Acquisition and Disposition of Property, Plant, and Equipment
10 – 41
126. Colt Football Co. had a player contract with Watts that is recorded in its books at
$8,400,000 on July 1, 2020. Day Football Co. had a player contract with Kurtz that is
recorded in its books at $10,500,000 on July 1, 2020. On this date, Colt traded Watts to
Day for Kurtz and paid a cash difference of $1,050,000. The fair value of the Kurtz
contract was $12,600,000 on the exchange date. The exchange had no commercial
substance. After the exchange, the Kurtz contract should be recorded in Colt’s books at
a. $9,450,000.
b. $10,500,000.
c. $11,550,000.
d. $12,600,000.
127. Huff Co. exchanged nonmonetary assets with Sayler Co. No cash was exchanged and the
exchange had no commercial substance. The carrying amount of the asset surrendered
by Huff exceeded both the fair value of the asset received and Sayler’s carrying amount of
that asset. Huff should recognize the difference between the carrying amount of the asset
it surrendered and
a. the fair value of the asset it received as a loss.
b. the fair value of the asset it received as a gain.
c. Sayler’s carrying amount of the asset it received as a loss.
d. Sayler’s carrying amount of the asset it received as a gain.
128. Chase County owned an idle parcel of real estate consisting of land and a factory building.
Chase gave title to this realty to Patton Co. as an incentive for Patton to establish
manufacturing operations in the County. Patton paid nothing for this realty, which had a
fair value of $250,000 at the date of the grant. Patton should record this nonmonetary
transaction as a
a. memo entry only.
b. credit to Contribution Revenue for $250,000.
c. credit to Comprehensive Income for $250,000.
d. credit to Donated Capital for $250,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 42
129. On September 10, 2020, Jenks Co. incurred the following costs for one of its printing
presses:
Purchase of attachment $55,000
Installation of attachment 5,000
Replacement parts for renovation of press 18,000
Labor and overhead in connection with renovation of press 7,000
Neither the attachment nor the renovation increased the estimated useful life of the press.
However, the renovation resulted in significantly increased productivity. What amount of
the costs should be capitalized?
a. $0.
b. $67,000.
c. $78,000.
d. $85,000.
130. On January 2, 2020, York Corp. replaced its boiler with a more efficient one. The following
information was available on that date:
Purchase price of new boiler $150,000
Carrying amount of old boiler 10,000
Fair value of old boiler 4,000
Installation cost of new boiler 20,000
The old boiler was sold for $4,000. What amount should York capitalize as the cost of the
new boiler?
a. $170,000.
b. $164,000.
c. $160,000.
d. $150,000.
Multiple Choice Answers—CPA Adapted
Acquisition and Disposition of Property, Plant, and Equipment
10 – 43
DERIVATIONS — Computational
No. Answer Derivation
81. c ($1,760,000 × .1) + ($640,000 × .09) = $233,600.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 44
DERIVATIONS — Computational (cont.)
Acquisition and Disposition of Property, Plant, and Equipment
10 – 45
DERIVATIONS — Computational (cont.)
No. Answer Derivation
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 46
DERIVATIONS — Computational (cont.)
DERIVATIONS — CPA Adapted
No. Answer Derivation
Acquisition and Disposition of Property, Plant, and Equipment
10 – 47
BRIEF EXERCISES
BE. 10-131—Plant asset accounting.
During 2020 and 2021, Sawyer Corporation experienced several transactions involving plant
assets. A number of errors were made in recording some of these transactions. For each item
listed below, indicate the effect of the error (if any) in the blanks provided by using the following
codes:
O = Overstate; U = Understate; NE = No Effect
If no error was made, write NE in each of the four columns.
2020 2021
Net Book Net Book
Value of Value of
Plant 2020 Plant 2021
Assets at Net Assets at Net
Transaction 12/31/20 Income 12/31/21 Income
1. The cost of installing a new computer
system in 2020 was not recorded in 2020.
It was charged to expense in 2021.
2. In 2021 clerical workers were trained to
use the new computer system at a cost of
$15,000, which was erroneously
capitalized. The cost is to be written off
over the expected life of the new computer
system.
3. A major overhaul of factory machinery in
2020, which extended its useful life by 5
years, was charged to accumulated
depreciation in 2020.
4. Interest cost qualifying for capitalization in
2020 was charged to interest expense in
2020.
5. In 2020 land was bought for an employee
parking lot. The $2,000 title search fee
was charged to expense in 2020.
6. The cost of moving several manufacturing
facilities from metropolitan locations to
suburban areas in 2020 was capitalized.
The cost was written off over a 10-year
period beginning in 2020.
