guerrero peralta ch10-property-plant-and-equipment.doc

8/20/2019 Guerrero Peralta ch10-property-plant-and-equipment.doc

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CHAPTER 10

ACQUISITION AND DISPOSITION OFPROPERTY, PLANT, AND EQUIPMENT

TRUE-FALSE—Conceptu!

An"#e$ No% De"c$&pt&onF 1. Nature of property, plant, and equipment.T 2. Nature of property, plant, and equipment.F 3. Cost of removing old building.T 4. Insurane on equipment pur!ased.F ". #ounting for speial assessments.T $. %ver!ead osts in self&onstruted assets.F '. %ver!ead osts in self&onstruted assets.

F (. Interest apitali)ation.F *. +ualifying assets for interest apitali)ation.T 1. #voidable interest.T 11. Interest apitali)ation on land pur!ase.T 12. -eferred&payment ontrats.T 13. #ounting for nonmonetary e!anges.F 14. Nonmonetary e!anges.F 1". /eogni)ing losses on nonmonetary e!anges.T 1$. Costs subsequent to aquisition.T 1'. -efinition of improvements.F 1(. %rdinary repairs benefit period.F 1*. Involuntary onversion gains0losses.

T 2 oss from srapped asset.

MULTIPLE CHOICE—Conceptu!

An"#e$ No% De"c$&pt&on

d 21. -efinition of plant assets.b 22. C!arateristis of plant assets.d 23. C!arateristis of plant assets. 24. Composition of land ost. 2". Composition of land ost. 2$. -etermination of land ost.d 2'. -etermine ost of land used as a paring lot.

a 2(. -etermine ost of ma!inery.b 2*. Classifiation of fenes and paring lots.b 3. /eording plant assets at !istorial ost.d 31. #ounting for over!ead osts.d 32. -etermine osts apitali)ed for self&onstruted assets.d 33. #ssets !i! qualify for interest apitali)ation.a 34. #ssets !i! qualify for interest apitali)ation. 3". -efinition of 5avoidable interest.5a 3$. 6eriod of time over !i! interest may be apitali)ed.b 3'. 7aimum amount of annual interest t!at may be apitali)ed.



Te"t 'n( )o$ Inte$*e+&te Account&n, T#e!)t E+&t&on

MULTIPLE CHOICE—Conceptu! .cont%/

An"#e$ No% De"c$&pt&onb 3(. Interest apitali)ation8eig!ted&average fator.d 3*. Classifiation of interest earned on seurities pur!ased it! borroed funds.d 4. 9rite&off of apitali)ed interest osts. 41. Conditions for interest apitali)ation.a 42. :aluation of nonmonetary asset.b 643. ;ain reognition on plant asset e!ange. 44. :aluation of plant assets.d 4". 6lant asset aquired by issuane of sto.d 4$. :aluation of nonmonetary e!anges.a 4'. ;ain reognition on a nonmonetary e!ange. 4(. ;ain reognition on a nonmonetary e!ange.b 4*. #ounting for donated assets.b ". :aluation of donated assets.d "1. Identify onditions for apital ependitures. "2. Capital ependiture.d "3. Identifiation of a apital ependiture.a "4. Identifiation of a apital ependiture. 6"". #ounting for revenue ependitures.d "$. #ounting for apital ependitures.a "'. ;ain or loss on plant asset disposal.d "(. -etermine loss on sale of depreiable asset. "*. <noledge of involuntary onversions.

6 T!ese questions also appear in t!e 6roblem&olving urvival ;uide. T!ese questions also appear in t!e tudy ;uide.

MULTIPLE CHOICE—Co*putt&on!An"#e$ No% De"c$&pt&on

b $. -etermine ost of land.d $1. -etermine ost of building.d $2. Calulate ost of land and building. $3. Calulate ost of equipment. $4. Calulate ost of equipment.d $". %ver!ead inluded in self&onstruted asset.d $$. %ver!ead inluded in self&onstruted asset.a $'. Calulate interest to be apitali)ed.b $(. Calulate average aumulated ependitures.a $*. Calulate interest to be apitali)ed.

b '. Calulate average aumulated ependitures.a '1. Calulate average aumulated ependitures. '2. Calulate amount of interest to be apitali)ed.b '3. Calulate eig!ted&average aumulated ependitures.a '4. Calulate eig!ted&average aumulated ependitures.d '". Calulate eig!ted&average aumulated ependitures.a '$. Calulate atual interest ost inurred during year.b ''. Calulate amount of interest to be apitali)ed. '(. Calulate amount of interest to be apitali)ed. '*. Calulate ost of land aquired.

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#quisition and -isposition of 6roperty, 6lant, and =quipment

MULTIPLE CHOICE—Co*putt&on! .cont%/

An"#e$ No% De"c$&pt&on (. -etermine ost of pur!ased ma!ine. (1. Calulate ost of tru pur!ased.b (2. Calulate ost of ma!ine pur!ased.d (3. #lloation of ost of a lump sum pur!ase.b (4. Calulate ost of equipment.d (". #quisition of equipment by e!ange of sto !eld as an investment.b ($. =!ange laing ommerial substane.b ('. =!ange laing ommerial substane 0gain.a ((. =!ange laing ommerial substane 0gain. (*. :aluation of a nonmonetary e!ange.a *. =!ange laing ommerial substane0gain.d *1. :aluation of a nonmonetary e!ange.b *2. ;ain reognition of a nonmonetary e!ange.a *3. :aluation of a nonmonetary e!ange.b *4. :aluation of a nonmonetary e!ange.b *". Calulate gain on nonmonetary e!ange.d *$. Calulate loss on nonmonetary e!ange.b *'. Calulate gain on nonmonetary e!ange.d *(. Calulate loss on nonmonetary e!ange. **. Calulate as! reeived from sale of ma!inery. 1. Calulate as! reeived from sale of ma!inery.b 11. Calulate loss on sale of ma!ine.b 12. Calulate gain on sale of equipment.

MULTIPLE CHOICE—CPA A+pte+

An"#e$ No% De"c$&pt&on 13. -etermine ost of land.b 14. Classifiation of sale of building.b 1". -etermine interest ost to be apitali)ed.a 1$. :aluation of a nonmonetary e!ange.a 1'. =!ange laing ommerial substane.b 1(. #ounting for donated assets.d 1*. Costs subsequent to aquisition.a 11. :aluation of replaement equipment.

EERCISESIte* De"c$&pt&on

=1&111 6lant asset aounting.=1&112 9eig!ted&average aumulated ependitures.=1&113 Capitali)ation of interest.=1&114 Nonmonetary e!ange.=1&11" Nonmonetary e!ange.=1&11$ -onated assets.=1&11' Capitali)ing vs. epensing.

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PRO'LEMS

Ite* De"c$&pt&on61&11( Capitali)ing aquisition osts.61&11* Capitali)ation of interest.61&12 Capitali)ation of interest.61&121 #sset aquisition61&122 Nonmonetary e!ange.61&123 Nonmonetary e!ange.61&124 Nonmonetary e!ange.61&12" Nonmonetary e!ange.61&12$ Nonmonetary e!ange.

CHAPTER LEARNIN3 O'4ECTI5ES

1. -esribe property, plant, and equipment.

2. Identify t!e osts to inlude in t!e initial valuation of property, plant, and equipment.

3. -esribe t!e aounting problems assoiated it! self&onstruted assets.

4. -esribe t!e aounting problems assoiated it! interest apitali)ation.

". >nderstand aounting issues related to aquiring and valuing plant assets.

$. -esribe t!e aounting treatment for osts subsequent to aquisition.

'. -esribe t!e aounting treatment for t!e disposal of property, plant, and equipment.

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SUMMARY OF LEARNIN3 O'4ECTI5ES 'Y QUESTIONS

Item Type Item Type Item Type Item Type Item Type Item Type Item Type

Le$n&n O78ect&9e 1

1. TF 2. TF 21. 7C 22. 7C 23. 7CLe$n&n O78ect&9e

3. TF 24. 7C 2'. 7C 3. 7C $2. 7C 13. 7C 11'. =4. TF 2". 7C 2(. 7C $. 7C $3. 7C 14. 7C 11(. 6". TF 2$. 7C 2*. 7C $1. 7C $4. 7C 111. =

Le$n&n O78ect&9e 2

$. TF 31. 7C $". 7C 112. ='. TF 32. 7C $$. 7C 113. =

Le$n&n O78ect&9e 6

(. TF 34. 7C 3*. 7C $*. 7C '4. 7C 1". 7C 12. 6*. TF 3". 7C 4. 7C '. 7C '". 7C 111. =

1. TF 3$. 7C 41. 7C '1. 7C '$. 7C 113. =11. TF 3'. 7C $'. 7C '2. 7C ''. 7C 11'. =33. 7C 3(. 7C $(. 7C '3. 7C '(. 7C 11*. 6

Le$n&n O78ect&9e :

12. TF 4". 7C (. 7C ('. 7C *4. 7C 1(. 7C 122. 613. TF 4$. 7C (1. 7C ((. 7C *". 7C 111. = 123. 614. TF 4'. 7C (2. 7C (*. 7C *$. 7C 114. = 124. 61". TF 4(. 7C (3. 7C *. 7C *'. 7C 11". = 12". 6

42. 7C 4*. 7C (4. 7C *1. 7C *(. 7C 11$. = 12$. 6643. 7C ". 7C (". 7C *2. 7C 1$. 7C 11'. =44. 7C '*. 7C ($. 7C *3. 7C 1'. 7C 121. 6

Le$n&n O78ect&9e ;1$. TF 1(. TF "2. 7C "4. 7C "$. 7C 11. 7C 11'. =1'. TF "1. 7C "3. 7C 6"". 7C 1*. 7C 111. =

Le$n&n O78ect&9e <

1*. TF "'. 7C "*. 7C 1. 7C 12. 7C2. TF "(. 7C **. 7C 11. 7C

Note? TF @ True&False7C @ 7ultiple C!oie6 @ 6roblem= @ =erise

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TRUE-FALSE—Conceptu!

1. #ssets lassified as 6roperty, 6lant, and =quipment an be eit!er aquired for use inoperations, or aquired for resale.

