, 1, L3,
$. Oeaus Oeause e of t!e rising rising land osts, osts, t!e presid president ent as sure sure t!at t!e land as ort! ort! at least L'", more t!an !at it ost t!e ompany. In"t$uct&on"
-etermine t!e proper balanes as of 120310' for a separate land aount and a separate building aount. >se separate T&aounts one for land and one for buildingG labeling all t!e relevant amounts and dislosing all omputations.
10 - 2;
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
So!ut&on 10-11=
and and and old building L1, plus L1',G /emoval of old building L4, L1,"G egal fees peial assessment Oalane
2', 2," 2, 4," 2'*, Ouilding
egal Fees 6artial payment Insurane 3 mont!sG Final payment uperintendentHs salary Oalane
1," 1", 4" 1", 1, 311,*"
P$% 10-11> 8Capitali)ation of interest.
-uring 2', Naylor Ouilding Company onstruted various assets at a total ost of L(,4,. T!e eig!ted average aumulated ependitures on assets qualifying for apitali)ation of interest during 2' ere L",$,. T!e ompany !ad t!e folloing debt outstanding at -eember 31, 2'? 1. 1, "&year "&year note note to finane finane onstr onstrutio ution n of various various assets, assets, dated Pa Panuary 1, 1, 2 2', i it! in interest pa payable an annually on on Pa Panuary 1
L3,$,
2. 12, ten&ye ten&year ar bonds issued issued at at par on -eemb -eember er 31, 21, 21, it! it! interest interest payable annually on -eember 31
4,,
3. *, 3&year 3&year note payabl payable, e, dated Panuary Panuary 1, 1, 2$, it! it! interest interest payabl payable e annually on Panuary 1
2,,
In"t$uct&on"
Compute t!e amounts of ea! of t!e folloing s!o omputationsG. 1. #voi #voida dabl ble e inte intere rest st.. 2. Total Total interest interest to to be apita apitali)ed li)ed during 2'.
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - 2<
So!ut&on 10-11>
1.
9eig!ted #verage #umulated =penditures L3,$, 2, 2,, L",$,
#ppliable Interest /ate .1 .11W
WComputation of eig!ted average interest rate? 6rinipal 12 ten&year bonds L4,, * 3&year note 2,, L$,,
#voidable Interest L3$, 22, L"(, @ #voidable Interest
Interest L4(, 1(, L$$,
9eig!ted average interest rate @ L$$, S L$,, @ 11. 2. #tual #tual intere interest st ost ost during during 2'? 2'? Constrution note, L3,$, .1 12 ten&year bonds, L4,, .12 * t!ree&year note, L2,, .*
L 3$, 4(, 1(, L1,2,
T!e interest ost to be apitali)ed is L"(, t!e lesser of t!e L"(, avoidable interest and t!e L1,2, atual interestG.
P$% 10-10 8Capitali)ation of interest.
=arly in 2', 7aley Corporation engaged /eese, In. to design and onstrut a omplete moderni)ation of 7aleyHs manufaturing faility. Constrution as begun on Pune 1, 2' and as ompleted on -eember 31, 2'. 7aley made t!e folloing payments to /eese, In. during 2'? -ate 6ayment 6aym ent Pune 1, 2' L3,$, #ugust 31, 2' ",4, -eember 31, 2' 4,", In order to !elp finane t!e onstrution, 7aley issued t!e folloing during 2'? 1. L3,2 L3,2, , of 1&yea 1&year, r, * bonds bonds payable payable,, issued issued at par on 7ay 31, 2', it! it! interest interest payable annually on 7ay 31. 2. 1,, 1,, s!ares s!ares of no&par no&par ommon sto, sto, issued issued at L1 L1 per s!are s!are on %tober %tober 1, 2'. In addition to t!e * bonds payable, t!e only debt outstanding during 2' as a L'",, 12 note payable dated Panuary 1, 23 and due Panuary 1, 213, it! interest payable annually on Panuary 1. In"t$uct&on"
Compute t!e amounts of ea! of t!e folloing s!o omputationsG? 1. 9eig!ted&av 9eig!ted&average erage aumulat aumulated ed ependitures ependitures qualifying qualifying for apitali) apitali)ation ation of interest interest ost. 2. #void #voidabl able e interes interestt inurr inurred ed during during 2'. 2'. 3. Total Total amount amount of interest interest ost ost to be apital apitali)ed i)ed during during 2'. 2'.
