EXERCISE 10.24 (15–20 minutes)
1/30
Accumulated Depreciation—Buildings ……………………..
95,200*
Loss on Disposal of Machinery …………………………..
21,900**
Buildings ……………………………………………………….
Cash ……………………………………………………….
5,100
**($112,000 – $95,200) + $5,100
3/10
Cash ($2,900 – $300) ………………………………………………..
2,600
Accumulated Depreciation—Machinery …………………….
Loss on Disposal of Machinery …………………………..
Machinery ……………………………………………………….
**($16,000 – $11,200) + $300 – $2,900
3/20
Maintenance and Repairs Expense …………………………..
3,000
Cash ……………………………………………………….
3,000
5/18
Machinery ……………………………………………………….
5,500
Accumulated Depreciation—Machinery …………………….
2,400*
Loss on Disposal of Machinery …………………………..
1,600**
Machinery ……………………………………………………….
4,000
Cash ……………………………………………………….
5,500
**($4,000 – $2,400)
6/23
Maintenance and Repairs Expense …………………………..
6,900
Cash ……………………………………………………….
6,900
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
Loss on Disposal of Machinery
(¥1,300,000 – ¥408,000) – ¥630,000 ………………………..
Cash ………………………………………………………………………
Accumulated Depreciation—Machinery
(¥360,000 + ¥48,000) …………………………..…………………
Machinery ………………………………………………………
(b)
Depreciation Expense (3/12 X ¥72,000) …………………….
18,000
Accumulated Depreciation—Machinery ……………
18,000
Cash ……………………………………………………………………..
Accumulated Depreciation—Machinery
(¥360,000 + ¥18,000) …………………………..…………………
Machinery ………………………………………………………
Gain on Disposal of Machinery
EXERCISE 10.26 (Continued)
(c)
Depreciation Expense (7/12 X ¥72,000) ……………………..
42,000
Accumulated Depreciation—Machinery …………….
42,000
Contribution Expense ………………………………………………
Accumulated Depreciation—Machinery
(¥360,000 + ¥42,000) ……………………………………………..
402,000
Machinery ……………………………………………………….
Gain on Disposal of Machinery …………………………
202,000*
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*
Aug. 1
Land ………………………………………………………………………
Buildings ……………………………………………………….
380,000
Cash ……………………………………………………….
470,000
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
Commission to real estate agent ……..
Clearing costs ………………………………..
Less: Amounts recovered ………………
22,000
Total land site number 621 …….
Land site number 622
Land value ……………………………………..
300,000
Building value …………………………………
120,000
Demolition cost ………………………………
41,000
Total land site number 622 …….
461,000
REAGAN LTD
Analysis of Buildings Account
for 2019
Balance at January 1, 2019 ………………………
£ 890,000
Cost of new building constructed
on land site number 622
Construction costs …………………………
Architectural design fees ………………..
Building permit fee ………………………….
PROBLEM 10.1 (Continued)
REAGAN LTD
Analysis of Leasehold Improvements Account
for 2019
Balance at January 1, 2019 ……………………………………….
£660,000
Office space ……………………………………………………….
89,000
REAGAN LTD
Analysis of Machinery and Equipment Account
for 2019
Balance at January 1, 2019 ……………………………………….
£875,000
Cost of the new machines acquired
Invoice price …………………………………………………..
Freight costs ………………………………………………….
Installation costs …………………………………………….
92,700
(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
Invoice price …………………………………………………..
Freight and unloading costs …………………………..
Sales taxes …………………………………………………….
Installation costs …………………………………………….
459,000
1,419,000
Deduct cost of machines disposed of
Machine scrapped June 30, 2019 ……………………..
$ 80,000*
Machine sold July 1, 2019 …………………………..
44,000*
124,000
Balance at December 31, 2019 …………………………..
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
Buildings
75
Land
($740,000 X 25%)
Buildings
($740,000 X 75%)
(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
Asset book value ……………………………………………………………..
