Exam 9: Long-Lived Assets

During 2013, DB incurred the following expenditures (cash) on its office building. For each item, give the required entry (entries). (A) Normal, recurring, maintenance and repairs, $1,350. (B) Unusual, high cost repairs, $48,000, which added additional value to the building. (C) Replaced the original freight elevator in the building with a new elevator that cost $40,000 (cash). The old elevator (original cost, $30,000; accumulated amortization, $23,000) was sold for $7,700.

On January 1, 2014, Harris Company bought a machine on a $30,000, 14 percent, 3-year note payable. The note will be paid in six equal semi-annual payments starting June 30, 2001. CS should record the cost of the machine as $30,000:

Non-monetary assets, when exchanged, may be valued in excess of their fair market values.

Which of the following is least likely to be classified in property, plant and equipment?

The excess of the cost of self-constructed assets over their cost if they had been purchased from outsiders should be recorded as an expense or loss of the period; similarly, costs of self-constructed assets which result in a cost savings should result in revenue or gain recognition.

Under IFRS, interest on generalized borrowings used to construct a qualifying asset must be capitalized using the company's weighted average cost of capital.

An old machine with a book value of $20,000 was traded in on a new similar machine. The new machine, which had a cash price of $80,000, was purchased for $62,000 cash plus the old machine. The cost of the new machine was:

XZ owned Asset A that was reflected in the accounts as: cost, $30,000 and accumulated amortization, $20,000. Its market value in present condition is reliably estimated to be $12,000. XZ acquired Asset B (a similar asset) that had a firm cash price of $16,000. The asset acquired (B) was paid for by trading in Asset A and paying cash of $8,000. Give the entry XZ should make to record this transaction.

Spare parts are capitalized separately from the assets to which they pertain.

Costs incurred by a company that may develop its own goodwill internally should be:

Property taxes accrued up to the date of the purchase of a capital asset should be included in the recorded cost of the asset.

Minor spare parts will normally be included in inventory, while major spare parts will be considered property, plant and equipment.

An asset should be recorded at cost in conformity with the historical cost principle except:

Harris Company has an old asset that originally cost $115,000 (accumulated amortization, $56,000). Its current market value is $105,001. Harris Company purchased another asset by paying cash $10,500 and trading in the old asset. The new asset had a list price of $135,000 and a cash price of $120,001. The assets are similar. Harris Company should record the cost of the new machine at $110,000:

House of Deals Ltd. bought a machine, which had a list price of $20,000 subject to terms of 2/10, net/30. (A) Give the entry to record the acquisition, assuming no cash was paid on acquisition date. (B) Give the entry to record the payment for the machine, assuming payment is made within the 10-day discount period. (C) Give the entry to record the payment for the machine, assuming payment is made after the 10-day discount period.

On January 1^st, 2013, PC Inc. disposed of an old elevator for $10,000. The elevator had a carrying value $20,000 (Cost: $100,000, Accumulated Amortization: $80,000). On January 2^nd, 2013, a new elevator was purchased for $200,000 with an expected useful life of 20 years and a salvage value of $40,000. Ignoring any of PC's other long-lived assets, the amount of amortization expense that PC would record for 2013 would be:

RC owned Asset X, which was reflected in the accounts as follows: Cost, $120,000; accumulated amortization, $80,000. Its market value was estimated to be $84,000. RC acquired Asset Y (a similar asset) which had a firm cash price of $60,000, by trading in asset X in full payment, and RC received cash of $2,000. Give the entry for RC to record the above transaction.

In a charitable action, one firm is relieved of an obligation to a second firm. As a result, the debtor firm debits:

CZ purchased a new machine on June 1. A $1,200 down payment was made. In addition, four monthly payments of $4,000 each are to be made starting July 1. The cash price would have been $14,400. Installation costs of $200 also were incurred. The amount capitalized as the cost of the machine is:

On January 1, 2014, CS bought a machine on a $60,000, 14 percent, 3-year note payable. The note will be paid in six equal semi-annual payments starting June 30, 2014. CS should record the cost of the machine as: