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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

Expert verified

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

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?

Question: The Buildings account of Postera Inc. includes the following items that were used in determining the basis for depreciating the cost of a building.

Organization and promotion expenses. (b) Architect鈥檚 fees. (c) Interest and taxes during construction. (d) Interest revenue on investments held to fund construction of a building. Do you agree with these charges? If not, how would you deal with each of the items above in the corporation鈥檚 books and in its annual financial statements?

Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were \(1,800,000 on March 1, \)1,200,000 on June 1, and $3,000,000 on December 31. Compute Hanson鈥檚 weighted-average accumulated expenditures for interest capitalization purposes.

(Entries for Acquisition of Assets) Presented below is information related to Zonker Company.

1. On July 6, Zonker Company acquired the plant assets of Doonesbury Company, which had discontinued operations. The appraised value of the property is:

Land

\( 400,000

Buildings

1,200,000

Equipment

800,000

Total

\)2,400,000

Zonker Company gave 12,500 shares of its \(100 par value common stock in exchange. The stock had a market price of \)168 per share on the date of the purchase of the property.

2. Zonker Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building.

Repairs to building

\(105,000

Construction of bases for equipment to be installed later

135,000

Driveways and parking lots

122,000

Remodeling of office space in building, including new partitions and walls

161,000

Special assessment by city on land

18,000

3. On December 20, the company paid cash for equipment, \)260,000, subject to a 2% cash discount, and freight on equipment of $10,500.

Instructions

Prepare entries on the books of Zonker Company for these transactions.

What are the general rules for how gains or losses on retirement of plant assets should be reported in income?
See all solutions

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