2. #ssets lassified as 6roperty, 6lant, and =quipment must be bot! long&term in nature andpossess p!ysial substane.

3. 9!en land it! an old building is pur!ased as a future building site, t!e ost of removingt!e old building is part of t!e ost of t!e ne building.

4. Insurane on equipment pur!ased, !ile t!e equipment is in transit, is part of t!e ost of t!e equipment.

". peial assessments for loal improvements su! as street lig!ts and seers s!ould beaounted for as land improvements.

$. :ariable over!ead osts inurred to self&onstrut an asset s!ould be inluded in t!e ostof t!e asset.

'. Companies s!ould assign no portion of fied over!ead to self&onstruted assets.

(. 9!en apitali)ing interest during onstrution of an asset, an imputed interest ost onsto finaning must be inluded.

*. #ssets under onstrution for a ompanyAs on use do not qualify for interest ostapitali)ation.

1. #voidable interest is t!e amount of interest ost t!at a ompany ould t!eoretially avoid if

it !ad not made ependitures for t!e asset.

11. 9!en a ompany pur!ases land it! t!e intention of developing it for a partiular use,interest osts assoiated it! t!ose ependitures qualify for interest apitali)ation.

12. #ssets pur!ased on long&term redit ontrats s!ould be reorded at t!e present value of t!e onsideration e!anged.

13. Companies aount for t!e e!ange of nonmonetary assets on t!e basis of t!e fair valueof t!e asset given up or t!e fair value of t!e asset reeived.

14. If a nonmonetary e!ange las ommerial substane, and as! is reeived, a partial

gain or loss is reogni)ed.

1". 9!en a ompany e!anges nonmonetary assets and a loss results, t!e ompanyreogni)es t!e loss only if t!e e!ange !as ommerial substane.

1$. Costs inurred subsequent to t!e aquisition of an asset are apitali)ed if t!ey providefuture benefits.

1'. Improvements are often referred to as betterments and involve t!e substitution of a better asset for t!e one urrently used.

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1(. 9!en an ordinary repair ours, several periods ill usually benefit.

1*. Companies alays treat gains or losses from an involuntary onversion as etraordinaryitems.

2. If a ompany sraps an asset it!out any as! reovery, it reogni)es a loss equal to t!eassetAs boo value.

T$ue F!"e An"#e$"—Conceptu!

Ite* An"% Ite* An"% Ite* An"% Ite* An"%

1. F $. T 11. T 1$. T2. T '. F 12. T 1'. T3. F (. F 13. T 1(. F4. T *. F 14. F 1*. F". F 1. T 1". F 2. T

MULTIPLE CHOICE—Conceptu!

21. 6lant assets may properly inludea. deposits on ma!inery not yet reeived.b. idle equipment aaiting sale.. land !eld for possible use as a future plant site.d. none of t!ese.

22. 9!i! of t!e folloing is not a maBor !arateristi of a plant asset

a. 6ossesses p!ysial substaneb. #quired for resale. #quired for used. Dields servies over a number of years

23. 9!i! of t!ese is not a maBor !arateristi of a plant asseta. 6ossesses p!ysial substaneb. #quired for use in operations. Dields servies over a number of yearsd. #ll of t!ese are maBor !arateristis of a plant asset.

24. Cotton Eotel Corporation reently pur!ased Eoliday Eotel and t!e land on !i! it is

loated it! t!e plan to tear don t!e Eoliday Eotel and build a ne luury !otel on t!esite. T!e ost of t!e Eoliday Eotel s!ould bea. depreiated over t!e period from aquisition to t!e date t!e !otel is s!eduled to be

torn don.b. ritten off as an etraordinary loss in t!e year t!e !otel is torn don.. apitali)ed as part of t!e ost of t!e land.d. apitali)ed as part of t!e ost of t!e ne !otel.

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2". T!e ost of land does not inludea. osts of grading, filling, draining, and learing.b. osts of removing old buildings.. osts of improvements it! limited lives.d. speial assessments.

2$. T!e ost of land typially inludes t!e pur!ase prie and all of t!e folloing osts eepta. grading, filling, draining, and learing osts.b. street lig!ts, seers, and drainage systems ost.. private driveays and paring lots.d. assumption of any liens or mortgages on t!e property.

2'. If a orporation pur!ases a lot and building and subsequently tears don t!e buildingand uses t!e property as a paring lot, t!e proper aounting treatment of t!e ost of t!ebuilding ould depend ona. t!e signifiane of t!e ost alloated to t!e building in relation to t!e ombined ost of

t!e lot and building.b. t!e lengt! of time for !i! t!e building as !eld prior to its demolition.. t!e ontemplated future use of t!e paring lot.d. t!e intention of management for t!e property !en t!e building as aquired.

2(. T!e debit for a sales ta properly levied and paid on t!e pur!ase of ma!inery preferablyould be a !arge toa. t!e ma!inery aount.b. a separate deferred !arge aount.. misellaneous ta epense !i! inludes all taes ot!er t!an t!ose on inomeG.d. aumulated depreiation&&ma!inery.

2*. Fenes and paring lots are reported on t!e balane s!eet asa. urrent assets.

b. land improvements.. land.d. property and equipment.

3. Eistorial ost is t!e basis advoated for reording t!e aquisition of property, plant, andequipment for all of t!e folloing reasons except a. at t!e date of aquisition, ost reflets fair maret value.b. property, plant, and equipment items are alays aquired at t!eir original !istorial

ost.. !istorial ost involves atual transations and, as su!, is t!e most reliable basis.d. gains and losses s!ould not be antiipated but s!ould be reogni)ed !en t!e asset

is sold.

31. To be onsistent it! t!e !istorial ost priniple, over!ead osts inurred by anenterprise onstruting its on building s!ould bea. alloated on t!e basis of lost prodution.b. eliminated ompletely from t!e ost of t!e asset.. alloated on an opportunity ost basis.d. alloated on a pro rata basis beteen t!e asset and normal operations.

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32. 9!i! of t!e folloing osts are apitali)ed for self&onstruted assetsa. 7aterials and labor onlyb. abor and over!ead only. 7aterials and over!ead onlyd. 7aterials, labor, and over!ead

33. 9!i! of t!e folloing assets do not qualify for apitali)ation of interest osts inurredduring onstrution of t!e assetsa. #ssets under onstrution for an enterpriseHs on use.b. #ssets intended for sale or lease t!at are produed as disrete proBets.. #ssets finaned t!roug! t!e issuane of long&term debt.d. #ssets not urrently undergoing t!e ativities neessary to prepare t!em for t!eir

intended use.

34. #ssets t!at qualify for interest ost apitali)ation inludea. assets under onstrution for a ompanyHs on use.b. assets t!at are ready for t!eir intended use in t!e earnings of t!e ompany.. assets t!at are not urrently being used beause of eess apaity.d. #ll of t!ese assets qualify for interest ost apitali)ation.

3". 9!en omputing t!e amount of interest ost to be apitali)ed, t!e onept of 5avoidableinterest5 refers toa. t!e total interest ost atually inurred.b. a ost of apital !arge for sto!oldersH equity.. t!at portion of total interest ost !i! ould not !ave been inurred if ependitures

for asset onstrution !ad not been made.d. t!at portion of average aumulated ependitures on !i! no interest ost as

inurred.

3$. T!e period of time during !i! interest must be apitali)ed ends !en

a. t!e asset is substantially omplete and ready for its intended use.b. no furt!er interest ost is being inurred.. t!e asset is abandoned, sold, or fully depreiated.d. t!e ativities t!at are neessary to get t!e asset ready for its intended use !ave

begun.

3'. 9!i! of t!e folloing statements is true regarding apitali)ation of interesta. Interest ost apitali)ed in onnetion it! t!e pur!ase of land to be used as a

building site s!ould be debited to t!e land aount and not to t!e building aount.b. T!e amount of interest ost apitali)ed during t!e period s!ould not eeed t!e atual

interest ost inurred.. 9!en eess borroed funds not immediately needed for onstrution are temporarily

invested, any interest earned s!ould be offset against interest ost inurred !endetermining t!e amount of interest ost to be apitali)ed.

d. T!e minimum amount of interest to be apitali)ed is determined by multiplying aeig!ted average interest rate by t!e amount of average aumulated ependitureson qualifying assets during t!e period.

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3(. Constrution of a qualifying asset is started on #pril 1 and finis!ed on -eember 1. T!efration used to multiply an ependiture made on #pril 1 to find eig!ted&averageaumulated ependitures isa. (0(.b. (012.. *012.d. 11012.

3*. 9!en funds are borroed to pay for onstrution of assets t!at qualify for apitali)ation of interest, t!e eess funds not needed to pay for onstrution may be temporarily investedin interest&bearing seurities. Interest earned on t!ese temporary investments s!ould bea. offset against interest ost inurred during onstrution.b. used to redue t!e ost of assets being onstruted.. multiplied by an appropriate interest rate to determine t!e amount of interest to be

apitali)ed.d. reogni)ed as revenue of t!e period.

4. Interest ost t!at is apitali)ed s!oulda. be ritten off over t!e remaining term of t!e debt.b. be aumulated in a separate deferred !arge aount and ritten off equally over a

4&year period.. not be ritten off until t!e related asset is fully depreiated or disposed of.d. none of t!ese.

41. 9!i! of t!e folloing is not a ondition t!at must be satisfied before interestapitali)ation an begin on a qualifying asseta. Interest ost is being inurred.b. =penditures for t!e assets !ave been made.. T!e interest rate is equal to or greater t!an t!e ompanyHs ost of apital.d. #tivities t!at are neessary to get t!e asset ready for its intended use are in

progress.

42. T!e ost of a nonmonetary asset aquired in e!ange for anot!er nonmonetary assetand t!e e!ange !as ommerial substane is usually reorded ata. t!e fair value of t!e asset given up, and a gain or loss is reogni)ed.b. t!e fair value of t!e asset given up, and a gain but not a loss may be reogni)ed.. t!e fair value of t!e asset reeived if it is equally reliable as t!e fair value of t!e asset

given up.d. eit!er t!e fair value of t!e asset given up or t!e asset reeived, !i!ever one results

in t!e largest gain smallest lossG to t!e ompany.

