Equipment appraisedfair value 50000 total of

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Income Tax Fundamentals 2019
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Chapter 7 / Exercise 7.2
Income Tax Fundamentals 2019
Whittenburg/Gill
Expert Verified
Equipment (Appraised/Fair Value)$50,000Total of Appraised/Fair value:$250,000Calculations:oSpecific Asset Appraised/Fair Val. / Total of Appraised/Fair value Assets * Purchase Price (Lump sum price)oLand | No calculation necessary, recorded entry will be $100,000oBuildings | $200,000 / $250,000 * $140,000 =$112,000oEquipment | $50,000 / $250,000 * 140,000 =$28,000oTotal:$140,000oThe entry to record this acquisition assuming a cash purchase, is as follows:Land $100,000Buildings$112,000Equipment $28,000Cash Total:$240,000Basket Purchase (Asset Purchase vs. Company Acquisition)oDon’t confuse the basket purchase of some assets with the purchase of a whole company.oIf some assets are purchased at a bargain price, the entireprice must be apportioned across the assets based on the relative fair value. oHowever, if a whole company is purchased, it is notnecessary to allocate the entire purchase price to the assets. You allocate the purchase price to the assets based on their fair value, and if there is an excess amount, you assign that to Goodwill. Self-Constructed Tangible Assets:Like purchased assets, self-constructed tangible assetsare recorded at cost, including all expenditures incurred to build the asset and make it ready for its intended use. Capitalization of interestis required for assets, such as buildings, and equipment, that are being self-constructed for an enterprise’s own use. Self-created intangible assetsfollow an entirely different valuation process. Self-Constructed Tangible Asset | Example 1oCalculate the total cost of the building:The trick in this problem is to allocate part of the total company overhead to this project.oA company constructs its own building. The cost of direct materials was $200,000. The direct labor cost for this project was $400,000. Interest incurred to finance the construction was $80,000. The company’s total overhead cost for the year was $3,000,000. The company’s totallabor cost (including the cost of constructing the building) was $1,500,000. Total Co. Labor:$1,500,000Project’s Labor:$400,000Total Co. Overhead:$3,000,000Project’s overhead:X?C:\Users\sfurner\Desktop\Accounting Final Needed Materials\Final Exam Study Guide ACCT 701.docx
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Income Tax Fundamentals 2019
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Chapter 7 / Exercise 7.2
Income Tax Fundamentals 2019
Whittenburg/Gill
Expert Verified
oStep 1: Calculations | First find the cost of the specific project’s overhead X (Project Overhead) = (Total Company Overhead * Specific Project’s Labor Cost) / Total Company LaborX (Project Overhead) = ($3,000,000 * $400,000) / $1,500,00oX (Project Overhead) = $800,000oStep 2: Calculations | Find the total cost of the buildingoDirect Labor:$400,000oDirect Materials:$200,000oDirect Interest Cost:$80,000oProject Overhead:$800,000oTotal Asset Cost:$1,480,000Acquisition by Donation:When property is received through donation, there is no cost that can be used as a basis for its valuation.Property acquired through donationshould be appraised and recorded at its fair value. A donationis recognized as a gain in the period in which it is received. Depreciation Methods:Depreciation Vocabulary:oAsset Cost: is the purchase cost plus any capitalized expenditures. Asset Cost = Purchase Cost + Capitalized ExpendituresoResidual (Salvage) value: of a property is an estimate of the amount for which the asset can be

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