ACCT207 Lecture Notes - Lecture 8: Record Plant, Historical Cost, Asset Turnover

58 views4 pages

blushchimpanzee719

18 Oct 2018

School

University of Delaware

Department

Accounting

Course

ACCT207

Professor

Somerville Scott

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Historical cost principle: requires companies to record plant assets at cost. Revenue expenditure: costs incurred to acquire plant asset that are expensed immediately. Capital expenditure: costs included in plant asset accounts. Cost is measured by the cash paid in transaction or cash equivalent price. Fair value of the asset given up or fair value of the asset received. All necessary costs incurred in making land ready for intended use. Cash purchase price, commissions, fees, accrued taxes. Ex: a corp. buys real estate for ,000. Additional expenditures are attorney"s fee () and broker"s fee (). Cost of land = purchase price/cash + cost of warehouse. + attorney"s fees + broker"s commission = ,000. All expenditures necessary to make improvements ready for use. Expense (depreciate) their cost over their lives. All costs related directly to purchase or construction. Purchase costs: purchase price, closing costs, remodeling, etc. Construction costs: contract price + payments, permits, excavation.

Related Questions

1) Revson Corporation purchased land adjacent to its plant toimprove access for trucks making deliveries. Expenditures incurredin purchasing the land were as follows: purchase price, $55,000;brokerâs fees, $6,000; title search and other fees, $5,000;demolition of an old building on the property, $5,700; grading,$1,200; digging foundation for the road, $3,000; laying and pavingdriveway, $25,000; lighting $7,500; signs, $1,500. List the itemsand amounts that should be included in the Land account.

2) Mike Geary, the controller of Shellhammer Company, hasreviewed the expected useful lives and salvage values of selecteddepreciable assets at the beginning of 2017. Here are hisfindings:

Type of Asset	Date Acquired	Cost	Accumulated Depreciation, Jan. 1, 2017	Useful Life (in Years)			Salvage Value
Type of Asset	Date Acquired	Cost	Accumulated Depreciation, Jan. 1, 2017	Old		Proposed	Old	Proposed
Building	Jan. 1, 2009	$2,700,000	$516,000	40	50		$120,000	$84,000
Warehouse	Jan. 1, 2012	240,000	46,000	25	20		10,000	8,000

All assets are depreciated by the straight-line method.Shellhammer Company uses a calendar year in preparing annualfinancial statements. After discussion, management has agreed toaccept Mike's proposed changes. (The "Proposed" useful life istotal life, not remaining life.)

Instructions

(a) Compute the revised annualdepreciation on each asset in 2017. (Show computations.)

(b) Prepare the entry (or entries) torecord depreciation on the building in 2017.

ceruleanelephant621

Plant acquisitions for selected companies are as follows.

1. Pearl Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump-sum price of $812,000. At the time of purchase, Torresâs assets had the following book and appraisal values.

	Book Values	Appraisal Values
Land	$232,000	$174,000
Buildings	290,000	406,000
Equipment	348,000	348,000

To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made.

Land	174,000
Buildings	290,000
Equipment	348,000
Cash		812,000

2. Martinez Enterprises purchased store equipment by making a $2,320 cash down payment and signing a 1-year, $26,680, 10% note payable. The purchase was recorded as follows.

Equipment	31,668
Cash		2,320
Notes Payable		26,680
Interest Payable		2,668

3. Sandhill Company purchased office equipment for $18,000, terms 2/10, n/30. Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was:

Equipment	18,000
Cash		17,640
Purchase Discounts		360

4. Teal Inc. recently received at zero cost land from the Village of Cardassia as an inducement to locate its business in the Village. The appraised value of the land is $31,320. The company made no entry to record the land because it had no cost basis.

5. Flint Company built a warehouse for $696,000. It could have purchased the building for $858,400. The controller made the following entry.

Buildings	858,400
Cash		696,000
Profit on Construction		162,400

Prepare the entry that should have been made at the date of each acquisition

crimsonbear193

ACCT 401 Taxation Chapter 9

(1). Jose purchased a delivery van for his business through anonline auction. His winning bid for the van was $25,500. Inaddition, Jose incurred the following expenses before using thevan: shipping costs of $750; paint to match the other fleetvehicles at a cost of $1,990; registration costs of $2,616, whichincluded $2,400 of sales tax and a registration fee of $216; washand detailing for $78; and an engine tune-up for $349.

What is Joseâs cost basis for the delivery van?

Cost basis

(2). Wanting to finalize a sale before year-end, on December 29,WR Outfitters sold to Bob a warehouse and the land for $171,000.The appraised fair market value of the warehouse was $124,500, andthe appraised value of the land was $139,500. (Do not roundintermediate calculations. Round your answers to the nearest dollaramount.)

a.	What is Bobâs basis in the warehouse and in the land?

Bobâs Basis

Warehouse

Land

b.	What would be Bobâs basis in the warehouse and in the land ifthe appraised value of the warehouse is $109,500, and the appraisedvalue of the land is $154,500?

Bobâs Basis

Warehouse

Land

Which appraisal would Bob likely prefer?

	Appraised value in part (a)
	Appraised value in part (b)

(3). Phil owns a ranch business and uses four-wheelers to domuch of his work. Occasionally, though, he and his boys will go fora ride together as a family activity. During year 1, Phil put 1,119miles on the four-wheeler that he bought on January 15 for $9,600.Of the miles driven, only 239 miles was for personal use. Assumefour-wheelers qualify to be depreciated according to the five-yearMACRS schedule and the four-wheeler was the only asset Philpurchased this year. (Use MACRS Table 1, Table 2, Table 3, Table4and Table 5.) (Do not round intermediate calculations.Round your final answers to the nearest whole dollaramount.)

a.	Calculate the allowable depreciation for year 1 (ignore the Â§179expense and bonus depreciation).

Depreciation expense

b.	Calculate the allowable depreciation for year 2 if total mileswere 1,405 and personal use miles were 530 (ignore the Â§179 expenseand bonus depreciation).

Depreciation expense

(4). Nicole organized a new corporation. The corporation beganbusiness on April 1 of year 1. She made the following expendituresassociated with getting the corporation started:

Attonmey fees for articles ofincorporation Feb10 $39,000

March 1 - March 30wages Mar30 6,100

Stock issuancecosts Apr1 27,000

April 1- May30wages May30 15,250

a.	What is the total amount of the start-up costs andorganizational expenditures for Nicole's corporation?

Total amount of the start-up costs

Organizational expenditures

b.	What amount of the start-up costs and organizationalexpenditures may the corporation immediately expense in year 1?

Total amount of the start-up costs

Organizational expenditures

c.	What amount can the corporation deduct as amortization expensefor the organizational expenditures and for the start-up costs foryear 1 (not including the amount it immediately expensed)?(Round intermediate calculations to 2 decimal places andfinal answer to the nearest whole dollar amount.)

Start-up costs amortized

Organizational expenditures amortized

d.	What would be the allowable organizational expenditures,including immediate expensing and amortization, if Nicole started asole proprietorship instead?

Allowable organizational expenditure

ultramarineelephant433

ACCT207 Lecture Notes - Lecture 8: Record Plant, Historical Cost, Asset Turnover

Document Summary

Get access

Related Documents

ACCT207 Chapter 9: Reporting and Analyzing Long-Lived Assets

ACCT207 Chapter 3: Unit 3 Textbook Notes

ACCT207 Study Guide - Midterm Guide: Accounts Payable, Operating Lease, Finance Lease

Related Questions