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

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Question 1

Multiple Choice

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The average accumulated expenditures for 2014 by the end of the construction period was:

A) $1,950,000.
B) $1,554,000.
C) $1,254,000.
D) $975,000.

E) None of the above
F) A) and B)

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Question 2

Multiple Choice

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Research and development (R&D) costs:

A) Generally pertain to activities that occur prior to the start of production.
B) May be expensed or capitalized, at the option of the reporting entity.
C) Must be capitalized and amortized.
D) None of the above is correct.

E) A) and C)
F) A) and B)

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Question 3

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Required: Use a T- account to show the balances and changes during 2013 in Plank Breweries: Fixed assets account and Accumulated depreciation-fixed assets account (in $ thousands).

On March 15, 2013, Ellis Corporation issued 5,000 shares of its no-par common stock in exchange for a patent. On the date of the transaction, the market price of the common stock was $22 per share. Ellis also received a tract of land from the City of Montrose as an enticement to build a new office building on the site. The land had a fair value of $510,000 and Ellis was required to pay only $200,000 to secure title to the land. Required: 1. Prepare the journal entries to record the transactions under U.S. GAAP. 2. Prepare the entry to record the government grant assuming Ellis prepares its financial statements according to International Financial Reporting Standards. Prepare the entry according to each of the alternatives available under IFRS.

Watson Company purchased assets of Holmes Ltd. at auction for $1,300,000. An independent appraisal of the fair value of the assets acquired is listed below: Required: Prepare the journal entry to record the purchase of the assets.

Beacon Inc. received a gift of land and building in Twin Pines Park as an inducement to relocate. The land and buildings have fair values of $45,000 and $455,000. Required: Prepare journal entries to record the above transactions.

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:

On July 1, 2013, Jekel & Hyde Inc. purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below: Required: Indicate the accounts that would be affected by the above transactions and the resulting balance in each account. Apply the interest on the construction loan to the cost of the building only.

In computing capitalized interest, average accumulated expenditures:

Assets acquired in a lump-sum purchase are valued based on:

The successful efforts method of accounting for oil and gas exploration costs allows costs incurred in searching for oil and gas within a large geographical area to be capitalized.

Assuming that the exchange lacks commercial substance, Horton would record land-new and a gain/(loss) of:

Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards in accounting for government grants for the purchase of assets.

Show the journal entry to record Plank's disposal of the fixed assets during 2013.

Demolition costs to remove an old building from land purchased as a site for a new building are considered part of the cost of the new building.

The balance sheets of Davidson Corporation reported net fixed assets of $320,000 at the end of 2013. The fixed-asset turnover ratio for 2013 was 4.0, and sales for the year totaled $1,480,000. Net fixed assets at the end of 2012 were:

What is the amount of interest that Crocus should capitalize in 2012, using the specific interest method?

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

Under International Financial Reporting Standards, research expenditures are:

Assuming that the exchange has commercial substance, Alamos would record a gain/(loss) of: