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Exam 10: Operational Assets: Acquisition and Disposition

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Question 1

Multiple Choice

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Interest capitalized for 2010 was:

A) $104,625.
B) $ 86,805
C) $ 87,875.
D) $ 67,500.

E) B) and C)
F) None of the above

Correct Answer

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B

Question 2

Multiple Choice

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The exclusive right to benefit from a creative work, such as a film, is a:

A) Patent.
B) Copyright.
C) Trademark.
D) Franchise.

E) B) and C)
F) A) and D)

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Question 3

True/False

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The relative fair values are used to determine the valuation of individual assets acquired in a lump-sum purchase.

Donated assets are recorded at:

The average accumulated expenditures for 2010 by the end of the construction period was:

Interest may be capitalized:

Vijay Inc. purchased a 3-acre tract of land for a building site for $320,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $250 covered the period subsequent to the purchase date. The capitalized cost of the land is:

The capitalization period for a self-constructed asset ends either when the asset is substantially complete and ready for use or when interest costs no longer are being incurred.

Mad Hatter Enterprises purchased new equipment for $365,000, terms f.o.b. shipping point. Other costs connected with the purchase were as follows: Required: Determine the capitalized cost of the equipment. $\begin{array}{lr}\text { State sales tax } & 29,200 \\\text { Freight costs } & 5,600 \\\text { Insurance while in transit } & 800 \\\text { Insurance after equipment placed in service } & 1,200 \\\text { Installation costs } & 2,000 \\\text { Insurance for the first year of operations } & 2,400 \\\text { Testing } & 700\end{array}$

Holiday Laboratories purchased a high speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. The capitalized cost is:

Average accumulated expenditures for 2010 was:

In Case B, Grand Forks would record a gain/(loss) of:

Research and development (R&D) costs:

Agasse Industries began construction of a new facility and took out a $1,500,000, 8% construction loan on April 1, 2009. Agasse made payments to the general contractor of $400,000 on April 1, $900,000 on August 31, and $500,000 on December 31. Required: Compute the amount of interest that Agasse would capitalize in 2009.

In its 2009 annual report to shareholders, Custard Cup Inc. disclosed the following footnote: Note 4 Property, Plant and Equipment Property, plant and equipment (PPE) at December 31, 2009, and December 31, 2008, consisted of the following: Depreciation expense for property, plant and equipment was $26 million in 2009. Required: Compute the Accumulated depreciation on PPE disposed of by Custard Cup during 2009.

What was the final cost of Dreamworld's warehouse?

On July 1, 2009, Larkin Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2009 as follows: What would be the balance in the land account as of December 31, 2009?

During the current year, Peterson Data Corporation purchased all of the outstanding common stock of Junior Jackson Inc. (JJI), paying $36 million in cash. Peterson recorded the assets acquired as follows: The book value of JJI's assets and owners' equity before the acquisition were $22 million and $18 million, respectively. Required: Compute the fair value of JJI's liabilities that Peterson assumed in the acquisition. $\begin{array} { l r } \text { Accounts receivable } & \$ 2,500,000 \\\text { Inventory } & 9,000,000 \\\text { Property, plant, and equipment } & 25,500,000 \\\text { Goodwill } & 6,000,000\end{array}$

The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at:

On July 1, 2009, Jekel & Hyde Inc. purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below: Required: Indicate the accounts that would be affected by the above transactions and the resulting balance in each account. Apply the interest on the construction loan to the cost of the building only. $\begin{array} { l r } \text { Purchase price } & \$ 185,000 \\\text { Title insurance } & \$ 1,500 \\\text { Legal fees to purchase land } & \$ 1,000 \\\text { Cost of razing old building on lot } & 8,500 \\\text { Proceeds from sale of salvageable materials } & ( 1,200 ) \\\text { Property taxes, January 1, 2009 - June } 30,2009 & 3,000 \\\text { Cost of grading and filling building site } & 9,000 \\\text { Cost of building construction } & 620,000 \\\text { Interest on construction loan } & 12,000 \\\text { Cost of constructing driveway } & 8,000 \\\text { Cost of parking lot and fencing } & 12,000\end{array}$