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Chapter 10: Q4Q (page 530)

Question: Indicate where the following items would be shown on a balance sheet. (a) A lien that was attached to the land when purchased. (b) Landscaping costs. (c) Attorney鈥檚 fees and recording fees related to purchasing land. (d) Variable overhead related to construction of machinery. (e) A parking lot servicing employees in the building. (f) Cost of temporary building for workers during construction of building. (g) Interest expense on bonds payable incurred during construction of a building. (h) Assessments for sidewalks that are maintained by the city. (i) The cost of demolishing an old building that was on the land when purchased.

Short Answer

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Answer

Land: (a), (c), (h) and (i)

Land improvement: (b) and (e)

Building: (f) and (g)

Machinery: (d)

Step by step solution

01

Plant assets in balance sheet

Land, land improvement, building and machinery all are the part of the plant assets. In balance sheet these plant assets shown under the sub head tangible assets and head property plant and equipment of the assets.

02

Acquisition cost of machinery and equipment

S. No

Particulars

Part of balance sheet

(a)

Lien included in land

Land

(b)

Cost of landscaping

Land improvement or land depending upon life

(c)

Recoding fees and attorney fees

Land

(d)

Variable overhead incurred in machinery construction

Machinery

(e)

Parking lot for employees in building

Land improvement

(f)

Cost incurred on temporary building

Building

(g)

Interest paid on bonds incurred for building construction

Building

(h)

Sidewalk assessment

Land

(i)

Cost of destroying old building

Land

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Most popular questions from this chapter

Previn Brothers Inc. purchased land at a price of \(27,000. Closing costs were \)1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?

Slaton Corporation traded a used truck for a new truck. The used truck cost \(20,000 and has accumulated depreciation of \)17,000. The new truck is worth \(35,000. Slaton also made a cash payment of \)33,000. Prepare Slaton鈥檚 entry to record the exchange. (The exchange has commercial substance.)

Question: Stan Ott is evaluating two recent transactions involving exchanges of equipment. In one case, the exchange has commercial substance. In the second situation, the exchange lacks commercial substance. Explain to Stan the differences in accounting for these two situations.

Your client is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The assistant controller does not believe that interest cost can be included in the cost of the warehouse, because it is a financing expense. Others on the planning team believe that some interest cost can be included in the cost of the warehouse, but no one could identify the specific authoritative guidance for this issue. Your supervisor asks you to research this issue.

Instructions

If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.

  1. Is it permissible to capitalize interest into the cost of assets? Provide authoritative support for your answer.
  2. What are the objectives for capitalizing interest?
  3. Discuss which assets qualify for interest capitalization.
  4. Is there a limit to the amount of interest that may be capitalized in a period?
  5. If interest capitalization is allowed, what disclosures are required?

Hanson Company (see BE10-2) borrowed \(1,000,000 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, \)2,000,000 note payable and an 11%, 4-year, $3,500,000 note payable. Compute the weighted-average interest rate used for interest capitalization purposes.
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