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

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 $70,000, accumulated depreciation to date of $34,500, and a fair market value of $60,000. Cowboy's machine had a book value of $45,000 and a fair value of $53,000. Required: Prepare the necessary journal entry by Gold Company to record this transaction assuming a.Gold will use the newly acquired machine in the same manner as the old one. b.Gold's use of the new machine will be substantially different from the old one.

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

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

Tosh Corp. has agreed to exchange an old computer system for a van from Inconclusive, Inc. In addition, Inconclusive will pay Tosh $2,000. The computer originally cost Tosh $25,000 and its current book value is $14,000. The van's original cost was $30,000 and its accumulated depreciation is $12,000. The appraised value of the computer is $15,000, and the appraised value of the van is $13,000. Required: Prepare the journal entries to record the exchange on both companies books.

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

On January 3, 2014, Mercury Company began self-constructing an asset that qualified for interest capitalization. On January 5, Mercury borrowed $300,000 on an 8% construction loan. In addition, Mercury had $400,000 of 6% notes payable and $600,000 of 9% bonds payable outstanding. By December 31, expenditures (occurring evenly throughout the year) of $900,000 had been made on the asset. Investment of unused funds during the year yielded $1,200 of interest revenue. Required: Compute the amount of interest that should be capitalized during 2014.

Christopher Company borrowed $6 million at 11% on January 1, 2014, to build a new building. The building is expected to take 18 months to complete. Christopher invests the money from the project until it is needed for construction. He is currently earning 10%. The following is the expenditures as they relate to the construction of the building. January 1 $1,500,000 April 1 $1,850,000 October 1 $1,100,000 December 31 $1,000,000 Required: 1) Compute the amount of interest expense Christopher would capitalize. 2) Compute the amount of interest revenue Christopher would recognize.

According to GAAP, interest must be capitalized for

The debit for a sales tax paid on the purchase of a plant asset would be included in

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

Under IFRS a company is allowed to revalue its property, plant, and equipment up to fair value if the value can be reliably measured.

Robertson Company exchanged a machine for some land. The machine had cost $17,000, was 70% depreciated, and could be sold for $4,500. Robertson paid $950 in addition to giving up the machine. Required: a.Compute the amount at which the land should be recorded. b.Assume, instead, that Robertson exchanged the machine for a new, more efficient machine with a fair value of $4,700, while still paying $950 as before. Compute the gain or loss that would be recorded on the sale of the old machine by Roberto

On August 28, 2014, Saturn Drilling Services purchased a machine with a contract price of $400,000 and cash terms of 2/10, n/30. The company paid $8,000 in transportation costs and $8,000 for installation. Sales taxes of $22,000 were paid on the invoice amount. The machine should be recorded as a plant asset in the amount of

List 5 acquisition costs that can be included in the cost of land.

Reba Company received $60,000 in cash and used equipment with a fair value of $140,000 from Fargo Corporation for Reba's existing equipment, which had a fair value of $200,000 and an undepreciated cost of $170,000 recorded on its books. The transaction was undertaken because Reba was revising its market strategy and planned to reduce the use of this type of equipment in its production. How much gain should Reba recognize on this exchange, and at what amount should the acquired equipment be recorded, respectively?

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?

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.

On May 7, 2014, Shane Corporation purchased for $450,000 a tract of land on which was located a warehouse and an office building. The following data were collected concerning the property: What are the appropriate amounts that Shane should record for the land, warehouse, and office building, respectively?

Alternative terms for property, plant, and equipment include all of the following except

Under IFRS, the costs of relocating or reorganizing property, plant, and equipment can be capitalized as assets and depreciated over the period of expected benefit.