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Unit One - Intermediate Accounting II.xls _87K_ - Student Of Fortune

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On March 1, 2011, Beldon Corporation purchased land as a factory site for $60,000. An old building on the
property was demolished, and construction began on a new building that was completed on December 15, 2011.
Cost incurred during this period are listed below:

Demolition of old building                                              $4,000
Architect's fees (for new building)                                      12,000
Legal fees for title investigation of land                                2,000
Property taxes on land (for period beginning March 1, 2011)               3,000
Construction costs                                                      500,000
Interest on construction loan                                             5,000

Salvaged materials resulting from the demolition of the old building were sold for $2,000.

Determine the amounts that Beldon should capitalize as the cost of the land and the new building.

Oaktree Company purchased a new machine and made the follwing expenditures:

Purchase price                                                          $45,000
Sales tax                                                                  2,200
Freight charges for shipment of machine                                      700
Insurance on the machine for the first year                                  900
Installation of machine                                                    1,000

The machine, including sales tax, was purchased on open account, with payment due in 30 days. The other
expenditures listed above were paid in cash.

Required: Prepare the necessary journal entries to record the above expenditures.

Semtech manufacturing purchased land and building for $4 milion. In addtion to the purchase price, Semtech
made the following expenditures in connection with the purchase of the land and building:

Title insurance                                                         $16,000
Legal fees for drawign the contract                                        5,000
Pro-rated property taxes for the period
    after acquisition                                                     36,000
State transfer fees                                                        4,000

An independent appraisal estimated the fail values of the land and building, if purchased separately, at $3.3 and $1.1
million, respectively. Shortly after acquisition, Semtech spent $82,000 to construct a parking lot and $40,000 for landscaping.

1.Determine the initial valueation of each asset Semtech acquired in these transactions.
2.Repeat requirement 1, assuming that immediately after acquisition, Semtech demolished the building. Demolition costs were
$250,000 and the salvaged materials were sold for $6,000. In addition, Semtech spent $86,000 clearnig and grading the
land in preparation for the construction of a new building.
On March 31, 2011, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for
$17,000,000 in cash. The book values and fair values of Barney's assets and liabilities were as follows:

                                                Book Value              Fair Value
Current Assets                                   $6,000,000             $7,500,000
Property, plant, and equipment                    11,000,000             14,000,000
Other assets                                       1,000,000              1,500,000
Current liabilities                                4,000,000              4,000,000
Long-term liabilities                              6,000,000              5,500,000

Calculate the amount paid for goodwill

Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase was $900,000. According
to independent appraisals, the fair values were $450,000 (building A) and $250,000 (building B) for the buildings and
$300,000 for the land.

Detemrine the initial valuation of the buildings and the land.

Teradene Corporation purchased land as a factory site and contracted with Maxtor Construction to construct a factory.
Teradene made the following expenditures related to the acquisition of the land, building, and machinery to equip
the factory:

Purchase price of the land                                                            $1,200,000
Demolition and removal of old building                                                     80,000
Clearning and grading the land before construction                                        150,000
Various closing costs in connection with acquiring the land                                42,000
Architect's fee for the plans for the new building                                         50,000
Payments to Maxtor for building construction                                            3,250,000
Machinery purchased                                                                       860,000
Freight charges on machinery                                                               32,000
Trees, plants, and other landscaping                                                       45,000
Installation of a sprinkler system for the landscaping                                      5,000
Cost to build special platforms and install wiring for the machinery                       12,000
Cost of trial runs to ensure proper installation of the machinery                           7,000
Fire and theft insurance on the factory for the first year of use                          24,000

In addition to the above expenditures, Teradene purchased four forklifts from Caterpillar. In payment, Teradene
paid $16,000 cash and signed a noninterest-bearing note requiring the payment of $70,000 in one year. An interest
rate of 7% properly reflects the time value of money for this type of loan.

Determine the initial valuation of each of the assets Teradene acquired in the above transactions.
On February 1, 2011, the Xilon Corporation isued 5,000 shares of its nopar common stock in exchange for five
acres of aland located in the city of Monrovia. On the date of the acquisition, Xilon's common stock ahd a fair
value of $18, per share. An office building was constructed on the site by an independent contractor. The
building was completed on November 2, 2011, at a cost of $600,000, Xilon paid $400,000 in cash and the
remainder was paid by he city of Monrovia.

Prepare the journal entries to record the acquisition of the land and the building.

Cisco Systems, Inc., reported the following information in its 2009 financial statements ($ in millions):

                                                     2009                    2008
Balance sheets
   Property, plant, and equipment (net)           $4,043                  $4,151
Income statement
   Net sales for 2009                            $36,117

Calculate Cisco's 2009 fixed-asset turnover ratio.
How would you interpret this ratio?

Funseth Farms, Inc. purchased a tractor in 2008 at a cost of $30,000. The tractor was solf for $3,000 in 2011.
Deprecitation recorded through the disposal date totaled $26,000.

Prepare the journal entry to record the sale.
Assuming that the tractor was sold for $10.000, prepare the journal entry to record the sale.
On January 2, 2011, The Highlands Company began construction on a new manufacturing facility for its won use.
The building was completed in 2012. The company borrowed $1,500,000 at 8% on January 1 to help finance the
construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2011:

$5,000,000, 12% bonds
$3,000,000 8% long-term note

Construction expenditures incurred during 2011 were as follows:
January 1                         $600,000
March 31                          1,200,000
June 30                             800,000
September 30                        600,000
December 31                         400,000

Calculate the amount of interest capitalized for 2011 using the specific interest method.

