Ch07a - Chapter 07 - Long-Term Assets Purchase price of...

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Chapter 07 - Long-Term Assets 7-1 Land Building Purchase price of land $60,000 Demolition of old building 8,000 Sale of salvaged materials (1,000) Architect fees (for new building) $ 15,000 Legal fees (for title investigation of land) 2,000 Building construction costs 500,000 Interest costs related to the construction 18,000 Totals $69,000 $533,000 The property taxes on the land of $3,000 will be recorded as property tax expense over the first year.
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Chapter 07 - Long-Term Assets 7-2 1. The ovens should be recorded in the equipment account at $672,500 as detailed in the following schedule: Purchase price $600,000 Freight costs 30,000 Electrical connections 4,000 Labor costs 32,800 Bread dough used in testing ovens 800 Safety guards 1,400 Total Equipment $669,000 2. The repair costs of $4,000 for the oven damaged during installation should not be included in the equipment account as this is not a normal cost to get the asset ready for use. The repair costs of $4,000 should be recorded as repairs expense on the income statement.
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Chapter 07 - Long-Term Assets 7-3 1. Capitalize 2. Expense 3. Capitalize 4. Capitalize 5. Expense 6. Expense Health Services could increase reported earnings by improperly recording expenses as assets. For example, Health Services could record maintenance and repair expense to the equipment asset account. This would lower expenses and increase earnings reported in the current year.
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Chapter 07 - Long-Term Assets 7-4 Problem 7-5A
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Chapter 07 - Long-Term Assets 7-5 Requirement 1 University Car Wash Calculation End of Year Amounts Year Allocation Base* X Depreciation Rate = Depreciation Expense Accumulated Depreciation Book Value** 1 210,000 1/6 35,000 35,000 205,000 2 210,000 1/6 35,000 70,000 170,000 3 210,000 1/6 35,000 105,000 135,000 4 210,000 1/6 35,000 140,000 100,000 5 210,000 1/6 35,000 175,000 65,000 6 210,000 1/6 35,000 210,000 30,000 Total 210,000 * $240,000 – $30,000 = $210,000 ** $240,000 cost minus accumulated depreciation Requirement 2 University Car Wash
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This note was uploaded on 02/23/2012 for the course MGMT 200 taught by Professor Greigg during the Summer '08 term at Purdue University-West Lafayette.

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Ch07a - Chapter 07 - Long-Term Assets Purchase price of...

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