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Exam 10: Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition

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Question 41

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In Case B, Grand Forks would record a gain/(loss) of:

A) $5,000.
B) $3,000.
C) $(5,000) .
D) $(3,000) .

E) B) and C)
F) B) and D)

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Question 42

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Calegari Mining paid $2 million to obtain the rights to operate a coal mine in Tennessee. Costs of exploring for the coal deposit totaled $1,500,000, and development costs of $5 million were incurred in preparing the mine for extraction, which began on January 2, 2013. After the coal is extracted in approximately five years, Calegari is obligated to restore the land to its original condition. The company's controller has provided the following three cash flow possibilities for the restoration costs: The company's credit-adjusted, risk-free rate of interest is 7%, and its fiscal year ends on December 31. Required: 1. What is the initial cost of the coal mine? (Round computations to nearest whole dollar.) 2. How much accretion expense will Calegari report in its 2013 and 2014 income statements? 3. What is the carrying value (book value) of the asset retirement obligation that Calegari will report in its 2013 and 2014 balance sheets? 4. Assume that actual restoration costs incurred in 2018 totaled $1,370,000. What amount of gain or loss will Calegari recognize on retirement of the liability?

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Question 43

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Vijay Inc. purchased a three-acre tract of land for a building site for $320,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract were $500. Property taxes paid were $3,000, of which $250 covered the period subsequent to the purchase date. The capitalized cost of the land is:

What is the amount of interest that Crocus should capitalize in 2013, using the specific interest method (rounded to the nearest thousand dollars) ?

Holiday Laboratories purchased a high-speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. The capitalized cost is:

In Case A, Grand Forks would record the new equipment at:

Average accumulated expenditures for 2014 was:

On August 15, 2013, Willis Inc. acquired all of the outstanding common stock of Bork Inc. paying $7,400,000 cash. The book values and fair values of Willis' assets and liabilities are listed below: Required: Prepare the journal entry to record the acquisition by Willis Inc.

Cheney Company sold a 20-ton mechanical draw press for $60,000. The old draw press cost $77,000 and had a book value of $55,000. Required: Prepare the journal entry to record the disposition.

Wendell Corporation exchanged an old truck and $25,500 cash for a new truck. The old truck had a book value of $6,000 (original cost of $25,000 less $19,000 in accumulated depreciation) and a fair value of $7,700. Required: 1. Prepare the journal entry to record the exchange. Assume the exchange has commercial substance. 2. Prepare the journal entry to record the exchange assuming that the exchange lacks commercial substance.

Show the journal entry to record Boston Beer's sale of property, plant, and equipment during 2010.

Property, plant, and equipment and intangible assets are:

The capitalized cost of equipment excludes:

During 2013, Prospect Oil Corporation incurred $4,000,000 in exploration costs for each of 15 oil wells drilled in 2013. Of the 15 wells drilled, 10 were dry holes. Prospect uses the successful efforts method of accounting. Assuming that Prospect depletes 30% of the oil discovered in 2013, what amount of these exploration costs would remain in its 12/31/13 balance sheet?

Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards in accounting for research and development expenditures other than software development costs.

The relative fair values are used to determine the valuation of individual assets acquired in a lump-sum purchase.

In a nonmonetary exchange of equipment, if the exchange has commercial substance, a gain is recognized if:

The cost of self-constructed fixed assets should:

Under International Financial Reporting Standards, development expenditures are:

On January 3, 2013, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2014. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid at closing. During February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows: Michelson did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2013: $6,000,000, 8% long-term note payable $2,000,000, 5% long-term note payable In December, the company purchased equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $540,000 and $360,000, respectively. In December, Michelson paid $340,000 for the construction of parking lots and landscaping. Required: 1. Determine the initial values of the various assets that Michelson acquired or constructed during 2013. 2. How much interest expense will Michelson report in its 2013 income statement?