______ _______ _______ ______
______ _______ _______ ______
______ _______ _______ ______
______ _______ _______ ______
______ _______ _______ ______
______ _______ _______ ______
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 48
Acquisition and Disposition of Property, Plant, and Equipment
10 – 49
Solution 10-131
BE. 10-132—Weighted-Average Accumulated Expenditures.
On April 1, Paine Co. began construction of a small building. Payments of $300,000 were made
monthly for four months beginning on April 1. The building was completed and ready for
occupancy on August 1. For the purpose of determining the amount of interest cost to be
capitalized, calculate the weighted-average accumulated expenditures on the building by
completing the schedule below:
Date Expenditures Capitalization Period Weighted-Ave. Accum. Expend.
$250,000
BE. 10–133—Capitalization of interest.
On March 1, Mocl Co. began construction of a small building. The following expenditures were
incurred for construction:
March 1 $ 300,000 April 1 $ 296,000
May 1 720,000 June 1 1,080,000
July 1 400,000
The building was completed and occupied on July 1. To help pay for construction $200,000 was
borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during
the year was a $2,000,000, 10% note issued two years ago.
Instructions
(a) Calculate the weighted-average accumulated expenditures.
(b) Calculate avoidable interest.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 50
Solution 10-133
EXERCISES
Ex. 10-134—Nonmonetary exchange.
A machine cost $300,000, has annual depreciation expense of $60,000, and has accumulated
depreciation of $150,000 on December 31, 2020. On April 1, 2021, when the machine has a fair
value of $120,000, it is exchanged for a similar machine with a fair value of $360,000 and the
proper amount of cash is paid. The exchange lacked commercial substance.
Acquisition and Disposition of Property, Plant, and Equipment
10 – 51
Ex. 10-135—Nonmonetary exchange.
Equipment that cost $600,000 and has accumulated depreciation of $475,000 is exchanged for
equipment with a fair value of $240,000 and $60,000 cash is received. The exchange lacked
commercial substance.
Instructions
(a) Show the calculation of the gain to be recognized from the exchange.
(b) Prepare the entry for the exchange. Show a check of the amount recorded for the new
equipment.
Ex. 10-136—Donated assets.
Cheng Company has recently decided to accept a proposal from the City of Bel Aire that publicly
owned property with a large warehouse located on it will be donated to Cheng if Cheng will build
a branch plant in Bel Aire. The appraised value of the property is $500,000 and of the warehouse
is $1,000,000.
Instructions
Prepare the entry by Cheng for the receipt of the properties.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 52
Ex. 10-137—Capitalizing vs. Expensing.
Consider each of the items below. Place the proper letter in the blank space provided to indicate
the nature of the account or accounts to be debited when recording each transaction using the
preferred accounting treatment. Prepayments should be recorded in balance sheet accounts.
Disregard income tax considerations unless instructed otherwise.
a. asset(s) only
b. accumulated amortization, depletion, or depreciation only
c. expense only
d. asset(s) and expense
e. some other account or combination of accounts
____ 1. A motor in one of North Company’s trucks was overhauled at a cost of $600. It is
expected that this will extend the life of the truck for two years.
____ 2. Machinery which had originally cost $130,000 was rearranged at a cost of $450,
including installation, in order to improve production.
____ 3. Orlando Company recently purchased land and two buildings for a total cost of
$35,000, and entered the purchase on the books. The $1,200 cost of razing the
smaller building, which has an appraisal value of $6,200, is recorded.
____ 4. Jantzen Company traded its old machine with a net book value of $3,000 plus cash of
$7,000 for a new one which had a fair value of $9,000.
____ 5. Jim Parra and Mary Lawson, maintenance repair workers, spent five days in unloading
and setting up a new $6,000 precision machine in the plant. The wages earned in this
five-day period, $480, are recorded.
____ 6. On June 1, the Milton Hotel installed a sprinkler system throughout the building at a
cost of $13,000. As a result, the insurance rate was decreased by 40%.
____ 7. An improvement, which extended the life but not the usefulness of the asset, cost
$6,000.
____ 8. The attic of the administration building was finished at a cost of $3,000 to provide an
additional office.
____ 9. In March, the Lyon Theatre bought projection equipment on the installment basis. The
contract price was $23,610, payable $5,610 down, and $2,250 a month for the next
eight months. The cash price for this equipment was $22,530.
____ 10. Lambert Company recorded the first year’s interest on 6% $100,000 ten-year bonds
sold a year ago at 94. The bonds were sold in order to finance the construction of a
hydroelectric plant. Six months after the sale of the bonds, the construction of the
hydroelectric plant was completed and operations were begun. (Only cash interest,
and not discount amortization, is to be considered.)