/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 19Q What accounting treatment is nor... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 10: 19Q (page 531)

What accounting treatment is normally given to the following items in accounting for plant assets? (a) Additions. (b) Major repairs. (c) Improvements and replacements.

Short Answer

Expert verified

Additions are capitalized in the asset cost. A major repair is treated as an addition, improvement, or replacement based on the nature of the repair. Improvement or replacement treatment is based on whether the carrying value is known or not.

Step by step solution

01

Treatment of Additions

The company uses it to capitalize on the cost of any addition to the plant assets. The company capitalizes on the cost because new assets are added by the company in the existing plant assets.

02

Treatment of major repairs

Treatment of major repair depends on the type of major repair. A major repair is treated as the addition, improvement, or replacement.

03

Treatment of improvement or replacement

Replacement adds the new assets or parts but the improvement did not add anything to the plant asset. If the carrying value of the old asset is known then the improvement or replacement cost is capitalized. If the carrying amount is unknown then following two situations determine the treatment of improvement or replacement:

(a) When the improvement or replacement increases the useful life of the asset then the cost of improvement or replacement is added to the accumulated depreciation account.

(b) When the improvement or replacement leads to an increase in efficiency of asset then the cost of improvement or replacement is capitalized.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Question: What interest rates should be used in determining the amount of interest to be capitalized? How should the amount of interest to be capitalized be determined?

Question: How should the amount of interest capitalized be disclosed in the notes to the financial statements? How should interest revenue from temporarily invested excess funds borrowed to finance the construction of assets be accounted for?

(Nonmonetary Exchanges) Holyfield Corporation wishes to exchange a machine used in its operations. Holyfield has received the following offers from other companies in the industry.

  1. Dorsett Company offered to exchange a similar machine plus \(23,000. (The exchange has commercial substance for both parties.)
  2. Winston Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
  3. Liston Company offered to exchange a similar machine, but wanted \)3,000 in addition to Holyfield鈥檚 machine. (The exchange has commercial substance for both parties.)

In addition, Holyfield contacted Greeley Corporation, a dealer in machines. To obtain a new machine, Holyfield must pay \(93,000 in addition to trading in its old machine.

Holyfield

Dorsett

Winston

Liston

Greeley

Machine cost

\)160,000

\(120,000

\)152,000

\(160,000

\)130,000

Accumulated depreciation

60,000

45,000

71,000

75,000

鈥�0鈥�

Fair value

92,000

69,000

92,000

95,000

185,000

Instructions

For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company.

Question: Mickelson Inc. owns land that it purchased on January 1, 2000, for \(450,000. At December 31, 2017, its current value is \)770,000 as determined by appraisal. At what amount should Mickelson report this asset on its December 31, 2017, balance sheet? Explain

Tones Company purchased a warehouse in a downtown district where land values are rapidly increasing. Gerald Carter, controller, and Wilma Ankara, financial vice president, are trying to allocate the cost of the purchase between the land and the building. Noting that depreciation can be taken only on the building, Carter favors placing a very high proportion of the cost on the warehouse itself, thus reducing taxable income and income taxes. Ankara, his supervisor, argues that the allocation should recognize the increasing value of the land, regardless of the depreciation potential of the warehouse. Besides, she says, net income is negatively impacted by additional depreciation and will cause the company鈥檚 stock price to go down.

Instructions

Answer the following questions.

  1. What stakeholder interests are in conflict?
  2. What ethical issues does Carter face?
  3. How should these costs be allocated?
See all solutions

Recommended explanations on Business Studies Textbooks

Sales in Business

Read Explanation

Intermediate Accounting

Read Explanation

Organizational Behavior

Read Explanation

Managerial Economics

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

International Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.