643. T!e <ing&<ong Corporation e!anges one plant asset for a similar plant asset and gives

as! in t!e e!ange. T!e e!ange is not epeted to ause a material !ange in t!efuture as! flos for eit!er entity. If a gain on t!e disposal of t!e old asset is indiated,t!e gain illa. be reported in t!e %t!er /evenues and ;ains setion of t!e inome statement.b. effetively redue t!e amount to be reorded as t!e ost of t!e ne asset.. effetively inrease t!e amount to be reorded as t!e ost of t!e ne asset.d. be redited diretly to t!e onerHs apital aount.

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44. 6lant assets pur!ased on long&term redit ontrats s!ould be aounted for ata. t!e total value of t!e future payments.b. t!e future amount of t!e future payments.. t!e present value of t!e future payments.d. none of t!ese.

4". 9!en a plant asset is aquired by issuane of ommon sto, t!e ost of t!e plant assetis properly measured by t!ea. par value of t!e sto.b. stated value of t!e sto.. boo value of t!e sto.d. maret value of t!e sto.

4$. 9!en a losely !eld orporation issues preferred sto for land, t!e land s!ould bereorded at t!ea. total par value of t!e sto issued.b. total boo value of t!e sto issued.. total liquidating value of t!e sto issued.d. fair maret value of t!e land.

4'. #ounting reognition s!ould be given to some or all of t!e gain reali)ed on anonmonetary e!ange of plant assets except !en t!e e!ange !asa. no ommerial substane and additional as! is paid.b. no ommerial substane and additional as! is reeived.. ommerial substane and additional as! is paid.d. ommerial substane and additional as! is reeived.

4(. For a nonmonetary e!ange of plant assets, aounting reognition s!ould not be given toa. a loss !en t!e e!ange !as no ommerial substane.b. a gain !en t!e e!ange !as ommerial substane.

. part of a gain !en t!e e!ange !as no ommerial substane and as! is paid.d. part of a gain !en t!e e!ange !as no ommerial substane and as! is reeived.

4*. 9!en an enterprise is t!e reipient of a donated asset, t!e aount redited may be aa. paid&in apital aount.b. revenue aount.. deferred revenue aount.d. all of t!ese.

". # plant site donated by a tons!ip to a manufaturer t!at plans to open a ne fatorys!ould be reorded on t!e manufaturerHs boos ata. t!e nominal ost of taing title to it.

b. its maret value.. one dollar sine t!e site ost not!ing but s!ould be inluded in t!e balane s!eetG.d. t!e value assigned to it by t!e ompanyHs diretors.

"1. In order for a ost to be apitali)ed apital ependitureG, t!e folloing must be present?a. T!e useful life of an asset must be inreased.b. T!e quantity of assets must be inreased.. T!e quality of assets must be inreased.d. #ny one of t!ese.

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"2. #n improvement made to a ma!ine inreased its fair maret value and its produtionapaity by 2" it!out etending t!e ma!ineHs useful life. T!e ost of t!e improvements!ould bea. epensed.b. debited to aumulated depreiation.. apitali)ed in t!e ma!ine aount.d. alloated beteen aumulated depreiation and t!e ma!ine aount.

"3. 9!i! of t!e folloing is a apital ependiturea. 6ayment of an aount payableb. /etirement of bonds payable. 6ayment of Federal inome taesd. None of t!ese

"4. 9!i! of t!e folloing is not a apital ependiturea. /epairs t!at maintain an asset in operating onditionb. #n addition. # bettermentd. # replaement

6"". In aounting for plant assets, !i! of t!e folloing outlays made subsequent toaquisition s!ould be fully epensed in t!e period t!e ependiture is madea. =penditure made to inrease t!e effiieny or effetiveness of an eisting assetb. =penditure made to etend t!e useful life of an eisting asset beyond t!e time frame

originally antiipated. =penditure made to maintain an eisting asset so t!at it an funtion in t!e manner

intendedd. =penditure made to add ne asset servies

"$. #n ependiture made in onnetion it! a ma!ine being used by an enterprise s!ould be

a. epensed immediately if it merely etends t!e useful life but does not improve t!equality.

b. epensed immediately if it merely improves t!e quality but does not etend t!e usefullife.

. apitali)ed if it maintains t!e ma!ine in normal operating ondition.d. apitali)ed if it inreases t!e quantity of units produed by t!e ma!ine.

"'. 9!en a plant asset is disposed of, a gain or loss may result. T!e gain or loss ould belassified as an etraordinary item on t!e inome statement if it resulted froma. an involuntary onversion and t!e onditions of t!e disposition are unusual and

infrequent in nature.b. a sale prior to t!e ompletion of t!e estimated useful life of t!e asset.

. t!e sale of a fully depreiated asset.d. an abandonment of t!e asset.

"(. T!e sale of a depreiable asset resulting in a loss indiates t!at t!e proeeds from t!esale erea. less t!an urrent maret value.b. greater t!an ost.. greater t!an boo value.d. less t!an boo value.

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"*. 9!i! of t!e folloing statements about involuntary onversions is false?a. #n involuntary onversion may result from ondemnation or fire.b. T!e gain or loss from an involuntary onversion may be reported as an etraordinary

item.. T!e gain or loss from an involuntary onversion s!ould not be reogni)ed !en t!e

enterprise reinvests in replaement assets.d. #ll of t!ese.

Mu!t&p!e Co&ce An"#e$"—Conceptu!

Ite* An"% Ite* An"% Ite* An"% Ite* An"% Ite* An"% Ite* An"% Ite* An"%

21. d 2'. d 33. d 3*. d 4". d "1. d "'. a22. b 2(. a 34. a 4. d 4$. d "2. "(. d

23. d 2*. b 3". 41. 4'. a "3. d "*.

24. 3. b 3$. a 42. a 4(. "4. a

2". 31. d 3'. b 43. b 4*. b "".

2$. 32. d 3(. b 44. ". b "$. d

olutions to t!ose 7ultiple C!oie questions for !i! t!e anser is Jnone of t!ese.K

21. ong&lived tangible assets used in t!e enterpriseAs operations.

4. Capitali)ed interest is depreiated over t!e related assetAs useful life.

"3. Capital ependitures inlude additions, betterments, improvements, and etraordinaryrepairs.

MULTIPLE CHOICE—Co*putt&on!

>se t!e folloing information for questions $ and $1.

eiler Co. pur!ased land as a fatory site for L$,. eiler paid L$, to tear don tobuildings on t!e land. alvage as sold for L",4. egal fees of L3,4( ere paid for titleinvestigation and maing t!e pur!ase. #r!itetHs fees ere L31,2. Title insurane ostL2,4, and liability insurane during onstrution ost L2,$. =avation ost L1,44. T!eontrator as paid L2,2,. #n assessment made by t!e ity for pavement as L$,4.Interest osts during onstrution ere L1',.

$. T!e ost of t!e land t!at s!ould be reorded by eiler Co. is

a. L$$,4(.b. L$$$,((.. L$$*,((.d. L$'$,2(.

$1. T!e ost of t!e building t!at s!ould be reorded by eiler Co. isa. L2,43,(.b. L2,44,(4.. L2,413,2.d. L2,414,24.

10 - 12




$2. %n February 1, 2', 7organ Corporation pur!ased a parel of land as a fatory site for L2,. #n old building on t!e property as demolis!ed, and onstrution began on ane building !i! as ompleted on November 1, 2'. Costs inurred during t!isperiod are listed belo?

-emolition of old building L 2,

#r!itetHs fees 3",egal fees for title investigation and pur!ase ontrat ",Constrution osts 1,*,alvaged materials resulting from demolition ere sold for L1,.G

7organ s!ould reord t!e ost of t!e land and ne building, respetively, asa. L22", and L1,11",.b. L21, and L1,13,.. L21, and L1,12",.d. L21", and L1,12",.

$3. Tyson C!andler Company pur!ased equipment for L1,. ales ta on t!e pur!aseas L". %t!er osts inurred ere freig!t !arges of L2, repairs of L3" for damageduring installation, and installation osts of L22". 9!at is t!e ost of t!e equipmenta. L1,b. L1,". L1,*2"d. L11,2'"

$4. Carpenter Company pur!ased equipment for L12,. ales ta on t!e pur!ase asL$. %t!er osts inurred ere freig!t !arges of L24, repairs of L42 for damageduring installation, and installation osts of L2'. 9!at is t!e ost of t!e equipmenta. L12,.b. L12,$.. L13,11.

d. L13,"3.

$". -uring self&onstrution of an asset by Mannero 6argo Company, t!e folloing ereamong t!e osts inurred?

Fied over!ead for t!e year L1,,6ortion of L1,, fied over!ead t!at ould

be alloated to asset if it ere normal prodution 4,:ariable over!ead attributable to self&onstrution 3",

9!at amount of over!ead s!ould be inluded in t!e ost of t!e self&onstruted asseta. L &&b. L3",

. L4,d. L'",

$$. -uring self&onstrution of an asset by 7it!ellson Company, t!e folloing ere amongt!e osts inurred?

Fied over!ead for t!e year L1,,6ortion of L1,, fied over!ead t!at ould

be alloated to asset if it ere normal prodution $,:ariable over!ead attributable to self&onstrution "",

10 - 16




9!at amount of over!ead s!ould be inluded in t!e ost of t!e self&onstruted asseta. L &&b. L "",. L $,d. L11",

$'. en ;ordon Corporation onstruted a building at a ost of L1,,. #verageaumulated ependitures ere L4,,, atual interest as L$,, and avoidableinterest as L3,. If t!e salvage value is L(,, and t!e useful life is 4 years,depreiation epense for t!e first full year using t!e straig!t&line met!od isa. L23',".b. L24",.. L2"',".d. L33',".

$(. eet <nee Company is onstruting a building. Constrution began in 2( and t!ebuilding as ompleted 120310(. eet <nee made payments to t!e onstrutionompany of L1,, on '01, L2,1, on *01, and L2,, on 12031. #verageaumulated ependitures erea. L1,2",.b. L1,2,.. L3,1,.d. L",1,.

