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

Culiver, Inc. is constructing a building that qualifies for interest capitalization. The following information is available: Capitalization period: January 1, 2013-December 31, 2014 Expenditures on project (incurred evenly): Amounts borrowed and outstanding (all debt incurred January 1, 2013): Required: a.Compute the amount of interest that should be capitalized in 2013 and 2014. (Round interest rates to the nearest hundredths, e.g., 07.62%.) b.Assume that in 2013 unused borrowed funds were invested and earned interest revenue amounting to $600. How much interest should be capitalized to the asset account in 2014?

Property acquired through donation is recorded at

Which of the following is NOT an alternative term for property, plant, and equipment used in the normal operation of business?

Costs can be added to an existing asset if future economic benefit extends the life of the asset improves productivity or increases the quality of the product.

Roberts Company is making significant improvements to some of its assets, as follows. 1.It is replacing the old furnace that cost $40,000 and has a $15,000 book value with a new furnace/air conditioner combination. Roberts spent $60,000 in cash and was given a $3,000 trade-in on the old furnace. 2.The delivery van is being updated with a new $7,000 engine that will increase the useful life of the van by 2 years. The van originally cost $35,000 and has accumulated depreciation of $25,000. Required: a.Record the appropriate journal entry for replacing the furnace. b.When recording the transaction associated with the van there is a choice between two methods. Provide the journal entries for each method.

The costs of drilling an unsuccessful well are expensed under

A farmer donated a large tract of land and a building to a community group for use as a recreation center. The agreement provided that the recreation center employ 50 people for 10 years. The land was appraised for $150,000 and the building at $75,000. Required: 1) Prepare the journal entry to record the acquisition of the land and building. 2) How should the 10 year agreement be reported in the financial statements?

In 2015, 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 2015 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.

Ramirez Company made the following payments related to a land acquisition: The recorded cost of the land should be

Why is it important to allocate a lump-sum purchase amount among the individual assets acquired?

On January 1, 2014, 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, 2014, 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 2014, 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, 2014?

Discuss when the interest capitalization period begins and ends for assets constructed for a company's own use.

Several expenditures are listed below: Required: If the expenditure would be capitalized to land, buildings, equipment, or other, so indicate with an "X." An example is given.

A major difference between IFRS and GAAP regarding valuation of property, plant, and equipment is that

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

In 2014 Jones Company spends $6 million drilling oil wells. Seventy percent of the drilling is successful and results in commercial quantities of oil being found. Required: 1) How much drilling expense should the company recognize under: a) successful-efforts method b) full-cost method 2) What value is reported on the balance sheet for the Oil and Gas Properties under: a) successful-efforts method b) full-cost method

List 5 costs that can be included as part of the building.

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: In the entry to record this purchase, there would be a

When exchanging nonmonetary assets

If an exchange lacks commercial substance and a gain results, under GAAP the gain must be deferred by reducing the cost of the asset.