Exam 9: Long-Lived Assets

Land excavation costs incurred with the intention of constructing a building on the site would be added to the cost of the Land.

Only identifiable intangible assets meet the criteria for capitalization.

Subsequent to acquisition, the cost of capital assets Land may include title search

The cost of rearranging capital assets in a factory to attain greater efficiency in operations should be recorded as an expense in the period of rearrangement.

ABC Inc. purchased a shopping complex and with it, a large condominium complex attached to it in the amount of $20,000,000 on January 1, 2013 Both complexes are designated investment property. Both facilities are estimated to have a useful life of eighteen years and a salvage value of $2 million dollars. On December 31^st, 2013, the fair value of both complexes was $25 million. ABC Inc. prepares its financial statements under IFRS. Assuming that ABC uses the Cost Model to account for the complex, the carrying value of both complexes on December 31^st, 2013 would be:

Assume that a company shares are issued as consideration for equipment acquired. If there is no active market for the shares, the equipment and shares will initially both be recorded at the fair market value of the equipment. An exchange such as this one lacks commercial substance.

XY purchased a plant, including land, buildings, and machinery, for $50,000. These items were carried on the books of the seller as follows: land, $15,000; building, $40,000, and machinery, $20,000. Immediately after the purchase, XY employed a reliable firm to appraise the assets with the following results: land, $12,000; building, $15,000, and machinery, $33,000. At what amount should each separate asset be recorded on the books of XY? Land, $__________________ Building, $_____________ Machinery, $__________________.

SB traded in printing press A with a book value of $5,200 and a market value of $6,000 for printing press B that had a market value of $8,801. Press B was both larger and faster than the one exchanged and was quoted at $10,000. SB also paid $2,800 cash boot. What should SB record as the cost of press B?

In December 2000, RJ exchanged an old bottling machine, which cost $60,000 and was two-thirds depreciated, for a similar used machine having a current fair value of $24,000, and received a cash difference of $1,000. What is the amount of gain that RJ should recognize on this exchange in the year ended December 31, 2000?

Company B purchased a large machine at a cash equivalent cost of $25,000 on January 1, 2001. On that date the company paid $10,000 cash and gave a one-year, 10 percent interest-bearing note payable for the remaining $15,000. Therefore, the company should debit the machinery account for $25,000.

MB replaced a major component of its plant (original cost of the component, $12,000 (60 percent depreciated), with a new component that cost $17,500 in cash. Therefore, MB should make the following entry:

1) Accumulated amortization	7,200
Plant	17,500
Gain on disposal		7,200
Cash		17,500
2) Plant (or accumulated amortization)	17,500
Cash		17,500
3) Accumulated amortization	7,200
Plant		5,500
Loss on disposal		4,800
Cash		17,500
4) Plant	17,500
Loss on disposal	12,000
Plant		12,000
Cash		1,7500

On April 1, 2013, MC purchased for $270,000 a tract of land on which was located a warehouse and office building. The following data were collected concerning the property: Current Assessed Valuatior Vendor's Original Cost Land \ 87,500 \ 70,000 warehouse 37,500 40,000 Office building 100,000 90,000 What are the appropriate amounts that MC should record for the land, warehouse, and office building, respectively?

Startup costs are not eligible for capitalization.

A purchased patent has a remaining legal life of 15 years. It should be:

Additions and major inspections which are expected to benefit more than one period are capitalized, while routine maintenance expenditures are normally expensed.

ASPE contains separate guidance on exploration and evaluation costs whereas IFRS does not.

A firm acquired used equipment on January 1^st, 2014, by issuing a note calling for four equal payments to be made each December 31 starting in 2014. The note's principal value equals the negotiated price of $40,000, and the interest rate implied in the note is consistent with the market rate of interest for this level of risk (8%). What is the amount to be recorded for the equipment?

At the end of the annual reporting period, December 31, 2013, LTX had the accounting situations given below under consideration for adjusting entries. Give the appropriate adjusting entry for each situation. Assume straight-line amortization in all cases. If an adjusting entry is not needed, explain why. Situation A-A patent that cost $51,000 has been amortized for six years on the basis of a 17-year life. Now, it is estimated that the total life should have been estimated at 12 years. Situation B-The balance in the prepaid insurance account on January 1, 2013, was $4,000. On June 1, 2013, a new 3-year insurance premium of $36,000 was paid because the old policy expired. The new premium was recorded in the Prepaid Insurance Account (current asset).

Research expenditures are usually expensed while development expenditures may be capitalized if certain conditions are met.

CM replaced a major component in Plant A which has been operating 20 years and has a 30-year estimated useful life. The new replacement component cost $150,000 cash. When the plant was constructed, the old component cost $60,000. Give the entry (or entries) to record this transaction.