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#10-1 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. Required: Determine the amounts that Beldon should capitalize as the cost of the land and the new building. #10-2 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. #10-3 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. Required: 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. #10-6 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 Required: Calculate the amount paid for goodwill #10-8 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. Required: Detemrine the initial valuation of the buildings and the land. #10-10 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. Required: Determine the initial valuation of each of the assets Teradene acquired in the above transactions. #10-11 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 $400,000 in cash and the remainder was paid by he city of Monrovia. Required: Prepare the journal entries to record the acquisition of the land and the building. #10-12 Cisco Systems, Inc., reported the following information in its 2009 financial statements ($ in millions): 2009 2008 Balance sheets Property, plant, and equipment (net) $4,043 $4,151 Income statement Net sales for 2009 $36,117 Required: Calculate Cisco's 2009 fixed-asset turnover ratio. How would you interpret this ratio? #10-13 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. Required: 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. #10-24 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 Required: Calculate the amount of interest capitalized for 2011 using the specific interest method. #10-26 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. Required: 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 P10-4 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 Required: 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. Required: 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. Required: 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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