Exam 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments

What is a nonmonetary exchange? How is it recorded on the books?

Which of the following costs incurred subsequent to the acquisition of a machine would be appropriately accounted for by debiting the accumulated depreciation account related to the machine?

On January 1, 2016, Randolf Company signed a contract to have Rory Associates construct a manufacturing facility at a cost of $14,000,000. It was estimated that it would take three years to complete the project. Also on January 1, 2016, to finance the construction cost, Randolf borrowed $14,000,000 payable in seven annual installments of $2,000,000 plus interest at the rate of 9%. During 2016, Randolf made progress payments totaling $5,000,000 under the contract, and the average amount of accumulated expenditures was $3,000,000 for the year. The excess borrowed funds were invested in short-term securities, from which Randolf realized investment income of $330,000. What amount should Randolf report as capitalized interest at December 31, 2016?

Advantages of using historical cost as the basis of valuation of property, plant, and equipment include all of the following except

How can the future economic benefit of a capital expenditure be increased?

Which of the following terms is not a common alternative for the term "property, plant, and equipment?"

On January 1, 2016, Basker Research signed a contract to have Bob's Builders construct a laboratory building at a cost of $20,000,000. It was estimated that it would take four years to complete the project. Also on January 1, 2017, to finance the construction cost, Tolvin borrowed $20,000,000 payable in five annual installments of $4,000,000 plus interest at the rate of 7%. During 2017, Tolvin made the following construction-related expenditures: What amount should Tolvin report as capitalized interest at December 31, 2017?

Richards, Inc. exchanged a piece of equipment with an original cost of $82,000, accumulated depreciation to date of $40,000, and a fair value of $46,000 for a similar piece of equipment. Cash flows are not expected to change significantly. The newly acquired equipment had a book value of $40,000 and a fair market value of $41,000. At what value should Richard record the newly-acquired equipment?

In 2016, Hart Co. invested $5,500,000 in oil well exploration activities. Sixty percent of the drilling was successful and resulted in commercial quantities of oil being found. Required: a. Indicate the amount of drilling expense Hart Co. would recognize in 2016 if the full-cost method is in use. b. Indicate the cost that would be reported on the balance sheet as oil and gas properties if the successful-efforts method is in use.

On August 1, Gold Company exchanged a machine for a similar machine owned by Cowboy Company and also received $7,000 cash from Cowboy Company. Gold's machine had an original cost of $80,000, accumulated depreciation to date of $14,500, and a fair market value of $60,000. Cowboy's machine had an original cost of $95,000 and a book value of $45,000 and a fair value of $53,000. Required: a. Prepare the necessary journal entry by Gold Company to record this transaction. b. Prepare the necessary journal entry by Cowboy Company to record this transaction.

Exhibit 10-1 Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information: The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to Dakota. -Refer to Exhibit 10-1. For financial reporting purposes, Carolina should recognize a gain on this exchange in the amount of

The old forklift was purchased for $20,000 and had a book value of $5,000. On the date of the exchange, the old forklift had a market value of $6,000. In addition, Retread paid $18,000 cash for the new forklift, which had a list price of $25,000. It is expected that future cash flows will not change. At what amount should Retread record the new forklift for financial accounting purposes?

Maxa Marina exchanged a boat with a cost of $80,000 now 75% depreciated) and fair value of $25,000 for another boat with a current fair value of $27,000. No cash was paid or received. The new boat will perform the same function as the old boat, but cash flows are expected to last for 5 years longer with the new boat. At what value should Maxa record the new boat?

Samos, Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay $75,000 at year-end for each of the next three years. The plant assets should be valued at

Assets acquired by donation will have zero value for financial reporting purposes.

Costs incurred by Mills Company that relate to its property, plant, and equipment assets might be recorded in one of the five following accounts: a. an expense account b. Accumulated Depreciation c. Land d. Building e. Equipment Required: For each of the costs identified below, indicate the type of account in which the cost should be recorded by placing the appropriate letter in the space provided. ____ 1. The legal fees associated with the acquisition of land. ____ 2. The cost of replacing the engine in a truck when the cost of the old engine is not known. ____ 3. The cost of replacing an oil furnace with an electric furnace book value of the oil furnace is known). ____ 4. The cost of a new addition to a warehouse that will be used to store inventory. ____ 5. The cost of renovating a recently purchased ten-year-old office building. ____ 6. The materials and labor costs incurred in installing a new piece of equipment. ____ 7. The costs of tuning, lubricating, and tire rotation on a fleet of delivery trucks. ____ 8. The additional costs in the construction of a building due to a small fire that occurred during the construction period.

Billy's Builders purchased some equipment by issuing a five-year 5% note for $15,000 when the market rate for an obligation of this nature was 7%. The interest is payable annually. Actuarial information for five periods follows: At the date of purchase, what amount should be debited to Equipment?

GAAP requires a company to report its property, plant, and equipment at fair value less accumulated depreciation.

The Nathan Jacob's Company paid $450,000 to acquire land, building, and equipment. At the time of the acquisition Nathan paid $15,000 to have the property appraised. The following values were determined from the appraisal: land, $125,000? building, $235,000? and equipment, $150,000. Required: 1) What cost should Nathan Jacob's assign to the land, buildings, and equipment, respectively? round percentages to whole percents) 2) Provide the journal entry to record the acquisition on the books of Nathan Jacob's.

Assuming that the effects of interest capitalization are material, calculate the amount of interest costs to be capitalized by Matthew Corporation in 2016 in relation to the following separate events: a. On January 1, Matthew began construction for a new storage building for its own use. Expenditures incurred evenly throughout the year totaled $900,000. Matthew borrowed $1,000,000 specifically for construction of the storage building at an annual interest rate of 6%. b. Inventories costing $200,000 were routinely manufactured during the year. Matthew borrowed $200,000 at 8% to finance inventory-related costs. c. On September 1, Matthew began construction of a custom-designed machine to the specifications of a customer. As of December 31, $200,000 of materials, labor, and overhead have been assigned to the machine. Those costs were incurred evenly throughout the period September 1 through December 31. To finance construction, $230,000 was borrowed at a 9% interest rate.