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

The amount of interest that can be capitalized for a qualifying asset is the lesser of the amount considered as avoidable interest costs or actual interest cost.

Wilhelm Company exchanged a piece of equipment with a cost of $300,000 and accumulated depreciation of $240,000 for land owned by James Corporation. No cash was exchanged. James' land had an original cost of $190,000. At the date of exchange, both assets had a fair market value of $180,000. Required: Prepare the journal entry that each company should record.

The Roger's Company incurred the following costs in the acquisition factory production equipment: Invoice price $\quad$ $\quad$ $2,675 Purchase discount lost $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 75 Freight-in $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 400 Installation $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 750 Cost of trial runs $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 150 What is the capitalizable cost of the equipment?

When a company constructs an asset for use in its operations there are two alternatives for a company to include overhead costs in the cost of the asset. What are the two alternatives?

Which one of the following types of assets should not be classified as property, plant, and equipment?

Sarah Company is exchanging a special machine for a similar machine from Wilhelm, Inc. Sarah's equipment originally cost $300,000 and has accumulated depreciation of $125,000. Wilhelm's machine cost $250,000 and has a book value of $150,000. No cash will be exchanged because the fair value of both machines is $160,000. Each company expects their cash flows will increase after the exchange. Required: Prepare the journal entry for each company.

On April 1, 2016, Bennett Corporation purchased a new machine on a deferred payment basis. A down payment of $5,000 was made and 10 monthly installments of $14,000 each are to be made beginning on May 1, 2016. The cash equivalent price of the machine was $130,000. Bennett incurred and paid installation costs amounting to $6,000. The amount to be capitalized as the cost of the machine is

What is the successful-efforts method of capitalization?

When exchanging nonmonetary assets

According to GAAP, interest cost incurred to finance construction of an asset must be capitalized in which of the following situations?

According to GAAP, interest must be capitalized for

List five acquisition costs that can be included in the cost of land.

Roberts Corporation purchased some equipment by issuing a $20,000 non-interest-bearing, four-year note when interest rates were 8%. Actuarial information for 8% and four periods follows: Future amount of 1 $\quad$ $\quad$ 1.360 Present value of 1 $\quad$ $\quad$ $\quad$ 0.735 In the entry to record this purchase, there would be a

Which of the following events is most appropriately recorded as a reduction to accumulated depreciation?

Under GAAP, which one of the following types of costs should not be capitalized?

Concerning current accounting for oil and gas properties, which statement is true?

During 2014, Red Company acquired a new piece of equipment for its manufacturing process. In order to purchase the equipment, Red made a down payment of $50,000 and issued a $200,000 five-year, 7% note. The annual payment of principal and interest was to be $48,778. The market rate of interest for obligations of this kind is 12%. The present value factor for an ordinary annuity of 5 years at 12% is 3.604776. Required: a. Prepare the journal entry to record the acquisition. b. Assume that the equipment had an established cash price of $220,000. Prepare the journal entry to record the transaction under this additional assumption.

Ramirez Company made the following payments related to a land acquisition: Purchase price $\quad$ $\quad$ $\quad$ $\quad$ $7,500 Past due taxes $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 650 Title search $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 275 Cost of razing old building $\quad$ 1300 Interest incurred after productive operations had begun) $\quad$ 160 Proceeds from salvage of old building $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 1875 What is the capitalizable cost of the land?

In 2016, Go Oil Company incurred costs of $8 million drilling oil wells. Thirty percent of the drilling resulted in oil being found. The rest of the drilling was unsuccessful. If Go uses the successful-efforts method of accounting, the oil and gas properties will be valued on the December 31, 2016 balance sheet at

During 2014, Garnet Corporation purchased three pieces of equipment at an auction for the lump sum of $200,000. It cost Garnet $40,000 to have the equipment delivered and installed. The equipment was appraised at the following fair values: Machine 1 $\quad$ $120,000 Machine 2 $\quad$ 105,000 Machine 3 $\quad$ 75,000 Machine 2 should be recorded on Garnet's books at