Brief Exercise 10–4
Cost of silver mine:
Acquisition, exploration, and development $5,600,000
*Present value of $1, n = 5, i = 6% (from Table 2)
Brief Exercise 10–5
†$500,000 × 20% = $100,000
*Present value of $1, n = 5, i = 6% (from Table 2)
Brief Exercise 10–6
Calculation of goodwill:
Consideration exchanged $14,000,000
Less fair value of net assets:
Brief Exercise 10–7
The initial value of equipment and note will be the present value of the note
payment:
Present value of $1: n = 2, i = 8% (from Table 2)
Interest expense for July 1 to December 31, 2018:
Brief Exercise 10–8
The cost of the patent equals the fair value of the stock given in exchange:
Brief Exercise 10–9
Net sales ÷ Average PP&E = Fixed-asset turnover ratio
Because Huebert has a higher ratio, we would conclude that it more
efficiently generates sales with its fixed assets.
Brief Exercise 10–10
Net sales ÷ Average PP&E = Fixed-asset turnover ratio
Average PP&E × Fixed-asset turnover ratio = Net sales
Brief Exercise 10–11
Pickup trucks = Fair value of equipment plus cash paid
$17,000 + 8,000 = $25,000
Journal entry (not required):
Pickup trucks (determined above) ………………………….……. 25,000
……………………………………………….……………………Cash
………………………………….……Equipment (account balance)
Brief Exercise 10–12
Pickup trucks = Fair value of equipment plus cash paid
Journal entry (not required):
……………………………………………….……………………Cash
………………………….….……………………….Gain (difference)
………………………………….……Equipment (account balance)
Brief Exercise 10–13
Pickup trucks = Book value of equipment plus cash paid
No gain is recognized in this situation.
Journal entry (not required):
……………………………………………….……………………Cash
………………………………….……Equipment (account balance)
Brief Exercise 10–14
Average accumulated expenditures:
January 1 $500,000 x12/12= $ 500,000
Interest capitalized:
$1,250,000
– 700 ,000 (construction loan)
x 7% = $49,000
* Weighted-average rate of all other debt:
Brief Exercise 10–15
Average accumulated expenditures:
January 1, 2018 $500,000 x12/12= $ 500,000
Interest capitalized:
Brief Exercise 10–16
Research and development:
Utilities and other direct costs 66,000
Note: The patent filing and related legal costs and the costs of adapting the
product to a particular customer’s needs are not included as research and
development expense.
Brief Exercise 10–17
The software costs to be capitalized include those made after technological
Brief Exercise 10–18
Research and development:
Note: The costs of an R&D project to be sold under contract would be
included as part of inventory. The in-process R&D associated with the acquisition
would be recorded as an indefinite-life intangible asset.
Brief Exercise 10–19
Start-up costs:
Market appraisal $50,000
Consulting fees 72,000
Exercise 10–1
Capitalized cost of land:
Purchase price $60,000
Capitalized cost of building:
Construction costs $500,000
Note: Property taxes on the land for the period after acquisition are not part
of acquisition cost. They are expensed in the period incurred.
Exercise 10–2
To record the purchase of equipment.
Equipment ($45,000 + 2,200 + 700 + 1,000)……………………. 48,900
……………………………………………….…..Accounts payable
To record prepaid insurance for the equipment.
…………………………………………….….……………………Cash
EXERCISES
Exercise 10–3
Requirement 1
Cost of land and building:
Purchase price $4,000,000
Title search and insurance 16,000
Note: The pro-rated property taxes for the period after acquisition are not
included in the initial valuation of the land and building. They are
recorded instead as prepaid taxes and expensed over the related period.
The total is allocated to the land and building based on their relative fair
values:
Asset Fair Value
Percent of Total
Fair Value
Initial
Valuation
(Percent ×
$4,025,000)
Land $3,300,000 75% $3,018,750
Assets:
Land $3,018,750
Exercise 10–3 (concluded)
Requirement 2
Cost of land:
Purchase price $4,000,000
Title search and insurance 16,000
Land improvements:
Exercise 10–4
Requirement 1
Cost of copper mine:
Mining site $1,000,000
†$300,000 × 25% = $ 75,000
Requirement 2
Copper mine (determined above)………………………………. 1,903,939
……...........Asset retirement liability (determined above)
…………………………………………………………….….….Cash