P. Chang & Co. exchanged land and $9,000 cash for equipment. The book value and the fair value of the land were $106,000 and $90,000, respectively. Chang would record equipment at and record a gain/(loss) of:
Detailed Answer
Correct answer: (A)
Equip = 99,000; Gain(loss) = (16,000)
[Equip (FV of old + 9k) = 99,000
Loss (106k-90k) = 16,000
Cash = (9,000)]
Land (BV) = (106,000)]
2
Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.
Case A. Old Equip(BV) = 50,000; Old Equip(FV) = 60,000; Cash Paid = 15,000
Case B. Old Equip(BV) = 40,000; Old Equip(FV) = 35,000; Cash Paid = 8,000
In Case A, Grand Forks would record the new equipment at:
Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.
Case A. Old Equip(BV) = 50,000; Old Equip(FV) = 60,000 ; Cash Paid = 15,000
Case B. Old Equip(BV) = 40,000; Old Equip(FV) = 35,000 ; Cash Paid = 8,000
In Case B, Grand Forks would record a gain/(loss) of:
Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.
Case A. Old Equip(BV) = 75,000; Old Equip(FV) = 80,000 ; Cash Received = 12,000
Case B. Old Equip(BV) = 60,000; Old Equip(FV) = 56,000 ; Cash Received = 10,000
In Case A, Pensacola would record the new equipment at:
Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.
Case A. Old Equip(BV) = 75,000; Old Equip(FV) = 80,000 ; Cash Received = 12,000
Case B. Old Equip(BV) = 60,000; Old Equip(FV) = 56,000 ; Cash Received = 10,000
In Case B, Pensacola would record a gain/(loss) of:
Correct answer: (C)
Whether or not there is specific borrowing for the construction.
7
Interest is eligible to be capitalized as part of an asset’s cost, rather than being expensed immediately, when:
Detailed Answer
Correct answer: (D)
All of the above are correct.
8
In computing capitalized interest, average accumulated expenditures:
Detailed Answer
Correct answer: (B)
Is determined by time-weighting individual expenditures made during the asset construction period.
9
Interest is not capitalized for:
Detailed Answer
Correct answer: (C)
Inventories routinely and repetitively produced in large quantities.
10
On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
July 1, 2010 - 54
Oct 1, 2010 - 22
Feb. 1 2011 - 30
April 1, 2011 - 21
Sept. 1, 2011 - 20
Oct 1, 2011 - 6
On July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. 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 2010 and 2011. The company’s fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2010, using the specific interest method?
Detailed Answer
Correct answer: (B)
$1.95 million.
[Average expenditures for 2010: ($54 million x 6/6) + ($22 million x 3/6) = $65 million. The interest is:
$65 million x .06 x 6/12 = $1.95 million.]
