172) Kerry, Inc., exchanged land and cash of $8,000 for equipment. The land had a book value
of $55,000 and a fair value of $60,000.
Required:
Prepare the journal entry to record the exchange. Assume the exchange has commercial
substance.
173) Peanut Corporation exchanged land and cash of $6,500 for equipment. The land had a book
value of $45,000 and a fair value of $34,000. Assume the exchange has commercial substance.
Required:
Prepare the journal entry to record the exchange.
174) Ford Inc. exchanged land and $7,500 cash for material handling equipment. The land had a
book value of $75,000 and a fair value of $105,000. Assume the exchange has commercial
substance.
Required:
Prepare the journal entry to record the exchange.
175) Walker Corporation exchanged land and $4,500 cash for material handling equipment. The
land had a book value of $45,000 and a fair value of $58,000. Assume the exchange has
commercial substance.
Required:
Prepare the journal entry to record the exchange.
176) Champion Industries exchanged a dust-scrubbing piece of equipment for another version of
the same type of equipment and received $12,000 cash. The old dust scrubber cost $76,200 and
had a book value of $54,500. The new dust scrubber had a fair value of $58,500.
Required:
Prepare the journal entry to record the exchange. Assume the exchange has commercial
substance.
177) Montgomery Industries spent $600,000 in 2017 on a construction project to build a library.
Montgomery also capitalized $30,000 of interest on the project in 2015. Montgomery financed
100% of the construction with a 10% construction loan. The project was completed on
September 30, 2018. Additional expenditures in 2018 were as follows:
Feb. 28
$ 90,000
Apr. 30
180,000
Jul. 1
36,000
Sept. 30
64,000
Required:
Determine the completed cost of the library. Show supporting computations.
Accumulated expenditures Dec. 31, 2017
Feb. 28, 2018
Apr. 30, 2018
Jul. 1, 2018
Sept. 30, 2018
64,000
Average accumulated expenditures for 2018
9/12)
Completed cost of the library
178) 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.
179) Agasse Industries began construction of a new facility and took out a $1,500,000, 8%
construction loan on April 1, 2018. Agasse made payments to the general contractor of $400,000
on April 1, $900,000 on August 31, and $500,000 on December 31.
Required:
Compute the amount of interest that Agasse would capitalize in 2018.
100
180) Hawkins Corporation began construction of a motel on March 31, 2018. The project was
completed on April 31, 2019. No new loans were required to fund construction. Hawkins does
have the following two interest-bearing liabilities that were outstanding throughout the
construction period:
$ 4,000,000, 6% note
$16,000,000, 10% bonds
Construction expenditures incurred were as follows:
March 31, 2018 $4,000,000
June 30, 2018 6,000,000
November 30, 2018 1,800,000
February 28, 2019 3,000,000
The company’s fiscal year-end is December 31.
Required:
Calculate the amount of interest capitalized for 2018 and 2019.
181) On August 1, 2018, Reliable Software began developing a software program to allow
individuals to customize their investment portfolios. Technological feasibility was established on
January 31, 2019, and the program was available for release on March 31, 2019. Development
costs were incurred as follows:
August 1 through December 31, 2018 $6,300,000
January 1 through January 31, 2019 1,200,000
February 1 through March 31, 2019 1,600,000
Reliable expects a useful life of five years for the software and total revenues of $8,000,000
during that time. During 2019, revenue of $2,000,000 was recognized.
Required:
1. Prepare the journal entries to record the development costs in 2018 and 2019.
2. Calculate the required amortization for 2019.
182) AstroTech Semiconductor incurred the following costs in 2018 related to a new product
design:
Research for new semiconductor design $3,220,000
Development of the new product 856,000
Legal and filing fees for a patent for the new design 110,000
Total $4,186,000
The development costs were incurred after technological and commercial feasibility was
established and after the future economic benefits were deemed probable. The project was
successfully completed, and the new product was patented before the end of the 2018 fiscal year.
Required:
1. Calculate the amount of research and development expense AstroTech should report in its
2018 U.S. GAAP income statement related to this project.
2. Repeat Requirement 1 assuming that AstroTech prepares its financial statements according to
International Financial Reporting Standards (IFRS).
183) Explain the appropriate accounting method used to account for lump-sum purchases of a
group of long-term assets.
184) Casper Chemical recently acquired a building located on two acres of land for a lump-sum
price of $3.2 million. In your job as assistant controller, you determined the allocation of the
price using the relative fair values to be $1 million and $2.2 million for the land and building,
respectively. When you reported these initial values to Jake Reese, the company’s controller, he
told you to change the allocation to $1.5 million for the land and $1.7 million for the building.
When you asked him why the change, he explained that the company is having a difficult time
meeting profitability goals and that his proposed allocation will help the bottom line for future
years.
Required:
1. How will the controller’s proposed allocation help the bottom line in future years?
2. Discuss the ethical dilemma faced by the assistant controller.
185) How are donated assets recorded?
186) How are assets valued when they are acquired by issuing stock?
187) What disclosures are required relative to interest costs incurred during the year?
188) When is interest capitalized? Briefly describe how the amount to be capitalized is
computed.
189) Why are software development costs treated differently than other types of R&D?
190) Briefly explain how R&D is reported in financial statements.
191) It’s not unusual for one company to buy another company in order to obtain technology that
the acquired company has developed or is in the process of developing.
Required:
Explain the accounting treatment of purchased technology.
192) Briefly explain the differences between U.S. GAAP and International Financial Reporting
Standards (IFRS) in accounting for research and development expenditures other than software
development costs.
193) Why would an oil company argue to use the full-cost method of accounting for oil and gas
exploration costs?
194) Briefly explain the differences between U.S. GAAP and International Financial Reporting
Standards (IFRS) in accounting for government grants for the purchase of assets.