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Chapter 9 - Solution Manual

The net book value at the date of sale would be

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The net book value at the date of sale would be composed of the capitalized cost of the land, the land improvement, and the building, as determined above, less the accumulated depreciation on the land improvement and the building. The excess of the proceeds received from the sale over the net book value at the date of the sale would be accounted for as a gain and included in income from continuing operations in the income statement. Case 9-9 a. The expenditures that should be capitalized when equipment is acquired for cash should include the invoice price of the equipment (net of discounts) plus all incidental outlays relating to its purchase or preparation for use, such as insurance during transit, freight, duties, ownership search, ownership registration, installation, and breaking-in costs. Any available discounts, whether taken or not, should be deducted from the capitalizable cost of the equipment. b. i. When the market value of the equipment is not determinable by reference to a similar cash purchase, the capitalizable cost of equipment purchased with bonds having an established market price should be the market value of the bonds. ii. When the market value of the equipment is not determinable by reference to a similar cash purchase, and the common stock used in the exchange does not have an established market price, the capitalizable cost of equipment should be the equipment's estimated fair value if that is more clearly evident than the fair value of the common stock. Independent appraisals may be used to determine the fair values of the assets involved.
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177 iii. When the market value of equipment acquired is not determinable by reference to a similar cash purchase, the capitalizable cost of equipment purchased by exchanging similar equipment having a determinable market value should be the lower of the recorded amount of the equipment relinquished or the market value of the equipment exchanged. c. The factors that determine whether expenditures relating to property, plant, and equipment already in use should be capitalized are as follows: . Expenditures are relatively large in amount. . They are nonrecurring in nature. . They extend the useful life of the property, plant, and equipment. . They increase the usefulness of the property, plant, and equipment. d. The net book value at the date of the sale (cost of the property, plant, and equipment less the accumulated depreciation) should be removed from the accounts. The excess of cash from the sale over the net book value removed is accounted for as a gain on the sale and reported on the income statement, while the excess of net book value removed over cash from the sale is accounted for as a loss on the sale and reported on the income statement. Case 9-10 a. Historical cost is the amount of cash, or its equivalent, paid to acquire an asset. It includes the purchase price and all cost necessary to acquire the asset and get it ready for its intended use.
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