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Problem 10–8 (concluded)
Requirement 3
If the exchange lacked commercial substance, no gain is recognized.
10–62 Intermediate Accounting, 8/e
Problem 10–9
Requirement 1
2016:
Expenditures for 2016:
January 1, 2016 $1,000,000 x 12/12 = $1,000,000
Interest capitalized:
$2,050,000 x 10% = $205,000 = Interest capitalized in 2016
Interest capitalized:
$3,870,000
* Weighted-average rate of all other debt:
Problem 10–9 (concluded)
Requirement 2
Accumulated expenditures 9/30/17
Requirement 3
2016
$3,000,000 x 10% = $ 300,000
Problem 10–10
Requirement 1
2016
Expenditures for 2016
January 1, 2016 $1,000,000 x 12/12 = $1,000,000
Interest capitalized:
* Weighted-average rate of all debt:
$ 3,000,000 x 10% = $ 300,000 $1,020,000
2017:
January 1, 2017
($3,000,000 + 160,925) $3,160,925 x 9/9 = $3,160,925
Interest capitalized:
Problem 10–10 (concluded)
Requirement 2
Accumulated expenditures 9/30/17,
Requirement 3
2016:
$3,000,000 x 10% = $ 300,000
10–66 Intermediate Accounting, 8/e
Problem 10–11
To capitalize the cost of equipment to be used on future projects incorrectly
charged to R&D expense.
Equipment ....................................................................... 400,000
Research and development expense............................ 400,000
Problem 10–12
Requirement 1
Land
Purchase price (determined below) $714,404
† Present value of note payment:
PV = $600,000 (.85734* ) = $514,404
10–68 Intermediate Accounting, 8/e
Problem 10–12 (concluded)
Average accumulated expenditures:
May 1, 2016 $1,200,000 x 6/6 = $ 1,200,000
Equipment and furniture and fixtures
Initial
Percent of Total Valuation
Fair Value Fair Value % x $600,000
Equipment $455,000 65% $390,000
Requirement 2
Interest expense:
Note issued to purchase land and building,
$514,404 x 8% x 9/12 = $ 30,864
Judgment Case 10–1
Requirement 1
All costs necessary to bring the land to its condition for use should be capitalized
as the cost of the land. This should include the following costs:
Purchase price.
Requirement 2
Requirement 3
In general, property, plant, and equipment and intangible assets received in
exchange for other nonmonetary assets should be valued at the fair value of the
CASES
10–70 Intermediate Accounting, 8/e
Research Case 10–2
Requirement 1
The appropriate accounting treatment for asset retirement obligations is specified in
FASB ASC 410–20 “Asset Retirement Obligations.” Section 410–20–25 requires that
an existing legal obligation associated with the retirement of a tangible, long-lived
Requirement 2
The cost of the coal mine is $24,513,419, determined as follows:
Mining site $15,000,000
Case 10–2 (continued)
Requirement 3
Requirement 4
$3,513,419 x 9% = $316,208 x 6/12 = $158,104
Requirement 5
If the actual restoration costs are more (less) than the recorded liability at the
retirement date, a loss (gain) on retirement of the obligation is recognized for the
difference.
10–72 Intermediate Accounting, 8/e
Case 10–2 (concluded)
Requirement 6
An entity shall disclose the following information about its asset retirement
obligations:
a. A general description of the asset retirement obligations and the associated
long-lived assets.
Judgment Case 10–3
Requirement 1
Requirement 2
The treatment of manufacturing overhead cost and its allocation between
construction projects and normal production is a difficult issue. One alternative is to
Requirement 3
Generally accepted accounting principles provide specific guidelines for the
treatment of interest costs incurred during construction. These guidelines pertain to
10–74 Intermediate Accounting, 8/e
Judgment Case 10–4
Requirement 1
Only assets that are constructed as discrete projects qualify for interest
Requirement 2
The capitalization period for a self-constructed asset starts when (1) expenditures
Requirement 3
Average accumulated expenditures is an approximation of the average amount of
debt that the company would have had outstanding during the period if every dollar
Requirement 4
One method that could be used to determine the appropriate interest rate(s) to be