$*. 9!eeler Corporation onstruted a building at a ost of L2,,. #verageaumulated ependitures ere L(,,, atual interest as L1,2,, andavoidable interest as L$,. If t!e salvage value is L1,$,, and t!e useful life is4 years, depreiation epense for t!e first full year using t!e straig!t&line met!od isa. L4'",.b. L4*,.

. L"1",.d. L$'",.

'. Ealeman Company is onstruting a building. Constrution began in 2( and t!ebuilding as ompleted 120310(. Ealeman made payments to t!e onstrutionompany of L1,", on '01, L3,3, on *01, and L3,, on 12031. #verageaumulated ependitures erea. L1,"'",.b. L1,(",.. L4,(,.d. L',(,.

'1. %n 7ay 1, 2', /oyster Company began onstrution of a building. =penditures of L12, ere inurred mont!ly for " mont!s beginning on 7ay 1. T!e building asompleted and ready for oupany on eptember 1, 2'. For t!e purpose of determining t!e amount of interest ost to be apitali)ed, t!e average aumulatedependitures on t!e building during 2' erea. L1,.b. L12,.. L4(,.d. L$,.

10 - 1:




'2. -uring 2', ;annon Co. inurred average aumulated ependitures of L4, duringonstrution of assets t!at qualified for apitali)ation of interest. T!e only debt outstandingduring 2' as a L",, 1, "&year note payable dated Manuary 1, 2". 9!at ist!e amount of interest t!at s!ould be apitali)ed by ;annon during 2'a. L.b. L1,.. L4,.d. L",.

'3. %n 7ar! 1, Carr Co. began onstrution of a small building. 6ayments of L12, eremade mont!ly for t!ree mont!s beginning 7ar! 1. T!e building as ompleted andready for oupany on Mune 1. In determining t!e amount of interest ost to beapitali)ed, t!e eig!ted&average aumulated ependitures area. L3,.b. L$,.. L12,.d. L24,.

'4. %n 7ar! 1, aen Co. began onstrution of a small building. 6ayments of L1(,ere made mont!ly for four mont!s beginning 7ar! 1. T!e building as ompleted andready for oupany on Mune 1. In determining t!e amount of interest ost to beapitali)ed, t!e eig!ted&average aumulated ependitures area. L*,.b. L1(,.. L3$,.d. L'2,.

>se t!e folloing information for questions '" t!roug! ''.

%n 7ar! 1, 2', -ennis Company pur!ased land for an offie site by paying L"4, as!.

-ennis began onstrution on t!e offie building on 7ar! 1. T!e folloing ependitures ereinurred for onstrution?

-ate =penditures7ar! 1, 2' L 3$,

#pril 1, 2' "4,7ay 1, 2' *,Mune 1, 2' 1,44,

T!e offie as ompleted and ready for oupany on Muly 1. To !elp pay for onstrution,L'2, as borroed on 7ar! 1, 2' on a *, 3&year note payable. %t!er t!an t!eonstrution note, t!e only debt outstanding during 2' as a L3,, 12, $&year notepayable dated Manuary 1, 2'.

'". T!e eig!ted&average aumulated ependitures on t!e onstrution proBet during 2'erea. L3(4,.b. L2,*34,.. L312,.d. L$*$,.

10 - 1;




'$. T!e atual interest ost inurred during 2' asa. L*,.b. L1,(.. L",4.d. L(4,.

''. #ssume t!e eig!ted&average aumulated ependitures for t!e onstrution proBet areL(',. T!e amount of interest ost to be apitali)ed during 2' isa. L'(,3.b. L(2,(.. L*,.d. L1,(.

'(. -uring 2', #ber Corporation onstruted assets osting L1,,. T!e eig!ted&average aumulated ependitures on t!ese assets during 2' as L$,. To !elppay for onstrution, L44, as borroed at 1 on Manuary 1, 2', and funds notneeded for onstrution ere temporarily invested in s!ort&term seurities, yielding L*,in interest revenue. %t!er t!an t!e onstrution funds borroed, t!e only ot!er debtoutstanding during t!e year as a L",, 1&year, * note payable dated Manuary 1,21. 9!at is t!e amount of interest t!at s!ould be apitali)ed by #ber during 2'a. L$,.b. L3,.. L"(,4.d. L*4,4.

'*. %n -eember 1, 9ynne Corporation e!anged 2, s!ares of its L2" par valueommon sto !eld in treasury for a parel of land to be !eld for a future plant site. T!etreasury s!ares ere aquired by 9ynne at a ost of L4 per s!are, and on t!e e!angedate t!e ommon s!ares of 9ynne !ad a fair maret value of L" per s!are. 9ynnereeived L$, for selling srap !en an eisting building on t!e property as removed

from t!e site. ased on t!ese fats, t!e land s!ould be apitali)ed ata. L'4,.b. L(,.. L*4,.d. L1,.

(. Carly Corporation pur!ased a ne ma!ine on %tober 31, 2'. # L1,2 donpayment as made and t!ree mont!ly installments of L3,$ ea! are to be madebeginning on November 3, 2'. T!e as! prie ould !ave been L11,$. Carly paidno installation !arges under t!e mont!ly payment plan but a L2 installation !argeould !ave been inurred it! a as! pur!ase. T!e amount to be apitali)ed as t!e ostof t!e ma!ine on %tober 31, 2' ould be

a. L12,2.b. L12,.. L11,(.d. L11,$.

(1. Taylor Company buys a delivery van it! a list prie of L3,. T!e dealer grants a 1"redution in list prie and an additional 2 as! disount on t!e net prie if payment ismade in 3 days. ales taes amount to L4 and t!e ompany paid an etra L3 to!ave a speial !orn installed. 9!at s!ould be t!e reorded ost of t!e van

10 - 1<




a. L24,**.b. L2",$4".. L2",$*.d. L2",3*.

(2. %n #ugust 1, 2', imon Corporation pur!ased a ne ma!ine on a deferred paymentbasis. # don payment of L3, as made and 4 mont!ly installments of L2," ea!are to be made beginning on eptember 1, 2'. T!e as! equivalent prie of t!ema!ine as L12,. imon inurred and paid installation osts amounting to L". T!eamount to be apitali)ed as t!e ost of t!e ma!ine isa. L12,.b. L12,".. L13,.d. L13,".

(3. %n #pril 1, /enner Corporation pur!ased for L("", a trat of land on !i! asloated a are!ouse and offie building. T!e folloing data ere olleted onerning t!eproperty?

Current #ssessed :aluation:endorAs %riginal Costand L3, L2(,9are!ouse 2, 1(,%ffie building 4, 34,

L*, L(,

9!at are t!e appropriate amounts t!at /enner s!ould reord for t!e land, are!ouse,and offie building, respetivelya. and, L2(,O are!ouse, L1(,O offie building, L34,.b. and, L3,O are!ouse, L2,O offie building, L4,.. and, L2**,2"O are!ouse, L1*2,3'"O offie building, L3$3,3'".d. and, L2(",O are!ouse, L1*,O offie building, L3(,.

(4. %n #ugust 1, 2', Tanner Corporation pur!ased a ne ma!ine on a deferred paymentbasis. # don payment of L2, as made and 4 annual installments of L$, ea! areto be made beginning on eptember 1, 2'. T!e as! equivalent prie of t!e ma!ine asL23,. -ue to an employee strie, Tanner ould not install t!e ma!ine immediately, andt!us inurred L3 of storage osts. Costs of installation eluding t!e storage ostsGamounted to L(. T!e amount to be apitali)ed as t!e ost of t!e ma!ine isa. L23,.b. L23,(.. L24,1.d. L2$,.

(". Eerman Company e!anged 4 s!ares of -aily Company ommon sto, !i!Eerman as !olding as an investment, for equipment from 9est Company. T!e -ailyCompany ommon sto, !i! !ad been pur!ased by Eerman for L" per s!are, !ad aquoted maret value of L"( per s!are at t!e date of e!ange. T!e equipment !ad areorded amount on 9estHs boos of L21,. 9!at Bournal entry s!ould Eerman mae toreord t!is e!ange

10 - 1=




a. =quipment .......................................................................... 2,Investment in -aily Co. Common to ..................... 2,

b. =quipment .......................................................................... 21,Investment in -aily Co. Common to ..................... 2,;ain on -isposal of Investment ................................. 1,

. =quipment .......................................................................... 21,

oss on -isposal of Investment .......................................... 2,2Investment in -aily Co. Common to ..................... 23,2

d. =quipment .......................................................................... 23,2Investment in -aily Co. Common to ..................... 2,;ain on -isposal of Investment ................................. 3,2

($. %n Manuary 2, 2', +ui -elivery Company traded in an old delivery tru for a neer model. T!e e!ange laed ommerial substane. -ata relative to t!e old and netrus follo?

%ld Tru%riginal ost L24,

#umulated depreiation as of Manuary 2, 2' 1$,

#verage publis!ed retail value ',

Ne Truist prie L4,Cas! prie it!out trade&in 3$,Cas! paid it! trade&in 3,

9!at s!ould be t!e ost of t!e ne tru for finanial aounting purposesa. L3,.b. L3$,.. L3(,.d. L4,.

('. %n -eember 1, 2', Fiene Company aquired a ne delivery tru in e!ange for anold delivery tru t!at it !ad aquired in 24. T!e old tru as pur!ased for L3",and !ad a boo value of L13,3. %n t!e date of t!e e!ange, t!e old tru !ad a maretvalue of L14,. In addition, Fiene paid L4"," as! for t!e ne tru, !i! !ad a listprie of L$3,. T!e e!ange laed ommerial sunstane. #t !at amount s!ouldFiene reord t!e ne tru for finanial aounting purposesa. L4",".b. L"(,(.. L"*,".d. L$3,.

>se t!e folloing information for questions (( and (*.

# ma!ine ost L12,, !as annual depreiation of L2,, and !as aumulated depreiationof L*, on -eember 31, 2$. %n #pril 1, 2', !en t!e ma!ine !as a maret value of L2',", it is e!anged for a ma!ine it! a fair value of L13", and t!e proper amount of as! is paid. T!e e!ange laed ommerial substane.

