prob040 - office tower expired in 2008 Hi-Tech's financial...

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Problem 40 (Past exam question: 20 minutes) (Text: Ch. 4, 7) In 1999 Hi-Tech Limited's computer research facility was substantially destroyed by fire. They were fortunate in obtaining rental space from which to operate while searching for a suitable building to purchase. They located a building, on 10 acres of land in a suburban area, for sale but were reluctant to acquire so much excess land. The vendor indicated that he would only consider offers for the entire property. However, after several additional months of searching they acquired this property for $1,750,000. (The appraisal indicated that the building had a value of $1,250,000 and the land had a value of $500,000.) After obtaining the property, Hi-Tech decided that they would move their head office to a new building to be constructed adjacent to the research facility when the lease in their downtown
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Unformatted text preview: office tower expired in 2008. Hi-Tech's financial position deteriorated substantially and management concluded in 2008 that the commencement of construction of the new head office would be too great a financial drain. Shortly thereafter, a developer approached Hi-Tech and suggested a joint-venture to construct an exclusive community of homes on the excess acreage. The joint venture agreement provided that Hi-Tech would receive 20% of the proceeds from the sale of the 20 homes, to a maximum of $500,000. All homes were constructed and sold by the end of 2008 and Hi-Tech received $500,000. Required : Discuss the alternative methods of treating the gain on the sale of the five acres of land and recommend the position which Hi-Tech should take when filing their 2008 income tax return....
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This note was uploaded on 11/19/2010 for the course ACC 742 taught by Professor Sydor during the Spring '10 term at Ryerson.

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