Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
EXERCISE 10.24 (15–20 minutes)
1/30
Accumulated Depreciation—Buildings ..........................
95,200*
Loss on Disposal of Machinery ................................
21,900**
3/10
Cash ($2,900 – $300) ........................................................
2,600
3/20
Maintenance and Repairs Expense ................................
3,000
Cash ................................................................
3,000
5/18
Machinery ................................................................
5,500
Accumulated Depreciation—Machinery .........................
2,400*
EXERCISE 10.25 (10–15 minutes)
(a) C
(b) E, assuming immaterial
EXERCISE 10.26 (20–25 minutes)
(a)
Depreciation Expense (8/12 X ¥72,000) .........................
48,000
Accumulated Depreciation—Machinery ...............
48,000
(b)
Depreciation Expense (3/12 X ¥72,000) .........................
18,000
Accumulated Depreciation—Machinery ...............
18,000
EXERCISE 10.26 (Continued)
(c)
Depreciation Expense (7/12 X ¥72,000) ..........................
42,000
Accumulated Depreciation—Machinery ................
42,000
EXERCISE 10.27 (15–20 minutes)
April 1
Cash .................................................................................
410,000
Accumulated Depreciation—Buildings ..........................
160,000
Land ................................................................
60,000
Buildings ................................................................
280,000
Gain on Disposal of Plant Assets .........................
230,000*
Problem 10.1 (Time 35–40 minutes)
Purpose—to provide a problem involving the proper classification of costs related to property, plant,
and equipment. Property, plant, and equipment must be segregated into land, buildings, leasehold
improvements, and machinery and equipment for purposes of the analysis. Such costs as demolition
costs, real estate commissions, imputed interest, minor and major repair work, and royalty payments
are presented. An excellent problem for reviewing the first part of this chapter.
Problem 10.2 (Time 40–55 minutes)
Purpose—to provide a problem involving the proper classification of costs related to property, plant,
Problem 10.3 (Time 35–45 minutes)
Purpose—to provide a problem involving the proper classification of costs related to land and buildings.
Problem 10.4 (Time 35–40 minutes)
Purpose—to provide a problem involving the method of handling the disposition of certain properties.
Problem 10.5 (Time 20–30 minutes)
Purpose—to provide the student with a problem in which schedules must be prepared for the costs of
acquiring land and the costs of constructing a building. Interest costs are included.
Problem 10.6 (Time 25–35 minutes)
Problem 10.7 (Time 20–30 minutes)
Problem 10.8 (Time 35–45 minutes)
Purpose—to provide the student with a problem involving the exchange of machinery. Four different
Problem 10.9 (Time 30–40 minutes)
Problem 10.10 (Time 30–40 minutes)
Purpose—to provide the student with a problem involving the exchange of productive assets. The
exchange of assets have and do not commercial substance.
Problem 10.11 (Time 35–45 minutes)
SOLUTIONS TO PROBLEMS
PROBLEM 10.1
(a) REAGAN LTD
Analysis of Land Account
for 2019
Balance at January 1, 2019 ..................
£ 230,000
Land site number 621
Acquisition cost ...................................
£850,000
Land site number 622
Land value ............................................
300,000
REAGAN LTD
Analysis of Buildings Account
for 2019
Balance at January 1, 2019 ...........................
£ 890,000
Cost of new building constructed
PROBLEM 10.1 (Continued)
REAGAN LTD
Analysis of Leasehold Improvements Account
for 2019
Balance at January 1, 2019 ..............................................
£660,000
REAGAN LTD
Analysis of Machinery and Equipment Account
for 2019
Balance at January 1, 2019 ..............................................
£875,000
Cost of the new machines acquired
(b) Items in the fact situation which were not used to determine the
answer to (a) above are as follows:
1. Interest imputed on equity financing is not permitted by IFRS and
thus does not appear in any financial statement.
PROBLEM 10.2
(a) LOBO CORPORATION
Analysis of Land Account
2019
Balance at January 1, 2019 .............................................
$300,000
LOBO CORPORATION
Analysis of Land Improvements Account
2019
Balance at January 1, 2019 .............................................
$140,000
LOBO CORPORATION
Analysis of Buildings Account
2019
Balance at January 1, 2019 .............................................
$1,100,000
PROBLEM 10.2 (Continued)
LOBO CORPORATION
Analysis of Equipment Account
2019
Balance at January 1, 2019 ................................
$ 960,000
1,419,000
Deduct cost of machines disposed of
Machine scrapped June 30, 2019 ..........................