((. T!e gain to be reorded on t!e e!ange isa. L.b. L2," gain.. L", gain.d. L1", gain.

10 - 1>




(*. T!e ne ma!ine s!ould be reorded ata. L1',".b. L122,".. L132,".d. L13",.

>se t!e folloing information for questions * and *1.

=quipment t!at ost L$$, and !as aumulated depreiation of L3, is e!anged for equipment it! a fair value of L4(, and L12, as! is reeived. T!e e!ange laedommerial substane.

*. T!e gain to be reogni)ed from t!e e!ange isa. L4,( gain.b. L$, gain.. L1(, gain.d. L24, gain.

*1. T!e ne equipment s!ould be reorded ata. L4(,.b. L3$,.. L3,.d. L2(,(.

>se t!e folloing information for questions *2 t!roug! *4.

To independent ompanies, 7int) Co. and 6ine Co., are in t!e !ome building business. =a!ons a trat of land !eld for development, but ea! ould prefer to build on t!e ot!erHs land.T!ey agree to e!ange t!eir land. #n appraiser as !ired, and from !er report and t!eompaniesH reords, t!e folloing information as obtained?

7int)Hs and 6ineHs andCost and boo value L1*2, L12,Fair value based upon appraisal 24, 21,

T!e e!ange as made, and based on t!e differene in appraised fair values, 6ine paidL3, to 7int). T!e e!ange laed ommerial substane.

*2. For finanial reporting purposes, 7int) s!ould reogni)e a pre&ta gain on t!is e!angeof a. L.b. L$,.. L3,.d. L4(,.

*3. T!e ne land s!ould be reorded on 7int)Hs boos ata. L1$(,.b. L1*2,.. L21,.d. L24,.

10 - 0




*4. T!e ne land s!ould be reorded on 6ineHs boos ata. L12,.b. L1",.. L21,.d. L24,.

*". Einri! Company traded ma!inery it! a boo value of L12, and a fair value of L2,. It reeived in e!ange from Noa! Company a ma!ine it! a fair value of L1(, and as! of L2,. Noa!As ma!ine !as a boo value of L1*,. 9!atamount of gain s!ould Einri! reogni)e on t!e e!angea. L &&b. L(,. L2,d. L(,

*$. Noa! Company traded ma!inery it! a boo value of L1*, and a fair value of L1(,. It reeived in e!ange from Einri! Company a ma!ine it! a fair value of L2,. Noa! also paid as! of L2, in t!e e!ange. Einri!As ma!ine !as aboo value of L1*,. 9!at amount of gain or loss s!ould Noa! reogni)e on t!ee!angea. L2, gainb. L &&.. L1, lossd. L1, loss

*'. 7arlin Company traded ma!inery it! a boo value of L1(, and a fair value of L3,. It reeived in e!ange from <ea! Company a ma!ine it! a fair value of L2', and as! of L3,. <ea!As ma!ine !as a boo value of L2(",. 9!atamount of gain s!ould 7arlin reogni)e on t!e e!angea. L &&

b. L12,. L3,d. L12,

*(. <ea! Company traded ma!inery it! a boo value of L2(", and a fair value of L2',. It reeived in e!ange from 7arlin Company a ma!ine it! a fair value of L3,. <ea! also paid as! of L3, in t!e e!ange. 7arlinAs ma!ine !as a boovalue of L2(",. 9!at amount of gain or loss s!ould <ea! reogni)e on t!ee!angea. L3, gainb. L &&. L1," loss

d. L1", loss

**. obby Mens Company pur!ased ma!inery for L1$, on Manuary 1, 24. traig!t&line depreiation !as been reorded based on a L1, salvage value and a "&year useful life. T!e ma!inery as sold on 7ay 1, 2( at a gain of L3,. Eo mu! as!did obby Mens reeive from t!e sale of t!e ma!inerya. L23,b. L2',. L33,d. L43,

10 - 1




1. 7organstern Company pur!ased ma!inery for L32, on Manuary 1, 24. traig!t&line depreiation !as been reorded based on a L2, salvage value and a "&year useful life. T!e ma!inery as sold on 7ay 1, 2( at a gain of L$,. Eo mu! as!did 7organstern reeive from t!e sale of t!e ma!inerya. L4$,.b. L"4,.. L$$,.d. L($,.

11. Meter Company pur!ased a ne ma!ine on 7ay 1, 1**( for L1'$,. #t t!e time of aquisition, t!e ma!ine as estimated to !ave a useful life of ten years and an estimatedsalvage value of L(,. T!e ompany !as reorded mont!ly depreiation using t!estraig!t&line met!od. %n 7ar! 1, 2', t!e ma!ine as sold for L24,. 9!at s!ouldbe t!e loss reogni)ed from t!e sale of t!e ma!inea. L.b. L3,$.. L(,.d. L11,$.

12. %n Manuary 1, 1***, Eite Corporation pur!ased for L1"2,, equipment !aving a usefullife of ten years and an estimated salvage value of L(,. Eite !as reorded mont!lydepreiation of t!e equipment on t!e straig!t&line met!od. %n -eember 31, 2', t!eequipment as sold for L2(,. #s a result of t!is sale, Eite s!ould reogni)e a gain of a. L.b. L",$.. L13,$.d. L2(,.

Mu!t&p!e Co&ce An"#e$"—Co*putt&on!

Ite* An"% Ite* An"% Ite* An"% Ite* An"% Ite* An"% Ite* An"% Ite* An"%

$. b $'. a '4. a (1. ((. a *". b 12. b$1. d $(. b '". d (2. b (*. *$. d

$2. d $*. a '$. a (3. d *. a *'. b

$3. '. b ''. b (4. b *1. d *(. d

$4. '1. a '(. (". d *2. b **.

$". d '2. '*. ($. b *3. a 1.

$$. d '3. b (. ('. b *4. b 11. b

10 -




MULTIPLE CHOICE—CPA A+pte+

13. %n -eember 1, 2', ogan Co. pur!ased a trat of land as a fatory site for L(,.T!e old building on t!e property as ra)ed, and salvaged materials resulting fromdemolition ere sold. #dditional osts inurred and salvage proeeds reali)ed during

-eember 2' ere as follos?Cost to ra)e old building L',egal fees for pur!ase ontrat and to reord oners!ip 1,Title guarantee insurane 1$,6roeeds from sale of salvaged materials (,

In ogan Hs -eember 31, 2' balane s!eet, !at amount s!ould be reported as landa. L(2$,.b. L($2,.. L(((,.d. L(*$,.

14. and as pur!ased to be used as t!e site for t!e onstrution of a plant. # building ont!e property as sold and removed by t!e buyer so t!at onstrution on t!e plant ouldbegin. T!e proeeds from t!e sale of t!e building s!ould bea. lassified as ot!er inome.b. deduted from t!e ost of t!e land.. netted against t!e osts to lear t!e land and epensed as inurred.d. netted against t!e osts to lear t!e land and amorti)ed over t!e life of t!e plant.

1". # ompany is onstruting an asset for its on use. Constrution began in 2$. T!easset is being finaned entirely it! a speifi ne borroing. Constrution ependituresere made in 2$ and 2' at t!e end of ea! quarter. T!e total amount of interest ostapitali)ed in 2' s!ould be determined by applying t!e interest rate on t!e speifi ne

borroing to t!ea. total aumulated ependitures for t!e asset in 2$ and 2'.b. average aumulated ependitures for t!e asset in 2$ and 2'.. average ependitures for t!e asset in 2'.d. total ependitures for t!e asset in 2'.

1$. ;ray Football Co. !ad a player ontrat it! :ane t!at is reorded in its boos atL3,$, on Muly 1, 2'. -ay Football Co. !ad a player ontrat it! imms t!at isreorded in its boos at L4,", on Muly 1, 2'. %n t!is date, ;ray traded :ane to-ay for imms and paid a as! differene of L4",. T!e fair value of t!e immsontrat as L",4, on t!e e!ange date. T!e e!ange !ad no ommerialsubstane. #fter t!e e!ange, t!e imms ontrat s!ould be reorded in ;rayHs boos at

a. L4,",.b. L4,",.. L4,*",.d. L",4,.

1'. /eed Co. e!anged nonmonetary assets it! 9ilton Co. No as! as e!anged andt!e e!ange !ad no ommerial substane. T!e arrying amount of t!e assetsurrendered by /eed eeeded bot! t!e fair value of t!e asset reeived and 9iltonHsarrying amount of t!at asset. /eed s!ould reogni)e t!e differene beteen t!e arryingamount of t!e asset it surrendered and

10 - 2




a. t!e fair value of t!e asset it reeived as a loss.b. t!e fair value of t!e asset it reeived as a gain.. 9iltonHs arrying amount of t!e asset it reeived as a loss.d. 9iltonHs arrying amount of t!e asset it reeived as a gain.

1(. 6etty County oned an idle parel of real estate onsisting of land and a fatory building.6etty gave title to t!is realty to arson Co. as an inentive for arson to establis!manufaturing operations in t!e County. arson paid not!ing for t!is realty, !i! !ad afair maret value of L2", at t!e date of t!e grant. arson s!ould reord t!isnonmonetary transation as aa. memo entry only.b. redit to Contribution /evenue for L2",.. redit to etraordinary inome for L2",.d. redit to -onated Capital for L2",.

1*. %n eptember 1, 2', Flint Co. inurred t!e folloing osts for one of its printingpresses?

6ur!ase of atta!ment L"",Installation of atta!ment ",/eplaement parts for renovation of press 1(,abor and over!ead in onnetion it! renovation of press ',

Neit!er t!e atta!ment nor t!e renovation inreased t!e estimated useful life of t!e press.Eoever, t!e renovation resulted in signifiantly inreased produtivity. 9!at amount oft!e osts s!ould be apitali)eda. L.b. L$',.. L'(,.d. L(",.

11. %n Manuary 2, 2', /enn Corp. replaed its boiler it! a more effiient one. T!efolloing information as available on t!at date?