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
10 - 2=
So!ut&on 10-10
1. -ate Pune 1 #ugust 31 -eember 31 2.
3.
Capitali)ation =penditures L3,$, ",4, 4,",
9eig!ted&#verage #umulated =penditures L3,, *, L3,*,
9eig!ted&#verage #umulated =penditures L2,1, 1,(, L3,*,
6eriod '012 4012
#ppropriate Interest /ate .* .12
#voidable Interest L2', 1(, L3'(,
#tual in interest in inurre rred du durin ring 2 2'? * bonds payable, L3,2, .* '012 12 note payable, L'", .12
L1$(, *, L2"(,
T!e interest ost to be apitali)ed is L2"(, t!e lesser of t!e L3'(, avoidable interest and t!e L2"(, atual interest ostG.
P$% 10-11 8#sset aquisition.
Oased upon urrent generally aepted aounting priniples, state !o, if at all, t!e boo value of t!e ma!ine and t!e obligation s!ould appear on t!e -eember 31, 2' balane s!eet of
#mount
iab i abililiti ities es #ount Name #mount
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - 2>
So!ut&on 10-11
%ption 1 %ption 2
#sset #ss ets s #ount Name 7a!inery #um. -epr.
#mount L(, ",
7a!inery #um. -epr.
L(, ",
iab i abililiti ities es #ount Name #mount 5not s!on5 Notes 6ayable8 Current L 2',$*' Notes 6ayable8 ong&term '4',122
Computations? #t Panuary 1, 2', t!e note payable payable is L(,. #t -eember 31, 2', after t!e first payment of L1",1'* !as been made L(, interestG L''4,(21 L''4,(21 prinipal remains, remains, of !i! L'4',124 is long&term long&term and L2',$*' L2',$*' is urrent QL1",1'* 1 L''4,(21GR. Note Note?? L1" L1",1 ,1'* '* '.$ '.$$ $( ( Ta Table ble $&4G $&4G @ L( L(, , ,, t!e t!e pres presen entt valu value e of t!e t!e obli obliga gati tion on on Panuary 1, 2'.
P$% 10-1 8Nonmonetary e!anges.
Ferry Corporation follos a poliy of a 1 depreiation !arge per year on all ma!inery and a " depreiation !arge per year on buildings. T!e folloing transations ourred in 2'? 7ar 7ar! ! 31, 31, 2' 2'8 8 Nego Negoti tiat atio ions ns !i !i! ! bega began n in 2$ 2$ ere ere omp omple lete ted d and and a are are!o !ous use e pur!ased 1010*( depreiation !as been properly !arged t!roug! -eember 31, 2$G at a ost of L3,2, it! a fair maret value of L2,, as e!anged for a seond are!ouse !i! also !ad a fair maret value of L2,,. T!e e!ange !ad no ommerial substane. Oot! parels of land on !i! t!e are!ouses ere loated ere equal in value, and !ad a fair value equal to boo value. Pune Pune 3, 2'8 2'8 7a!in 7a!inery ery it! it! a ost ost of L24, L24, and aumu aumulat lated ed depre depreiat iation ion t!roug t!roug! ! Panuary 1 of L1(, as e!anged it! L1", as! for a parel of land it! a fair maret value of L23,. In"t$uct&on"
6repare all appropriate Bournal entries for Ferry Corporation for t!e above dates. So!ut&on 10-1
30310 30310' ' -epre -epreiat iation ion =pens =pense e ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ......... ........ ... #umulated -epreiation89are!ouse -epreiation89are!ouse ........... ......... .. L3,2, " 104G
4, 4,
9are!ouse 9are!ouse .......... ............... .......... .......... .......... .......... .......... .......... .............. ..................... ............... ... 1,'2, 1,'2, #umulated -epreiation89are!ouse......................... -epreiation89are!ouse........................... .. 1,4(, 9are!ouse......................................................... L3,2, " * 104 @ L1,4(,G
4,
3,2,
10 - 60
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
So!ut&on 10-1 ont.G
$030 $030' ' -epre -epreiat iation ion =pen =pense. se.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ .... #umulated -epreiation87a!inery.............. -epreiation87a!inery.............. L24, 1 102G
12, 12, 12,
and and ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ .... 23, 23, #umulated -epreiation87a!inery................. -epreiation87a!inery............................ ........... 1*2, ;ain on =!ange.............................................. 7a!inery........................................................... Cas!................................................................... QL(, L24, L1*2,GR @ L32,
32, 24, 1",
P$% 10-12 8Nonmonetary e!ange.
