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Exam 10: Property, Plant, and Equipment and Intangible Assets: Acquisition

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Question 61

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On June 1, 2017, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2018. Expenditures on the project were as follows ($ in millions) : $\begin{array}{|l|r|}\hline \text { July } 1,2017 & 54 \\\hline \text { October } 1,2017 & 22 \\\hline \text { February } 1,2018 & 30 \\\hline \text { April } 1,2018 & 21 \\\hline \text { September } 1,2018 & 20 \\\hline \text { October } 1,2018 & 6 \\\hline\end{array}$ On July 1, 2017, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2018. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2017 and 2018. The company's fiscal year-end is December 31. - What is the amount of interest that Crocus should capitalize in 2017, using the specific interest method?

A) $1.90 million.
B) $1.95 million.
C) $2.96 million.
D) None of these answer choices are correct.

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

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Question 62

Multiple Choice

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Interest is not capitalized for:

A) Assets that are constructed as discrete projects for sale or lease.
B) Assets constructed for a company's own use.
C) Inventories routinely and repetitively produced in large quantities.
D) Interest is capitalized for all of these items.

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

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Question 63

Multiple Choice

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Research and development expense for a given period includes:

Briefly explain how R&D is reported in financial statements.

According to International Financial Reporting Standards (IFRS), all research and development expenditures are expensed in the period incurred.

The acquisition costs of property, plant, and equipment do not include:

Under International Financial Reporting Standards, research expenditures are:

Vijay Inc. purchased a three-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 were $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:

Agasse Industries began construction of a new facility and took out a $1,500,000, 8% construction loan on April 1, 2018. 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 2018.

On September 30, 2018, Corso Steel acquired a patent from Thermo Steel. The agreement specified that Corso will pay Thermo $1,000,000 immediately and then another $1,000,000 on September 30, 2020. An interest rate of 8% reflects the time value of money for this type of loan agreement. -What amount of interest expense, if any, would Corso record on December 31, 2018, the company's fiscal year end?

The initial cost of property, plant, and equipment includes all the identifiable expenditures necessary to bring the asset to its desired condition and location for use.

On July 1, 2018, 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 2018 as follows: What would be the balance in the land account as of December 31, 2018?

Ford Inc. exchanged land and $7,500 cash for material handling equipment. The land had a book value of $75,000 and a fair value of $105,000. Assume the exchange has commercial substance. Required: Prepare the journal entry to record the exchange.

How are donated assets recorded?

The costs of research and development performed by the company for sale to others (but not yet sold) would be included in which of the following accounts?

On July 1, 2018, Markwell Company acquired equipment. Markwell paid $160,000 in cash on July 1, 2018, and signed a $640,000 noninterest-bearing note for the remaining balance which is due on July 1, 2019. An interest rate of 5% reflects the time value of money for this type of loan agreement. - Which of the following should be included in the journal entry on July 1, 2018?

On June 17, the Lattern Company issued 120,000 shares of its $0.10 par value common stock in exchange for land. On the date of the transaction, the fair value of the common stock, evidenced by its market price, was $10 per share. The journal entry to record this transaction includes:

The FASB's required accounting treatment for research and development costs often understates both net income and assets.

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:

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