$ 80,000*
PROBLEM 10.2 (Continued)
Schedule 1
Computation of Fair Value of Plant Facility Acquired from
Mendota Company and Allocation to Land and Building
20,000 shares of Lobo ordinary shares at $37 quoted
market price on date of exchange (20,000 X $37)
$740,000
Allocation to land and building accounts in proportion
to appraised values at the exchange date:
Amount
Percentage
of total
Land
$230,000
25
(b) Items in the fact situation that were not used to determine the answer
to (a) above, are as follows:
1. The tract of land, which was acquired for $150,000 as a potential
future building site, should be included in Lobo’s statement of
financial position as an investment in land.
PROBLEM 10.2 (Continued)
4. The $3,000 loss on sale of equipment on July 1, 2019 (Schedule
3) should be included in the other income and expenses section
Schedule 2
Loss on Scrapping of Equipment
June 30, 2019
Cost, January 1, 2011 ....................................................................
$80,000
Schedule 3
Loss on Sale of Equipment
July 1, 2019
Cost, January 1, 2016 ................................................................
$44,000
Depreciation (straight-line method, salvage value
PROBLEM 10.3
(a)
1.
Land (Schedule A) ...............................................
188,700
Buildings (Schedule B) .......................................
136,250
Schedule A
Amount Consists of:
Acquisition Cost
(€80,000 + [800 X €117]) ..........................
€173,600
Schedule B
Amount Consists of:
Legal Fees (Construction contract)...........
€ 1,860
2.
Land and Buildings .............................................
4,000
Depreciation Expense ................................
2,637
Accumulated Depreciation—Building .......
1,363
PROBLEM 10.3 (Continued)
Schedule C
(b)
Plant, Property, and Equipment:
Land .................................................................
€188,700
PROBLEM 10.4
The following accounting treatment appears appropriate for these items:
Land—The loss on the condemnation of the land of $9,000 ($40,000 – $31,000)
should be reported as an other income and expense item on the income
statement. The $35,000 land purchase has no income statement effect.
Warehouse—The gain on the destruction of the warehouse should be reported
as other income and expense item. The gain is computed as follows:
Insurance proceeds ......................................
$74,000
Deduct: Cost ...............................................
$70,000
Machine—The unrecognized gain on the transaction would be computed as
follows:
PROBLEM 10.4 (Continued)
This gain would be deducted from the fair value of the new machine in
computing the new machine’s cost. The cost of the new machine would be
capitalized at $4,300.
Thus, there is no income effect in the year of the exchange.
Furniture—The contribution of the furniture would be reported as a contri-
PROBLEM 10.5
(a) BLAIR CORPORATION
Cost of Land (Site #101)
As of September 30, 2020
Cost of land and old building ......................................
$500,000
(b) BLAIR CORPORATION
Cost of Building
As of September 30, 2020
Fixed construction contract price ...............................
$3,000,000
Schedule
Interest Capitalized During 2019 and 2020
Weighted-Average
Accumulated Construction
Interest to be
PROBLEM 10.6
INTEREST CAPITALIZATION
Balance in the Land Account
Purchase Price .......................................................................
¥139,000
Expenditures (2019)
Weighted-Average
Accumulated Expenditures
Date
Amount
Fraction
December 1
¥147,000
1/12
¥12,250
Interest Capitalized for 2019
Weighted-Average
Accumulated Expenditures
Interest
Rate
Amount
Capitalizable
PROBLEM 10.6 (Continued)
Expenditures (2020)
Fraction
Weighted
Expenditure
Date
Amount
January 1
¥180,000 *
6/12
¥ 90,000
January 1
1,200
6/12
600
Interest Capitalized for 2020
Weighted-
Average
Expenditure
Interest
Rate
Amount
Capitalizable
(a) Balance in Land Account—2019 and 2020 ........ 147,000
(b) Balance in Building—2019 ................................. 34,200*
PROBLEM 10.7
(a) Computation of Weighted-Average Accumulated Expenditures
Expenditures
Date
Amount
X
Capitalization
Period
=
Weighted-Average
Accumulated Expenditures
July 30, 2019
₺ 900,000
10/12
₺ 750,000
(b)
Weighted-Average
Accumulated Expenditures
X
Capitalization
Rate
=
Avoidable
interest
₺1,250,000
11.2%*
₺140,000
Loans Outstanding During Construction Period
(c) (1) and (2)
Total actual interest cost
₺560,000
PROBLEM 10.8
1.
Holyfield SA
Cash ........................................................................
23,000
Machinery ...............................................................
69,000
Dorsett Company
Machinery ...............................................................
92,000
2.
Holyfield SA
Machinery ...............................................................
100,000
Accumulated Depreciation—Machinery ...............
60,000
Machinery .......................................................
160,000
Winston Company