Delaware Company incurred the following reasearch and development costs during 2011:

Salaries and wages for lab research                                     $400,000
Materials used in R&D projects                                            200,000
Purchase of equipment                                                     900,000
Fees paid to outsiders for R&D projects                                   320,000
Patent filing and legal costs for a developed product                      65,000
Salaries , wages, and supplies for R&D work performed
   for another company under contract                                      350,000
   Total                                                               $2,235,000

The equipment has a seven-year life and will be used for a number of research projects. Depreciation for 2011
is $120,000.

Calculate the amount of research and development expense that Delaware should report in its 2011 income statement.
                                             CPA questions:
1. Simons Company purchased land to build a new factory. The following expenditures were made in
conjuction with the land purchase:

Purchase price of the land, $150,000
Real estate of 7% of the purchase price
Land survey, $5,000
Back taxes, $5,000

What is the initial value of the land?
a. $160,000
b. $160,500
c. $165,500
d. $170,500

2. During 2011, Burr Co. made the following expenditures related to the acquisition of land and the construction
of a building:

Purchase price of land                                                $60,000
Legal fees for contracts to purchase land                                2,000
Architects's fees                                                        8,000
Demolition of old building on site                                       5,000
Sale of scrap from old building                                          3,000
Construction cost of a new building (fully completed)                  350,000

What amounts should be recorded as the initial values of the land and the building?
                                  Land                    Building
a                                $60,000                 $360,000
b                                $62,000                 $360,000
c                                $64,000                 $358,000
d                                $65,000                 $362,000

3. Amble Inc. exchanged a truck with a book value of $12,000 and a fair value of $20,000 for a truck and $5,000 cash.
The exchange has commercial substance. At what amount should Amble record the truck received?

a.   $12,000
b.   $15,000
c.   $20,000
d.   $25,000

4. Cole Co. began constructing a building for its own use in January 2011. During 2011, Cole incurrrect interest
of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-
average amount of acumulated expenditures for the building during 2011 was $40,000. What amount of interest
should Cole capitalize?

a.   $20,000
b.   $40,000
c.   $50,000
d.   $70,000
5. During the current year, Orr Company incurred the following costs:

Research and development services                        $150,000
  performed by Key Corp. for Orr
Design, construction, and testing of
  preproduction prototypes and models                    $200,000
Testing in search for new products or
  process alternatives                                     175,000

In its income statement for the current year, what amount should Orr report as research and evelopment expense?
a. $150,000
b. $200,000
c. $350,000
d. $525,000

                                                       CMA questions

1. Questions 1 and 2 are based on the following information. Harper is contemplating exchanging a machine used
in its operations for a similar machine on May 31. Harper will exchange machines with either Austin Corporation
or Lubin Company. The data relating to the machines are presented below. Assume that the exchanges would have
commercial substance.
                                                Harper                 Austin                 Lubin
Original cost of the machine                   $162,500               $180,000              $150,000
Accumulated depreciation thru May 31               68,500                70,000                65,000
Fair value at May 31                               80,000                95,000                60,000

1. If Harper exchanges its used machine and $15,000 cash for Austin's used machine, the gain that Harper should
recognize from this transaction for financial reporting purposes would be
a. $0
b. $2,526
c. $15,000
d. $16,000

2. If Harper exchanges its used machine for Lubin's used machine and also receiveds $20,000 cash, the gain that
Harper should recognize from this transaction for financial reporting purposes would be
a. $0
b. $4,000
c. $16,000
d. $25,000
The Hostmeyer Corporation commenced operations early in 2011. A number of expenditures were made during
2011 that were debited to one account called intangible assets. A recap of the $644,000 balance in this account
at the end of 2011 is as follows:

Date                       Transaction                                                                            Amount
  2/3/2011                 State incorporation fees and legal costs rlated to organizing the corporation            $7,000
  3/1/2011                 Fire insurance premium for three-year period                                               6,000
 3/15/2011                 Purchased a copyright                                                                     20,000
 4/30/2011                 Research and development costs                                                            40,000
 6/15/2011                 Legal fees for filing a patent on a new product resulting from an R&D project              3,000
 9/30/2011                 Legal fee for successful defense of patent developed above                                12,000
 1/13/2011                 Enteres into a 10-year franchise agreement with franchisor                                40,000
Various                    Advertising costs                                                                         16,000
11/30/2011                 Purchase of all of the outstanding common stock of Stiltz Corp.                          500,000
                              Total                                                                               $644,000

The toal purchase price of the Stiltz Corp. stock was debited to this account the fair values of Stiltz Corp.'s
assets and liabilties on the date of the purchase were as follows:

Receivables                             $100,000
Equipment                                 350,000
Patent                                    150,000
   Total assets                         $600,000
Note payable assumed                    (220,000)
Fair value of net assets                $380,000

Prepared the necessary journal entries to clear the intangible asset account and to set up accounts for separate
intangible assets, other types of assets, and expenses indicated by the transactions.

                                                       P 10-8
Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $12,000
(origianl cost of $28,000 less accumulated depreciation of $16,000) and fair value of $9,000. Kapono paid $20,000
cash to complete the exchange. The exchange has commercial substance.

What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the
new tractor?
Repeat required 1 assuming that the fair value of the old tractor is $14,000 instead of $9,000.

Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value
of $500,000 and a fair value of $700,000. Kapono paid $50,000 cash to complete the exchange. The exchange
has commercial substance.
What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of
the new land?
Repeat requirement 1 assuming that the fair value of the farmland given is $400,000 instead of $700,000.
Repeat requirement 1 assuming that the exchange lacked commercial substance.

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