Exam 10: Property, Plant, and Equipment: Accounting Model Basics

Soflo Inc. acquired a new delivery truck in exchange for an old delivery truck that it had acquired several years earlier for $ 50,000. On the date of the exchange, the old truck had a fair value of $ 20,000, and its net book value (carrying value) was $ 19,000. In addition, Soflo paid $ 65,000 cash for the new truck, which had a list price of $ 90,000. At what amount should Soflo record the new truck for financial accounting purposes?

Revaluation model Mongolia Inc. owns equipment that it purchased on January 1, 2021, for $ 4 million. The following additional information is available: Dec. 31, 2021 – Book value (after recording 2021 depreciation): $ 3,600,000 Dec. 31, 2021 – Fair value: $ 4,100,000 The company uses the revaluation model (asset adjustment method) to account for its property, plant, and equipment. Instructions Assuming the entry for the current year's depreciation has already been recorded, prepare the entr(ies) to adjust the asset's carrying amount to fair value.

When a closely held corporation issues preferred shares for land, the land should be recorded at the

A company is constructing an asset for its own use. Construction began in 2020. The asset is being financed entirely with a specific new borrowing. Construction expenditures were made in 2020 and 2021 at the end of each quarter. The total amount of interest cost capitalized in 2021 should be determined by applying the interest rate on the specific new borrowing to the

Asset exchange – no commercial substance Syria Corp. exchanged Building 24, which has an appraised value of $ 1,700,000, a cost of $ 2,800,000, and accumulated depreciation of $ 1,300,000, for Building M which belongs to Russia Ltd. Building M has an appraised value of $ 1,620,000, a cost of $ 3,100,000, and accumulated Depreciation of $ 1,750,000. Russia paid Syria the difference between the appraised values of the two buildings. Assume depreciation has been updated to the date of exchange. Instructions Prepare the entries on both companies’ books, assuming the buildings are similar assets.

Nigeria Ltd. acquires a new machine. It is comprised of two different components (A and B) that are expected to be overhauled at different times. The acquisition costs of the components are as follows: Comportent A: \1 98,000 Component B: \2 40,000 Component A is expected to have a useful life of 5 years and a residual value of $ 20,000 before the first major overhaul is required. Component B is expected to have a useful life of 7 years and a residual value of $ 15,000 before its first overhaul. Nigeria uses straight-line depreciation for all its equipment. What is the net book value of component A after 5 years?

Asset exchange Arabia Inc. traded its fleet of rental cars for a new fleet. Two-thirds of the old fleet's original cost of $ 375,000 had been depreciated. The new fleet is valued at $ 500,000 and Arabia was required to make a cash payment of $ 400,000. Instructions Prepare the required entr(ies) to record the exchange.

Trade-off with historical cost model Explain the qualitative characteristic trade-off related to the historical cost method.

On August 1, 2020, Chapelle Corp. purchases a new machine. The company makes a $ 7,200 cash down payment, and agrees to pay four monthly instalments of $ 10,800 each, starting September 1, 2020, signing a non-interest-bearing note to this effect. The cash equivalent price of the machine is $ 43,200. As well, Chapelle pays installation costs of $ 1,200. The recorded cost of the machine should be

Cost model versus revaluation model versus fair value model For each of the following types of assets, indicate with an "x" which of the three models: cost model (CM), revaluation model (RM), and/or fair value model (FVM) a company can choose, given international and private enterprise standards, to account for its property, plant, and equipment assets after acquisition.

Assume the same facts as indicated above, except that, between December 31, 2020, and December 31, 2021, the property's fair value had decreased by $ 10,000. As a result, Tunisia's 2021 income statement will include a

Which of the following does NOT apply to the capitalization of borrowing costs for the purchase of assets?

Which of the following statements is correct?

When using the revaluation model of accounting for PP&E assets (asset-adjustment or elimination method),

How should variable overhead costs incurred to self-construct an asset be recorded?

Purchase of asset by non-interest-bearing note Lebanon Corporation is a Calgary-based manufacturer of automobile parts. In early January 2020, the company acquired land and a building to be used as the company's new head office. Lebanon issued a $ 2M, five-year non-interest-bearing note to the seller. Payment is to be made in five equal instalments of $ 400,000 at the end of each year. As a result of a depressed real estate market, the fair value of the building cannot be readily determined. However, it has been ascertained that, given Lebanon's credit rating and market conditions, an interest rate of 9% would properly reflect the substance and credit risk of the negotiated payment schedule. Other information: 1.One-third of the total value of the acquisition is attributable to the land. 2.The building is expected to have a useful life of 25 years. 3.Throughout the year, Lebanon incurred maintenance costs of $ 87,000 and paid them in cash. 4.A parking lot was built at a cost of $ 100,000 cash. The work was completed on July 1 and is expected to have a useful life of 10 years. Instructions Prepare all journal entries that are required to record the above events and transactions. Round all values to the nearest dollar.

On December 1, 2020, Guinea Corp. purchased a tract of land as a factory site for $ 500,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2020 were as follows: Cost to raze old building .......................................$25,000 Legel fees for purchese contrect and to record ownership.............................5,000 Property purchase tax........................................................................8,000 Proceeds from sole of solvaged materials.........................................4,000 On Guinea's December 31, 2020 balance sheet, what amount should be reported for the land?

On March 1, Senegal Inc. began construction of a small building for its own use. Payments of $ 150,000 were made monthly for three months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are

On January 2, 2020, Gabon Corp. purchases a new machine. The company makes a $ 2,000 cash down payment, and agrees to pay four annual instalments of $ 4,000 each, starting December 31, 2020, signing a non-interest-bearing note to this effect. The cash equivalent price of the machine is not known, but the appropriate interest rate for this type of transaction is 9% p.a. Rounding to the nearest dollar (if necessary), Gabon should record the cost of the machine at

Asset exchange with commercial substance In 2021, Malawi Inc. exchanged equipment for two delivery trucks. The equipment had been purchased for $ 95,000 ten years ago and has since been fully depreciated. While the equipment was recently appraised at $ 22,000, a reliable valuation for the trucks was not available. This transaction has commercial substance. Instructions Prepare the journal entry to record the exchange.