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

On May 1, 2020, Ethiopia Ltd. began construction of a new building for its own use. Expenditures of $ 75,000 were incurred monthly for five months beginning on May 1. The building was completed and ready for occupancy on September 1, 2020. For the purpose of determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures on the building during 2020 were

When accounting for asset exchanges,

Use the following information to solve the following questions: Tunisia Inc. owns assets to which it applies the revaluation model (asset-adjustment method). The following additional information is available: 1. Accumulated Depreciation at December 31, 2021, (prior to any fair value adjustments) was $ 12,000. 2. Between December 31, 2020, and December 31, 2021, the property's fair value had increased by $ 30,000. 3. The December 31, 2021, balance in the revaluation surplus account (prior to any fair value adjustments) was $ 2,000. -The adjusted December 31, 2021, in the revaluation surplus account will be

Which of the following statements applies to the recognition of property, plant, and equipment acquisitions?

Asset overhaul Swift Corporation is an international provider of freight services that follows IFRS. Its fleet of vehicles includes a truck that is carried in its books as "VC1-016." This truck was purchased two years ago for $ 150,000 and has been depreciated on a straight-line basis. By December 31, 2020, its book value (carrying value) is $ 97,000. As part of its commitment to safety and as required by its insurer, the company has a policy to overhaul its trucks after every 50,000 km. The associated costs of the overhauls are tracked in separate accounts. At December 31, 2020, the balances for VC1-016 are as follows: Overhauls $\# 1 - 5$ : Accumulated Depreciation:.......................................... $\$ 0$ Overhaul \# 6: Cost.............................................................................$20,000 Less accumulated depreciation:.................\underline{(16,400)} Book value.............................................................$3,600 On January 1, 2021, after the driver had reported problems with the truck's engine, a decision was made to do an early overhaul (i.e., 9,000 km prior to the next scheduled overhaul). The overhaul was completed on January 7, 2021, for $ 28,000 cash. Because of a slowdown in the economy, the truck only operated for 21,000 km for the remainder of 2021. Instructions Prepare the appropriate journal entries for 2021 relating to the truck's overhaul.

Asset exchanges Bahrain Corporation follows a policy of a 10% depreciation charge per year on machinery and a 5% depreciation charge per year on buildings. The following transactions occurred in 2020: March 31, 2020 A warehouse that Bahrain had purchased on January 1, 2011, for $ 1.7 million (with a current fair value of $ 1 million) was exchanged for another warehouse which also had a current fair value of $ 1 million. Depreciation has been properly charged from Jan. 1, 2011 through Dec. 31, 2019. Both parcels of land on which the warehouses were located were equal in value, and had a fair value equal to book value. June 30, 2020 Machinery with a cost of $ 120,000 and accumulated depreciation through December 31, 2019, of $ 90,000 was exchanged, along with $ 75,000 cash, for a parcel of land with a fair market value of $ 115,000. Instructions Prepare all appropriate journal entries for Bahrain Corporation for the above dates.

Frosty Ltd. exchanged 400 common shares of Grants Corp., which Frosty was holding as an investment, for new equipment from Milliken Sales. The Grants Corp. common shares, which had been purchased by Frosty for $ 80 per share, had a quoted market value of $ 100 per share at the date of exchange. The equipment had a recorded amount on Milliken's books of $ 37,000, but the fair value was not available. The journal entry that Frosty should make to record this exchange is

Revaluation model How often should a company revalue its property, plant, and equipment when using the revaluation model?

Dinga Corp. exchanged similar pieces of equipment with Elongo Corp. No cash was exchanged. Since this exchange will not significantly change the economic position of either company, this transaction lacks commercial substance. At this time, the net book value of Dinga's asset is $ 36,000, while the net book value of Elongo's asset on their books is $ 33,300. However, it has been reliably determined that the fair value of Dinga's asset is $ 36,900, while the fair value of Elongo's asset is $ 34,200. Given these facts, at what amount should Dinga record the asset it receives from Elongo?

Liberia Corporation exchanged 2,000 shares of its common shares for a parcel of land to be held as a future plant site. The book value of the shares is currently $ 90 per share, and their current market value is $ 110 per share. Liberia received $ 30,000 from the sale of scrap when an existing building on the property was removed from the site. Based on these facts, the land should be capitalized at

Explain the concept of componentization as it applies to the recognition of PP&E assets.

The debit for non-refundable provincial sales tax correctly calculated and paid on the purchase of machinery should be included in

On January 2, 2020, Holliwell Inc. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler....................................... $\$ 36,000$ Carrying amount of old boiler.......................................4,000 Fair value of old boiler.................................................2,400 Installation cost of new boiler......................................3,200 The old boiler was sold for $ 2,400. At what amount should Holliwell capitalize the cost of the new boiler?

Non-monetary transaction without commercial substance Malawi Auto traded one of its used trailers (cost $ 40,000, accumulated depreciation $ 36,000) for another used trailer with a fair value of $ 6,400. Malawi also paid $ 600 to complete the transaction. Instructions Assuming the transaction lacks commercial substance, prepare the journal entry to record the exchange.

Accounting for government grant Gorgen Corp. qualified for a 25% government grant that would assist the company in the purchase of machinery for its manufacturing operations. The cost of the machinery is $ 200,000 and the new asset has an estimated useful life of 16 years. Instructions a)Assuming that Gorgen uses the cost reduction method, prepare the journal entries to record the purchase of the machinery and the receipt of the government grant. b)Assuming that Gorgen uses the deferral method, prepare the journal entries to record the purchase of the machinery, the receipt of the grant, and the adjusting entry required at the end of the first year (assuming the machinery was purchased on the first day of the fiscal year).

Use the following information to solve the following questions: Egypt Corp. owns equipment that originally cost $ 100,000. At December 31, 2020, the equipment's book value (after 2020 depreciation was booked) is $ 60,000. It is determined that the fair value of the equipment at this date is $ 90,000. Although Egypt's policy is to apply the revaluation model using the proportionate method, this is the first time the company has done it. -The adjusting entry to record the revaluation will include a

Land is generally included in property, plant, and equipment EXCEPT when

Asset exchange – no commercial substance Turkey Corp. has a computer that they purchased on March 30, 2016, for $ 106,000. This computer had an estimated life of ten years and a residual value of $ 6,000. On December 31, 2020, the old computer is exchanged for a similar computer with a fair value of $ 58,000. Turkey also received $ 2,000 cash. Assume that the last fiscal period ended on December 31, 2019, and that straight-line depreciation is used. Instructions Prepare all entries that are necessary on December 31, 2020.

On August 1, 2020, Burkina Corp. purchases a new machine. The company makes a $ 2,000 cash down payment, and agrees to pay four annual instalments of $ 3,000 each, starting August 1, 2021, signing a non-interest bearing-note to this effect. The cash equivalent price of the machine is $ 12,500. Due to an employee strike, Burkina could not install the machine immediately, and thus incurred $ 300 of storage costs. As well, Burkina pays installation costs of $ 400. The recorded cost of the machine should be

A plant site donated by a city to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at