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Chapter 10: Q9Q (page 531)
Question: Provide examples of assets that do not qualify for interest capitalization
Answer
Examples of assets do not qualify for interest capitalization:
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Fielder Company obtained land by issuing 2,000 shares of its \(10 par value common stock. The land was recently appraised at \)85,000. The common stock is actively traded at $40 per share. Prepare the journal entry to record the acquisition of the land.
(Entries for Disposition of Assets) On December 31, 2017, Travis Tritt Inc. has a machine with a book value of \(940,000. The original cost and related accumulated depreciation at this date are as follows.
Machine | \)1,300,000 |
Less: Accumulated depreciation | 360,000 |
Book value | \( 940,000 |
Depreciation is computed at \)60,000 per year on a straight-line basis.
Instructions
Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.
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.
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.
(Dispositions, Including Condemnation, Demolition, and Trade-In) Presented below is a schedule of property dispositions for Hollerith Co.
| Schedule of Property Dispositions | |||||
Cost | Accumulated Depreciation | Cash Proceeds | Fair Value | Nature of Disposition | |
Land | \(40,000 | 鈥� | \)31,000 | \(31,000 | Condemnation |
Building | 15,000 | 鈥� | 3,600 | 鈥� | Demolition |
Warehouse | 70,000 | \)16,000 | 74,000 | 74,000 | Destruction by fire |
Machine | 8,000 | 2,800 | 900 | 7,200 | Trade-in |
Furniture | 10,000 | 7,850 | 鈥� | 3,100 | Contribution |
Automobile | 9,000 | 3,460 | 2,960 | 2,960 | Sale |
The following additional information is available.
Land: On February 15, a condemnation award was received as consideration for unimproved land held primarily as an investment, and on March 31, another parcel of unimproved land to be held as an investment was purchased for \(35,000.
Building: On April 2, land and building were purchased at a total cost of \)75,000, of which 20% was allocated to the building on the corporate books. The real estate was acquired with the intention of demolishing the building, and this was accomplished during the month of November. Cash proceeds received in November represent the net proceeds from demolition of the building.
Warehouse: On June 30, the warehouse was destroyed by fire. The warehouse was purchased January 2, 2014, and had depreciated \(16,000. On December 27, the insurance proceeds and other funds were used to purchase a replacement warehouse at a cost of \)90,000.
Machine: On December 26, the machine was exchanged for another machine having a fair value of \(6,300 and cash of \)900 was received. (The exchange lacks commercial substance.)
Furniture: On August 15, furniture was contributed to a qualified charitable organization. No other contributions were made or pledged during the year.
Automobile: On November 3, the automobile was sold to Jared Winger, a stockholder.
Instructions
Indicate how these items would be reported on the income statement of Hollerith Co.
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