;orman Co. !ad a s!eet metal utter t!at ost L*$, on Panuary ", 22. T!is old utter !ad an estimated life of ten years and a salvage value of L1$,. %n #pril 3, 2', t!e old utter is e!anged for a ne utter it! a maret value of L4(,. T!e e!ange laed ommerial substane. substane. ;orman ;orman also reeived L12, L12, as!. #ssume #ssume t!at t!e last fisal period period ended on -eember 31, 2$, and t!at straig!t&line depreiation is used. In"t$uct&on"
aG !o t!e alul alulation ation of t!e t!e amount of t!e t!e gain or loss loss to be reogni)e reogni)ed d by ;orman Co. Co. bG bG 6rep 6repar are e all all entr entrie ies s t!at t!at are nee neess ssar ary y on #pri #prill 3, 2'. 2'. !o !o a !e !e of t!e amou amount nt reorded for t!e ne utter.
So!ut&on 10-12
aG
bG bG
Co C ost #umulated depreiation " 104 L(,G L(,G Ooo value Fair value L4(, M L12,G ;ain
L*$, 42,G "4, $, L $,
;ain reogni)ed 120$ L$,G
L 1,2
-epr -epre eia iati tion on =pe =pens nse. e... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... #umulated -epreiation...................... -epreiation................................. ................. ...... #umulated -epreiation................................................... -epreiation................................................... 7a!in 7a!inery. ery.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ...... .. Cas!.. Cas!..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ....... ... 7a!inery ............................................................... ;ain on -isposal ..................................................... C!e? Fair value L4(, ess deferred gain 4,(G Oasis of ne ma!inery L43,2
2, 2, 2, 42, 43,2 43,2 12, 12, *$, 1,2
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - 61
P$% 10-16 8Nonmonetary e!ange.
6ratt Co. !as a ma!ine t!at ost L2"", on 7ar! 2, 23. T!is old ma!ine !ad an estimated life of ten years and a salvage value of L1",. %n -eember 23, 2', t!e old ma!ine is e!anged for a ne ma!ine it! a maret value of L1$2,. T!e e!ange laed ommerial substane. 6ratt also reeived L1(, as!. #ssume t!at t!e last fisal period ended on -eember 31, 2$, and t!at straig!t&line depreiation is used. In"t$uct&on"
aG !o t!e alulation of t!e amount of gain or loss to be reogni)ed by 6ratt Co. from t!e e!ange. /ound to t!e nearest dollar.G bG 6repare all entries t!at are neessary on -eember 23, 2'. !o a !e of t!e amount reorded for t!e ne ma!ine.
So!ut&on 10-16
aG
bG bG
Cost #umulated depreiation 4 304 L24,G Ooo value Fair value L1$2, M L1(,G ;ain
L2"", 114,G 114,G 141, 1(, L 3*,
;ain reogni)ed 1(01( L3*,G
L
-epr -epre eia iati tion on =pe =pens nse. e... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... #umulated -epreiation..................... -epreiation................................. .................. ......
3,* 24, 24,
#umulated -epreiation................................................... -epreiation................................................... 114, 114, 7a!ine.... 7a!ine......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ............ ................... .............. 12$,* 12$,* Cas!.. Cas!..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ....... ... 1(, 1(, 7a!ine................................................................... ;ain on -isposal...................................................... C!e? Fair value L1$2, -eferred gain 3",1G Oasis of ne ma!ine L12$,*
24,
2"", 3,*
P$% 10-1: 8Nonmonetary e!ange.
