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Chapter 10: Q6Q (page 530)

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?

Short Answer

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Answer

Agree with the architect fees and interest and taxes. Disagree with the promotion expenses and interest revenue on investment as these are recoded as the expense and revenue respectively

Step by step solution

01

Organization and promotion expenses

Disagree with organization and promotion expenses as this cost did not include in the cost of building this cost shown as the operating expense in the income statement of the company

02

Architect fees

Architect fees is the professional fess paid by the company to the architect. So, it is included in the cost of building. So, agree with the architect fees.

03

Interest and taxes paid during construction of building

Interest and taxes cost incurred for the construction of building is consider as the overhead costa and included in the building cost. So, also agree with interest and taxes paid for the construction of building.

04

Interest revenue on investment

Interest revenue generated from the investment held for the purpose of the building construction is not included in the cost building. As this cost is shown in the revenues head of the income statement. Disagree with the interest revenue from investment.

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Most popular questions from this chapter

Question: What are the major characteristics of plant assets?

Question: Schwartzkopf Co. purchased for \(2,200,000 property that included both land and a building to be used in operations. The seller鈥檚 book value was \)300,000 for the land and \(900,000 for the building. By appraisal, the fair value was estimated to be \)500,000 for the land and $2,000,000 for the building. At what amount should Schwartzkopf report the land and the building at the end of the year?.

(Purchase of Equipment with Zero-Interest-Bearing Debt) Chippewas Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2017, to expand its production capacity to meet customers鈥� demand for its product. Chippewas issues an \(800,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five \)160,000 installments due at the end of each year over the life of the note.

Instructions (Round to nearest dollar in all computations.)

  1. Prepare the journal entry(ies) at the date of purchase.
  2. Prepare the journal entry(ies) at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method.
  3. Prepare the journal entry(ies) at the end of the second year to record the payment and interest.
  4. Assuming that the equipment had a 10-year life and no salvage value, prepare the journal entry necessary to record depreciation in the first year. (Straight-line depreciation is employed.)

Use the information for Hanson Company from BE10-2 and BE10-3. Compute avoidable interest for Hanson Company.

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.

Hanson Company 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

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.)
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