Chapter 9- Sol. of assigned problems

# Chapter 9- Sol. of assigned problems - Chapter 9 Reporting...

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Chapter 9 Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles E9-1 Asset Nature Cost Allocation Concept (1) Copyright I A (2) Land held for use L NO (3) Warehouse B A (4) Oil well NR DP (5) New engine for old machine E A (6) Operating license I A (7) Land held for sale O (investment) NO (8) Delivery vans E A (9) Timber tract NR DP (10) Production plant B A E9-3 (1) R; (2) C; (3) C; (4) R ; (5) C; (6) C; (7) C; (8) C; (9) R; (10) N. Note: in the case of (7), there is a prepaid expense, i.e., asset. Hence, the answer is “C”. E9-7 Req. 1 Apportionment of price paid (\$178,000) plus transfer costs (\$2,000): Appraised Value Apportionment of Lump-Sum Cost Item Amount Ratio Total Cost Paid Apportioned Cost Building. ................... \$150,000 .75 x \$180,000 = \$135,000 Land. ........................ 50,000 .25 x 180,000 = 45,000 \$200,000 1.00 \$180,000 Total cost of building = Apportioned cost per above, \$135,000 + Renovation cost, \$23,000 =\$158,000

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Req. 2 Building (A). ..................................................................... 158,000 Land (A). .......................................................................... 45,000 Cash (A) (\$178,000 + \$2,000 + \$23,000) . ................ 203,000 Req. 3 (\$158,000 cost – \$14,000 residual value) ÷ 12 years = \$12,000 Req. 4 Land . .................................................................................. \$ 45,000 Building . ............................................................................. 158,000 Less: Accumulated amortization (\$12,000 x 2). ................. 24,000 134,000 Total book value at end of Year 2. .................................... \$179,000 E9-8 Req. 1 Date Assets Liabilities Shareholders’ Equity March 1 No effect No effect No effect March 2 Cash Machinery –6,000 +22,000 Short term note payable +16,000 No effect March 3 Cash Machinery –250 +250 No effect No effect March 5 Cash Machinery –1,200 +1,200 No effect No effect Oct 1 Cash –13,120 Short term note payable –12,000 Interest expense –1,120 Interest expense = \$16,000 x 12% x 7/12 = \$1,120 Req. 2 Acquisition cost of the machine: Cash paid \$ 6,000 Note payable with supplier 16,000 Freight costs 250 Installation costs 1,200 Acquisition cost \$23,450
Req. 3 Acquisition cost (\$22,000 + \$250 + \$1,200). .............................................. \$23,450 Less: Residual value. ................................................................................ 3,450 Amount to be amortized. ............................................................................ 20,000 Amortization for 2005: (\$20,000 ÷ 10 years) x 10/12 (months) =. ............ \$ 1,667 Req. 4 On October 1, 2005, \$1,120 of interest expense is paid and is recorded as interest expense. The amount is generally not capitalized (added to the cost of the asset) because interest is normally capitalized only on constructed assets. This machine was purchased. (There are exceptions to this approach in practice. For example, WestJet

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## This note was uploaded on 08/19/2008 for the course COMM 217 taught by Professor Smroz during the Summer '07 term at Concordia Canada.

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Chapter 9- Sol. of assigned problems - Chapter 9 Reporting...

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