$23,000
Proceeds from sale …………………………..……………………………..
Depreciation (straight-line method, salvage value
PROBLEM 10.3
(a)
1.
Land (Schedule A) ………………………………………..
188,700
Buildings (Schedule B) …………………………………
136,250
Insurance Expense (6 months X €95) …………….
Prepaid Insurance (16 months X €95) …………….
Organization Expense …………………………………..
Retained Earnings ………………………………………..
Salary Expense …………………………………………….
Land and Buildings ………………………………
Share Premium—Preference
(800 shares X €17) ……………………………..
Schedule A
Amount Consists of:
Acquisition Cost
(€80,000 + [800 X €117]) ……………………..
€173,600
Removal of Old Building ……………………….
9,800
Legal Fees (Examination of title) ……………
1,300
Special Tax Assessment ……………………….
Schedule B
Amount Consists of:
Legal Fees (Construction contract)………..
€ 1,860
Construction Costs (First payment) ……….
Construction Costs (Second payment) …..
Insurance (2 months)
([€2,280 ÷ 24] = €95 X 2 = €190) ……………
Plant Superintendent’s Salary ……………….
4,200
Construction Costs (Final payment) ………
2.
Land and Buildings ………………………………………
4,000
Depreciation Expense …………………………..
2,637
Accumulated Depreciation—Building …….
1,363
PROBLEM 10.3 (Continued)
Schedule C
Depreciation adjustment …………………..
(b)
Plant, Property, and Equipment:
Land ………………………………………………………..
€188,700
Less: Accumulated depreciation ………………
Total ……………………………………………….
€323,587
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
Less: Accumulated depreciation ……….
Machine—The unrecognized gain on the transaction would be computed as
follows:
Fair value of old machine ………………………..
Deduct: Book value of old machine
Cost ………………………………………………….
Less: Accumulated depreciation ………..
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
Legal fees …………………………………………………………….
Title insurance ……………………………………………………..
(b) BLAIR CORPORATION
Cost of Building
As of September 30, 2020
Fixed construction contract price ………………………….
$3,000,000
Plans, specifications, and blueprints ……………………..
Interest capitalized during 2019 (Schedule) ……………
Interest capitalized during 2020 (Schedule) ……………
Cost of building ……………………………………………….
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
Surveying Costs ……………………………………………………………
Title Insurance Policy …………………………………………………….
Demolition Costs …………………………………………………………..
Salvage …………………………………………………………………………
(1,000)
Expenditures (2019)
Weighted-Average
Accumulated Expenditures
Date
Amount
Fraction
December 1
¥147,000
1/12
¥12,250
December 1
30,000
1/12
2,500
December 1
3,000
1/12
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
March 1
4/12
80,000
May 1
2/12
55,000
July 1
60,000
0
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
January 30, 2020
May 30, 2020
(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
Less: Total interest capitalized
₺140,000
PROBLEM 10.8
1.
Holyfield SA
Cash ………………………………………………………………
23,000
Machinery …………………………..………………………….
69,000
Accumulated Depreciation—Machinery ……………
60,000
Loss on Disposal of Machinery ……………………….
Machinery ……………………………………………….
160,000
*Computation of loss: Book value
Compare to: Fair value
Dorsett Company
Machinery …………………………..………………………….
92,000
Accumulated Depreciation—Machinery ……………
45,000
Loss on Disposal of Machinery ……………………….
Cash ……………………………………………………….
Machinery ……………………………………………….
120,000
*Computation of loss: Book value
2.
Holyfield SA
Machinery …………………………..………………………….
100,000
Accumulated Depreciation—Machinery ……………
60,000
Machinery ……………………………………………….
160,000
Winston Company
Machinery (€92,000 – €11,000) …………………………
81,000*
Accumulated Depreciation—Machinery ……………
71,000
Machinery ……………………………………………….
152,000
Book value