ila ilas s Co. Co. e! e!an ange ged d Ouil Ouildi ding ng 24 !i !i! ! !as !as an appr apprai aise sed d valu value e of L3,2 L3,2 , , ,, a ost ost of L",$,, L",$,, and aumulate aumulated d depreiatio depreiation n of L2,4, L2,4, for Ouilding Ouilding 7 belonging belonging to 7o Co. Ouildi Ouilding ng 7 !as an apprai appraised sed value of L3,( L3,(, ,, , a ost ost of L$,2 L$,2, ,, , and aumu aumulat lated ed depreiation of L3,1$(,. T!e orret amount of as! as also paid. #ssume depreiation !as already been updated. In"t$uct&on"
6repare t!e entries on bot! ompaniesH boos assuming t!e e!ange !ad no ommerial substane. !o a !e of t!e amount reorded for Ouilding 7 on ilasHs boos. /ound to t!e nearest dollar.G
10 - 6
Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on
So!ut&on 10-1:
ilas Co.? Cost #umulated depreiation Ooo value Fair value ;ain
L",$, 2,4, 2,$$, 3,2, L "4,
;ain ;ain reo reogn gni) i)ed ed 1*2 1*203 03,2 ,2 L"4 L"4, , GG
L32, L32,4 4
#umulated -epreiation................................................... -epreiation................................................... 2,4, Ouilding 7................................................ 7............................................................................ ............................ 2,",4 Cas!...... Cas!........... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ............. .................... ............... ... 1*2, 1*2, Ouilding 24............................................................... ;ain on -isposal...................................................... C!e? Fair value L3,(, -eferred gain "',$G Oasis for Ouilding 7 L2,",4 7o Co.? Cost #umulated -epreiation Ooo value Fair value ;ain
",$, 32,4
L$,2, 3,1$(, 2,("2, 3,(, L 1"$,
#umulated -epreiation................................................... -epreiation................................................... 3,1$(, Ouilding 24................................................. 24........................................................................... .......................... 3,44, Ouilding 7................................................................ Cas!.........................................................................
$,2, 1*2,
P$% 10-1; 8Nonmonetary e!ange.
=dmond Company e!anged ma!inery it! an appraised value of L1,'"",, a reorded ost of L2,' L2,' , , and and #um umul ulat ated ed -epr -epre eia iati tion on of L1,3 L1,3" ", , it! it! /ose /osen n Corp Corpor orat atio ion n for for ma!inery /osen ons. T!e ma!inery !as an appraised value of L1,$*",, a reorded ost of L3,24,, and #umulated -epreiation of L1,'(2,. /osen also gave =dmond L$, in t!e e!ange. #ssume depreiation !as already been updated. In"t$uct&on"
aG 6repare 6repare t!e entries entries on bot! ompanies ompaniesHH boos assuming assuming t!at t!at t!e e!ange e!ange !ad ommeri ommerial al substane. /ound all omputations to t!e nearest dollar.G dollar.G bG bG 6rep 6repar are e t!e t!e entr entrie ies s on bot! bot! omp ompan anie iesH sH boo boos s assu assumi ming ng t!at t!at t!e t!e e! e!an ange ge la laed ed ommerial substane. /ound all omputations to t!e nearest dollar.G dollar.G
#quisition and -isposition of 6roperty, 6roperty, 6lant, and =quipment
10 - 62
So!ut&on 10-1;
aG aG
-issi issimi mila larr #sset ssets s =dmond 7a!inery...................................... 1,$*", Cas!.............................................. $, #um. -epreiation8 7a!inery.................................. 1,3", ;ain on =!ange of 6lant #ssets.................. 4", 7a!inery........................ 2,', /osen 7a!inery...................................... 1,'"", #um. -epreiation8 7a!inery.................................. 1,'(2, ;ain on =!ange of 6lant #ssets.................. 23', 7a!inery........................ 3,24, Cas!................................ $,
bG
Cost #0O: F: ;ain
L2,', 1,3", 1,3", 1,'"", L 4",
Cost #0O: F: ;ain
L3,24, 1,'(2, 1,4"(, 1,$*", L 23 23',
imilar #ssets =dmond 7a!inery............................................. 7a!inery......................................................................... ...................................... .......... 1,33,(4$ Cas!.. Cas!..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ ...... $, $, #umulated -epreation87a!inery...................................... -epreation87a!inery........................................ 1,3", ;ain on =!ange........................................................ 7a!inery.....................................................................
13,(4$ 2,',
L$, S L$, M L1,$*",G L4", @ L13,(4$ /osen 7a!inery............................................. 7a!inery......................................................................... ...................................... .......... 1,"1(, #umulated -epreiation87a!inery.......................... -epreiation87a!inery...................................... ............ 1,'(2, 7a!inery..................................................................... Cas!.............................................................................
3,24, $,