6ur!ase prie of ne boiler L1",Carrying amount of old boiler 1,Fair value of old boiler 4,Installation ost of ne boiler 2,

T!e old boiler as sold for L4,. 9!at amount s!ould /enn apitali)e as t!e ost of t!ene boilera. L1',.b. L1$$,.. L1$,.

d. L1",.

Mu!t&p!e Co&ce An"#e$"—CPA A+pte+

Ite* An"% Ite* An"% Ite* An"% Ite* An"%

13. 1". b 1'. a 1*. d14. b 1$. a 1(. b 11. a

10 - 6




DERI5ATIONS — Co*putt&on!

No% An"#e$ De$&9t&on$. b L$, P L$, Q L",4 P L3,4( P L2,4 P L$,4 @ L$$$,((.

$1. d L31,2 P L2,$ P L1,44 P L2,2, P L1', @ L2,414,24.

$2. d and? L2, P L2, P L", Q L1, @ L21",.uilding? L3", P L1,*, @ L1,12",.

$3. L1, P L" P L2 P L22" @ L1,*2".

$4. L12, P L$ P L24 P L2' @ L13,11.

$". d L4, P L3", @ L'",.

$$. d L$, P L"", @ L11",.

$'. a RL1,, P L3,G Q L(,S 4 @ L23',".

$(. b L1,, U $012G P L2,1, U 4012G @ L1,2,.

$*. a RL2,, P L$,G Q L1,$,S 4 @ L4'",.

'. b L1,", U $012G P L3,3, U 4012G @ L1,(",.

'1. a L12, U 4012G P L12, U 3012G P L12, U 2012G P L12, U 1012G@ L1,.

'2. L4, U .1 @ L4,.

'3. b L12, 3012 P 2012 P 1012G @ L$,.

'4. a L1(, 3012 P 2012 P 1012G @ L*,.

'". d L*, U 4012G P L"4, U 3012G P L*, U 2012G PL1,44, U 1012G @ L$*$,.

'$. a L'2, U * U 1012G P L3, U 12G @ L*,.

''. b L'2, U .*G P L1", U .12G @ L(2,(.

'(. L44, U .1G P L1$, U .*G @ L"(,4.

'*. 2, U L"G Q L$, @ L*4,.

(. L11,$ P L2 @ L11,(.

(1. L3, U .(" U .*(G P L4 P L3 @ L2",$*.

(2. b L12, P L" @ L12,".

10 - :




DERI5ATIONS — Co*putt&on! .cont%/

No% An"#e$ De$&9t&on(3. d and? 30* U L("", @ L2(",.

9are!ouse? 20* U L("", @ L1*,.%ffie uilding? 40* U L("", @ L3(,.

(4. b L23, P L( @ L23,(.

(". d L23,2 Q L2, @ L3,2 gainG.

($. b Fair maret value of ne tru @ L3$,.oss? L3$, Q L3,G Q L4, @ L2,.Ne 7a!ine? L(, P L3, Q L2, @ L3$,.

('. b L13,3 P L4"," @ L"(,(.

((. a L, gain on e!ange of similar asset !en as! is paid.

(*. L12, Q L*", @ L2",O L2'," Q L2", @ L2,"L13", Q L2," @ L132,".

L12,*. a 888888888 U L24, @ L4,(.

L12, P L4(,

*1. d L4(, Q L24, Q L4,(G @ L2(,(.

L3,*2. b 888888888 U L4(, @ L$,.

L3, P L21,

*3. a L21, Q L4(, Q L$,G @ L1$(, or

L3,L1*2, Q 88888 U L1*2,G @ L1$(,.

L24,

*4. b L12, P L3, @ L1",or L24, Q L21, Q L12,G @ L1",.

*". b L2, Q L12,G U RL2, L2, P L1(,GS @ L(,.

*$. d L1(, Q L1*, @ L1,G.

*'. b L3, Q L1(,G U RL3, L3, P L2',GS @ L12,.

*(. d L2', Q L2(", @ L1",G.

**. RL1$, Q L1,G "S U 4 103 @ L13,L1$, Q L13,G P L3, @ L33,.

10 - ;



#quisition and -isposition of 6roperty, 6lant, and =quipment 10 - <




DERI5ATIONS — Co*putt&on! .cont%/

No% An"#e$ De$&9t&on1. RL32, Q L2,G "S U 4 103 @ L2$,

L32, Q L2$,G P L$, @ L$$,.

11. b L1'$, Q L(,G 1 U 12G @ L1,4 per mont!L24, Q RL1'$, Q L1,4 U 1$ mo.GS @ QL3,$.

12. b L1"2, Q L(,G 1 U 12G @ L1,20mo.OL2(, Q RL1"2, Q L1,2 U 1(GS @ L",$.

DERI5ATIONS — CPA A+pte+

No% An"#e$ De$&9t&on

13. L(, P L', P L1, P L1$, Q L(, @ L(((,.

14. b Coneptual.

1". b Coneptual.

1$. a L",4, Q L4",G Q L3,$, @ L1,3", deferred gainGL",4, Q L1,3", @ L4,", asisG.

1'. a Coneptual.

1(. b Coneptual.

1*. d L"", P L", P L1(, P L', @ L(",.

11. a L1", P L2, @ L1',.

10 - =




EERCISES

E?% 10-11186lant asset aounting.

-uring 2$ and 2', ;orman Corporation eperiened several transations involving plantassets. # number of errors ere made in reording some of t!ese transations. For ea! itemlisted belo, indiate t!e effet of t!e error if anyG in t!e blans provided by using t!e folloingodes?

% @ %verstateO > @ >nderstateO N= @ No =ffet

If no error as made, rite N= in ea! of t!e four olumns.

2$ 2'Net oo Net oo:alue of :alue of

6lant 2$ 6lant 2' #ssets at Net #ssets at Net

Transation 120310$ Inome 120310' Inome

1. T!e ost of installing a ne omputer system in 2$ as not reorded in 2$.It as !arged to epense in 2'.

2. In 2' lerial orers ere trained touse t!e ne omputer system at a ost of L1",, !i! as erroneously apital&i)ed. T!e ost is to be ritten off over t!eepeted life of t!e ne omputer system.

3. # maBor over!aul of fatory ma!inery in

2$, !i! etended its useful life by "years, as !arged to aumulateddepreiation in 2$.

4. Interest ost qualifying for apitali)ation in2$ as !arged to interest epense in2$.

". In 2$ land as boug!t for an employeeparing lot. T!e L2, title sear! feeas !arged to epense in 2$.

$. T!e ost of moving several manufaturingfailities from metropolitan loations tosuburban areas in 2$ as apitali)ed.T!e ost as ritten off over a 1&year period beginning in 2$.

10 - >

VVVVVVVV VVVVVVVV VVVVVVVV VVVVVVVV









So!ut&on 10-111

Net oo Net oo:alue of :alue of

6lant 2$ 6lant 2' #ssets at Net #ssets at Net

120310$ Inome 120310' Inome1. > % > >

2. N= N= % %

3. N= N= N= N=

4. > > > %

". > > > N=

$. N= N= N= N=

E?% 10-1189eig!ted&#verage #umulated =penditures.

%n #pril 1, Tyler Co. began onstrution of a small building. 6ayments of L12, ere mademont!ly for four mont!s beginning on #pril 1. T!e building as ompleted and ready for oupany on #ugust 1. For t!e purpose of determining t!e amount of interest ost to beapitali)ed, alulate t!e eig!ted&average aumulated ependitures on t!e building byompleting t!e s!edule belo?

-ate =penditures Capitali)ation 6eriod 9eig!ted&#verage =penditures

So!ut&on 10-11

-ate =penditures Capitali)ation 6eriod 9eig!ted&#verage =penditures

#pril 1 L12, 4012 L 4,7ay 1 12, 3012 3,Mune 1 12, 2012 2,Muly 1 12, 1012 1,

L1,

E?% 10-1128Capitali)ation of interest.

%n 7ar! 1, ;att Co. began onstrution of a small building. T!e folloing ependitures ereinurred for onstrution?

7ar! 1 L '", #pril 1 L '4,

7ay 1 1(, Mune 1 2',Muly 1 1,

T!e building as ompleted and oupied on Muly 1. To !elp pay for onstrution L", asborroed on 7ar! 1 on a 12, t!ree&year note payable. T!e only ot!er debt outstanding duringt!e year as a L",, 1 note issued to years ago.

In"t$uct&on"aG Calulate t!e eig!ted&average aumulated ependitures.bG Calulate avoidable interest.

10 - 20




So!ut&on 10-112

aG Capitali)ation 9eig!ted&#verage-ate =penditures 6eriod #um. =pend.7ar! 1 L '", 4012 L2",

#pril 1 '4, 3012 1(,"

7ay 1 1(, 2012 3,Mune 1 2', 1012 22,"Muly 1 1,

L*$,

bG 9eig!ted&#verage #voidable #um. =pend. /ate Interest

L", .12 L $, 4$, .1 4,$L*$, L1,$

E?% 10-1168Nonmonetary e!ange.

# ma!ine ost L(,, !as annual depreiation epense of L1$,, and !as aumulateddepreiation of L4, on -eember 31, 2$. %n #pril 1, 2', !en t!e ma!ine !as a fair value of L32,, it is e!anged for a similar ma!ine it! a fair value of L*$, and t!e proper amount of as! is paid. T!e e!ange laed ommerial substane.

In"t$uct&on"6repare all entries t!at are neessary at #pril 1, 2'.

So!ut&on 10-116

-epreiation =pense L1$, U 3012G.......................................... 4, #umulated -epreiation .................................................. 4,

#umulated -epreiation .............................................................. 44,7a!inery ....................................................................................... *$,oss on -isposal............................................................................. 4,

7a!inery ........................................................................... (,Cas! L*$, Q L32,G .................................................. $4,

E?% 10-11:8Nonmonetary e!ange.

=quipment t!at ost L(, and !as aumulated depreiation of L$3, is e!anged for similar equipment it! a fair value of L3", and L1", as! is reeived. T!e e!angelaed ommerial substane.

