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

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Question 1

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Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively. Assuming that the exchange lacks commercial substance, Horton would record land-new and a gain/(loss) of:

A) Option A
B) Option B
C) Option C
D) Option D

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

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Question 2

Multiple Choice

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The cost of self-constructed fixed assets should:

A) Include allocated indirect costs just as they are for production of products.
B) Include only incremental indirect costs.
C) Include only specifically identifiable indirect costs.
D) Not include indirect costs.

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

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Question 3

Multiple Choice

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The fixed-asset turnover ratio provides:

The balance sheets of Davidson Corporation reported net fixed assets of $320,000 at the end of 2018. The fixed-asset turnover ratio for 2018 was 4.0, and sales for the year totaled $1,480,000. Net fixed assets at the end of 2017 were:

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.

On January 1, 2018, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2019. Expenditures on the project were as follows: Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2018. This loan was outstanding throughout the construction period. The company had $4,500,000 in 9% bonds payable outstanding in 2018 and 2019. -Average accumulated expenditures for 2019 was:

Eli Company purchased assets of Whitney Inc. at auction for $1,560,000. An independent appraisal of the fair value of the assets acquired is listed below: $\begin{array} { l r } \text { Land } & \$ 171,600 \\\text { Building } & 514,800 \\\text { Equipment } & 600,600 \\\text { Inventories } & 429,000\end{array}$ Required: Prepare the journal entry to record the purchase of the assets.

Under International Financial Reporting Standards (IFRS) , development expenditures are:

What disclosures are required relative to interest costs incurred during the year?

Assets acquired by the issuance of equity securities are valued based on:

An asset acquired using a long-term note payable always will be recorded at the face amount of the note under which scenario?

Under current GAAP, fair value is used to measure the components of all nonmonetary exchanges.

The exclusive right to display a symbol of product identification is a:

Explain the appropriate accounting method used to account for lump-sum purchases of a group of long-term assets.

On March 15, 2018, 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.

In accounting for oil and gas exploration costs, companies:

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.

P. Chang & Co. exchanged land and $9,000 cash for equipment. The book value and the fair value of the land were $106,000 and $90,000, respectively. Assuming that the exchange has commercial substance, Chang would record equipment and a gain/(loss) of:

On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows: Dreamworld had $5,000,000 in 12% bonds outstanding through both years. - Dreamworld's capitalized interest in 2018 was:

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.