In"t$uct&on"aG !o t!e alulation of t!e gain to be reogni)ed from t!e e!ange.bG 6repare t!e entry for t!e e!ange. !o a !e of t!e amount reorded for t!e ne

equipment.

10 - 21




So!ut&on 10-11:

aG Cost L(, #umulated depreiation $3,Goo value 1',Fair value L3", P L1",G ",

;ain L33,

;ain reogni)ed 1"0" U L33,G L *,*

bG #umulated -epreiation....................................................... $3,=quipment................................................................................ 11,*Cas!........................................................................................ 1",

=quipment.................................................................... (,;ain on - isposal.......................................................... *,*

C!e?Fair value L3",

ess deferred gain 23,1Gasis of ne equipment L11,*

E?% 10-11;8-onated assets.

6ere) Company !as reently deided to aept a proposal from t!e City of el #ire t!at publilyoned property it! a large are!ouse loated on it ill be donated to 6ere) if 6ere) ill build abran! plant in el #ire. T!e appraised value of t!e property is L4*, and of t!e are!ouse isL*(,.

In"t$uct&on"

6repare t!e entry by 6ere) for t!e reeipt of t!e properties.

So!ut&on 10-11;

uilding 9are!ouseG...................................................................... *(,and................................................................................................ 4*,

Contribution /evenue.......................................................... 1,4',

10 - 2




E?% 10-11<8Capitali)ing vs. =pensing.

Consider ea! of t!e items belo. 6lae t!e proper letter in t!e blan spae provided to indiatet!e nature of t!e aount or aounts to be debited !en reording ea! transation using t!epreferred aounting treatment. 6repayments s!ould be reorded in balane s!eet aounts.-isregard inome ta onsiderations unless instruted ot!erise.

a. assetsG onlyb. aumulated amorti)ation, depletion, or depreiation only. epense onlyd. assetsG and epensee. some ot!er aount or ombination of aounts

VVVVVV 1. # motor in one of ;rant CompanyAs trus as over!auled at a ost of L$. It isepeted t!at t!is ill etend t!e life of t!e tru for to years.

VVVVVV 2. 7a!inery !i! !ad originally ost L13, as rearranged at a ost of L4",inluding installation, in order to improve prodution.

VVVVVV 3. ong ie Company reently pur!ased land and to buildings for a total ost of L3",, and entered t!e pur!ase on t!e boos. T!e L1,2 ost of ra)ing t!esmaller building, !i! !as an appraisal value of L$,2, is reorded.

VVVVVV 4. anders Company traded its old ma!ine it! a net boo value of L3, plus as! of L', for a ne one !i! !ad a fair maret value of L*,.

VVVVVV ". <en =llis and arb 6otter, maintenane repair orers, spent five days in unloadingand setting up a ne L$, preision ma!ine in t!e plant. T!e ages earned in t!isfive&day period, L4(, are reorded.

VVVVVV $. %n Mune 1, t!e Colter Eotel installed a sprinler system t!roug!out t!e building at aost of L13,. #s a result t!e insurane rate as dereased by 4.

VVVVVV '. #n improvement, !i! etended t!e life but not t!e usefulness of t!e asset, ostL$,.

VVVVVV (. T!e atti of t!e administration building as finis!ed at a ost of L3, to provide anadditional offie.

VVVVVV *. In 7ar!, t!e Iola T!eatre boug!t proBetion equipment on t!e installment basis. T!eontrat prie as L23,$1, payable L",$1 don, and L2,2" a mont! for t!e neteig!t mont!s. T!e as! prie for t!is equipment as L22,"3.

VVVVVV1. Tinsley Company reorded t!e first yearAs interest on $ L1, ten&year bondssold a year ago at *4. T!e bonds ere sold in order to finane t!e onstrution of a!ydroeletri plant. i mont!s after t!e sale of t!e bonds, t!e onstrution of t!e!ydroeletri plant as ompleted and operations ere begun. %nly as! interest,and not disount amorti)ation, is to be onsidered.G

10 - 22




So!ut&on 10-11<

1. b $. a2. a or '. b3. a (. a4. e *. e

". a 1. d

PRO'LEMS

P$% 10-11=8Capitali)ing aquisition osts.

7yers 7anufaturing Co. as inorporated on 1020' but as unable to begin manufaturingativities until (010' beause ne fatory failities ere not ompleted until t!at date. T!e andand uilding aount at 120310' per t!e boos as as follos?

-ate Item #mount 10310' and and dilapidated building L2,202(0' Cost of removing building 4,

4010' egal fees $,"010' Fire insurane premium payment ",4"010' peial ta assessment for streets 4,""010' 6artial payment of ne building onstrution 1",(010' Final payment on building onstrution 1",(010' ;eneral epenses 3,120310' #sset rite&up '",

L$24,* #dditional information?

1. To aquire t!e land and building on 10310', t!e ompany paid L1, as! and 1,s!ares of its ommon sto par value @ L10s!areG !i! is very atively traded and !ad a

maret value per s!are of L1'.2. 9!en t!e old building as removed, 7yers paid <i -emolition Co. L4,, but also

reeived L1," from t!e sale of salvaged material.

3. egal fees overed t!e folloing?Cost of organi)ation L2,"=amination of title overing pur!ase of land 2,egal or in onnetion it! t!e building onstrution 1,"

L$,

4. T!e fire insurane premium overed premiums for a t!ree&year term beginning 7ay 1, 2'.

". ;eneral epenses overed t!e folloing for t!e period 1020' to (010'.6residentHs salary L2,6lant superintendent overing supervision of ne building 1,

L3,

$. eause of t!e rising land osts, t!e president as sure t!at t!e land as ort! at leastL'", more t!an !at it ost t!e ompany.

In"t$uct&on"-etermine t!e proper balanes as of 120310' for a separate land aount and a separatebuilding aount. >se separate T&aounts one for land and one for buildingG labeling all t!erelevant amounts and dislosing all omputations.

10 - 26




So!ut&on 10-11=

and

and and old buildingL1, plus L1',G 2',

/emoval of old buildingL4, Q L1,"G 2,"

egal fees 2,peial assessment 4,"alane 2'*,

uilding

egal Fees 1,"6artial payment 1",Insurane 3 mont!sG 4"Final payment 1",

uperintendentHs salary 1,alane 311,*"

P$% 10-11>8Capitali)ation of interest.

-uring 2', Naylor uilding Company onstruted various assets at a total ost of L(,4,.T!e eig!ted average aumulated ependitures on assets qualifying for apitali)ation of interestduring 2' ere L",$,. T!e ompany !ad t!e folloing debt outstanding at -eember 31,2'?

1. 1, "&year note to finane onstrution of various assets,

dated Manuary 1, 2', it! interest payable annually on Manuary 1 L3,$,

2. 12, ten&year bonds issued at par on -eember 31, 21, it! interestpayable annually on -eember 31 4,,

3. *, 3&year note payable, dated Manuary 1, 2$, it! interest payableannually on Manuary 1 2,,

In"t$uct&on"Compute t!e amounts of ea! of t!e folloing s!o omputationsG.

1. #voidable interest.2. Total interest to be apitali)ed during 2'.

10 - 2:




So!ut&on 10-11>

1. 9eig!ted #verage #umulated #ppliable #voidable=penditures Interest /ate Interest L3,$, .1 L3$,

2,, .11W 22,L",$, L"(, @ #voidable Interest

WComputation of eig!ted average interest rate?

6rinipal Interest 12 ten&year bonds L4,, L4(,* 3&year note 2,, 1(,

L$,, L$$,

9eig!ted average interest rate @ L$$, L$,, @ 11.

2. #tual interest ost during 2'?Constrution note, L3,$, U .1 L 3$,12 ten&year bonds, L4,, U .12 4(,* t!ree&year note, L2,, U .* 1(,

L1,2,

T!e interest ost to be apitali)ed is L"(, t!e lesser of t!e L"(, avoidable interestand t!e L1,2, atual interestG.

P$% 10-108Capitali)ation of interest.

=arly in 2', 7aley Corporation engaged /eese, In. to design and onstrut a omplete

moderni)ation of 7aleyHs manufaturing faility. Constrution as begun on Mune 1, 2' andas ompleted on -eember 31, 2'. 7aley made t!e folloing payments to /eese, In. during2'?

-ate 6ayment Mune 1, 2' L3,$,

#ugust 31, 2' ",4,-eember 31, 2' 4,",

In order to !elp finane t!e onstrution, 7aley issued t!e folloing during 2'?

1. L3,2, of 1&year, * bonds payable, issued at par on 7ay 31, 2', it! interestpayable annually on 7ay 31.

2. 1,, s!ares of no&par ommon sto, issued at L1 per s!are on %tober 1, 2'.

In addition to t!e * bonds payable, t!e only debt outstanding during 2' as a L'",, 12note payable dated Manuary 1, 23 and due Manuary 1, 213, it! interest payable annually onManuary 1.

In"t$uct&on"Compute t!e amounts of ea! of t!e folloing s!o omputationsG?1. 9eig!ted&average aumulated ependitures qualifying for apitali)ation of interest ost.2. #voidable interest inurred during 2'.3. Total amount of interest ost to be apitali)ed during 2'.

10 - 2;




So!ut&on 10-10

1. 9eig!ted&#verageCapitali)ation #umulated

-ate =penditures 6eriod =pendituresMune 1 L3,$, '012 L2,1,

#ugust 31 ",4, 4012 1,(,-eember 31 4,",

L3,*,

2. 9eig!ted&#verage #umulated #ppropriate #voidable=penditures Interest /ate Interest L3,, .* L2', *, .12 1(,L3,*, L3'(,

3. #tual interest inurred during 2'?

* bonds payable, L3,2, U .* U '012 L1$(,12 note payable, L'", U .12 *,L2"(,

T!e interest ost to be apitali)ed is L2"(, t!e lesser of t!e L3'(, avoidable interestand t!e L2"(, atual interest ostG.

P$% 10-118#sset aquisition.

<err In. plans to aquire an additional ma!ine on Manuary 1, 2' to meet t!e groing demandfor its produt. %AEara Company offers to provide t!e ma!ine to <err using eit!er of t!e options

listed belo ea! option gives <err eatly t!e same ma!ine and gives %AEara Companyapproimately t!e same net present value as! equivalent at 1G.

%ption 1 8 Cas! pur!ase L(,.%ption 2 8 Installment pur!ase requiring 1" annual payments of L1",1'* due

-eember 31 ea! year.

T!e epeted eonomi life of t!is ma!ine to <err is 1" years. alvage value at t!at time isestimated to be L",. traig!t&line depreiation is used. Interest epense under %ption 2 isomputed using t!e effetive interest met!od.

In"t$uct&on"ased upon urrent generally aepted aounting priniples, state !o, if at all, t!e boo value

of t!e ma!ine and t!e obligation s!ould appear on t!e -eember 31, 2' balane s!eet of <err In., for ea! option. 6resent your anser on an anser s!eet in t!e folloing format. If anitem s!ould not appear in t!e balane s!eet, rite 5not s!on5 opposite t!e option.

#ssets iabilities #ount Name #mount #ount Name #mount

%ption 1

%ption 2

10 - 2<




So!ut&on 10-11

#ssets iabilities #ount Name #mount #ount Name #mount

%ption 1 7a!inery L(, 5not s!on5 #um. -epr. ",

%ption 2 7a!inery L(, Notes 6ayable8 #um. -epr. ", Current L 2',$*'

Notes 6ayable8ong&term '4',122

Computations? #t Manuary 1, 2', t!e note payable is L(,. #t -eember 31, 2', after t!e first payment of L1",1'* !as been made L(, interestGL''4,(21 prinipal remains, of !i! L'4',124 is long&term and L2',$*' is urrent RL1",1'* Q1 U L''4,(21GS.

Note? L1",1'* U '.$$( Table $&4G @ L(,, t!e present value of t!e obligation on

Manuary 1, 2'.

P$% 10-18Nonmonetary e!anges.

Ferry Corporation follos a poliy of a 1 depreiation !arge per year on all ma!inery and a" depreiation !arge per year on buildings. T!e folloing transations ourred in 2'?

7ar! 31, 2'8 Negotiations !i! began in 2$ ere ompleted and a are!ousepur!ased 1010*( depreiation !as been properly !arged t!roug! -eember 31, 2$G at a ost of L3,2, it! a fair maret value of L2,, ase!anged for a seond are!ouse !i! also !ad a fair maret value of

L2,,. T!e e!ange !ad no ommerial substane. ot! parels of landon !i! t!e are!ouses ere loated ere equal in value, and !ad a fair value equal to boo value.

Mune 3, 2'8 7a!inery it! a ost of L24, and aumulated depreiation t!roug!Manuary 1 of L1(, as e!anged it! L1", as! for a parel of landit! a fair maret value of L23,.

In"t$uct&on"6repare all appropriate Bournal entries for Ferry Corporation for t!e above dates.

So!ut&on 10-130310' -epreiation =pense ...................................................... 4,

#umulated -epreiation89are!ouse ........... 4,L3,2, U " U 104G

9are!ouse ..................................................................... 1,'2, #umulated -epreiation89are!ouse........................... 1,4(,

9are!ouse......................................................... 3,2,L3,2, U " U * 104 @ L1,4(,G

10 - 2=




So!ut&on 10-1 ont.G

$030' -epreiation =pense....................................................... 12, #umulated -epreiation87a!inery.............. 12,

L24, U 1 U 102G

and ............................................................................... 23, #umulated -epreiation87a!inery............................ 1*2,

;ain on =!ange.............................................. 32,7a!inery........................................................... 24,Cas!................................................................... 1",

RL(, Q L24, Q L1*2,GS @ L32,

P$% 10-128Nonmonetary e!ange.

;orman Co. !ad a s!eet metal utter t!at ost L*$, on Manuary ", 22. T!is old utter !adan estimated life of ten years and a salvage value of L1$,. %n #pril 3, 2', t!e old utter is

e!anged for a ne utter it! a maret value of L4(,. T!e e!ange laed ommerialsubstane. ;orman also reeived L12, as!. #ssume t!at t!e last fisal period ended on-eember 31, 2$, and t!at straig!t&line depreiation is used.

In"t$uct&on"aG !o t!e alulation of t!e amount of t!e gain or loss to be reogni)ed by ;orman Co.

bG 6repare all entries t!at are neessary on #pril 3, 2'. !o a !e of t!e amountreorded for t!e ne utter.

So!ut&on 10-12

aG Cost L*$, #umulated depreiation " 104 U L(,G 42,Goo value "4,Fair value L4(, P L12,G $,;ain L $,

;ain reogni)ed 120$ U L$,G L 1,2

bG -epreiation =pense.......................................................... 2, #umulated -epreiation....................................... 2,

#umulated -epreiation................................................... 42,7a!inery............................................................................ 43,2Cas!.................................................................................... 12,

7a!inery ............................................................... *$,;ain on -isposal ..................................................... 1,2

C!e? Fair value L4(,ess deferred gain 4,(Gasis of ne ma!inery L43,2

10 - 2>




P$% 10-168Nonmonetary e!ange.

6ratt Co. !as a ma!ine t!at ost L2"", on 7ar! 2, 23. T!is old ma!ine !ad anestimated life of ten years and a salvage value of L1",. %n -eember 23, 2', t!e oldma!ine is e!anged for a ne ma!ine it! a maret value of L1$2,. T!e e!ange laedommerial substane. 6ratt also reeived L1(, as!. #ssume t!at t!e last fisal period

ended on -eember 31, 2$, and t!at straig!t&line depreiation is used.

In"t$uct&on"aG !o t!e alulation of t!e amount of gain or loss to be reogni)ed by 6ratt Co. from t!e

e!ange. /ound to t!e nearest dollar.G

bG 6repare all entries t!at are neessary on -eember 23, 2'. !o a !e of t!e amountreorded for t!e ne ma!ine.

So!ut&on 10-16

aG Cost L2"", #umulated depreiation 4 304 U L24,G 114,Goo value 141,Fair value L1$2, P L1(,G 1(,;ain L 3*,

;ain reogni)ed 1(01( U L3*,G L 3,*

bG -epreiation =pense.......................................................... 24, #umulated -epreiation....................................... 24,

#umulated -epreiation................................................... 114,7a!ine............................................................................... 12$,*Cas!.................................................................................... 1(,

7a!ine................................................................... 2"",;ain on -isposal...................................................... 3,*

C!e? Fair value L1$2,-eferred gain 3",1Gasis of ne ma!ine L12$,*

P$% 10-1:8Nonmonetary e!ange.

ilas Co. e!anged uilding 24 !i! !as an appraised value of L3,2,, a ost of

L",$,, and aumulated depreiation of L2,4, for uilding 7 belonging to 7o Co.uilding 7 !as an appraised value of L3,(,, a ost of L$,2,, and aumulateddepreiation of L3,1$(,. T!e orret amount of as! as also paid. #ssume depreiation !asalready been updated.

In"t$uct&on"6repare t!e entries on bot! ompaniesH boos assuming t!e e!ange !ad no ommerialsubstane. !o a !e of t!e amount reorded for uilding 7 on ilasHs boos. /ound to t!enearest dollar.G

10 - 60




So!ut&on 10-1:

ilas Co.?Cost L",$,

#umulated depreiation 2,4,oo value 2,$$,

Fair value 3,2,;ain L "4,

;ain reogni)ed 1*203,2 U L"4,G L32,4

#umulated -epreiation................................................... 2,4,uilding 7............................................................................ 2,",4Cas!.................................................................................... 1*2,

uilding 24............................................................... ",$,;ain on -isposal...................................................... 32,4

C!e? Fair value L3,(,-eferred gain "',$G

asis for uilding 7 L2,",4

7o Co.?Cost L$,2,

#umulated -epreiation 3,1$(,oo value 2,("2,Fair value 3,(,;ain L 1"$,

#umulated -epreiation................................................... 3,1$(,uilding 24........................................................................... 3,44,

uilding 7................................................................ $,2,

Cas!......................................................................... 1*2,

P$% 10-1;8Nonmonetary e!ange.

=dmond Company e!anged ma!inery it! an appraised value of L1,'"",, a reorded ostof L2,', and #umulated -epreiation of L1,3", it! /osen Corporation for ma!inery /osen ons. T!e ma!inery !as an appraised value of L1,$*",, a reorded ost of L3,24,, and #umulated -epreiation of L1,'(2,. /osen also gave =dmond L$, int!e e!ange. #ssume depreiation !as already been updated.

In"t$uct&on"

aG 6repare t!e entries on bot! ompaniesH boos assuming t!at t!e e!ange !ad ommerialsubstane. /ound all omputations to t!e nearest dollar.G

bG 6repare t!e entries on bot! ompaniesH boos assuming t!at t!e e!ange laedommerial substane. /ound all omputations to t!e nearest dollar.G

10 - 61




So!ut&on 10-1;

aG -issimilar #ssets

=dmond7a!inery...................................... 1,$*", Cost L2,',Cas!.............................................. $, #0- 1,3",

#um. -epreiation8 : 1,3",7a!inery.................................. 1,3", F: 1,'"",

;ain on =!ange of ;ain L 4",6lant #ssets.................. 4",

7a!inery........................ 2,',

/osen7a!inery...................................... 1,'"", Cost L3,24,

#um. -epreiation8 #0- 1,'(2,7a!inery.................................. 1,'(2, : 1,4"(,

;ain on =!ange of F: 1,$*",6lant #ssets.................. 23', ;ain L 23',

7a!inery........................ 3,24,Cas!................................ $,

bG imilar #ssets

=dmond7a!inery................................................................................... 1,33,(4$Cas!........................................................................................... $,

#umulated -epreation87a!inery....................................... 1,3",;ain on =!ange........................................................ 13,(4$7a!inery..................................................................... 2,',

L$, L$, P L1,$*",G U L4", @ L13,(4$

/osen7a!inery................................................................................... 1,"1(,

#umulated -epreiation87a!inery...................................... 1,'(2,7a!inery..................................................................... 3,24,Cas!............................................................................. $,

10 - 6

guerrero peralta ch10-property-plant-and-equipment.doc

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