Chapter 10 Computational questions 1 Colt Football Co had a player contract with Watts that is recorded in its books at 4 800 000 on July 1 2012 Day Football Co had a player contract with Kurtz that is recorded in its books at 6 000 000 on July 1 2012 On this date Colt traded Watts to Day for Kurtz and paid a cash difference of 600 000 The fair value of the Kurtz contract was 7 200 000 on the exchange date The exchange had no commercial substance After the exchange the Kurtz contract should be recorded in Colt s books at Answer a 7 200 000 600 000 4 800 000 1 800 000 deferred gain 7 200 000 1 800 000 5 400 000 Basis Don t recognize gain 3 On January 2 2012 York Corp replaced its boiler with a more efficient one The following information was available on that date Purchase price of new boiler Carrying amount of old boiler Fair value of old boiler Installation cost of new boiler 170 000 10 000 4 000 20 000 The old boiler was sold for 4 000 What amount should York capitalize as the cost of the new boiler Answer 170 000 20 000 190 000 4 Fogelberg Company purchased equipment for 15 000 Sales tax on the purchase was 900 Other costs incurred were freight charges of 240 repairs of 420 for damage during installation isn t included in the cost and installation costs of 270 What is the cost of the equipment Answer 15 000 900 240 270 16 410 5 On May 1 2012 Goodman Company began construction of a building Expenditures of 240 000 were incurred monthly for 5 months beginning on May 1 The building was completed and ready for occupancy on September 1 2012 For the purpose of determining the amount of interest cost to be capitalized the average accumulated expenditures on the building during 2012 were Answer 240 000 4 12 240 000 3 12 240 000 2 12 240 000 1 12 200 000 6 During 2012 Kimmel Co incurred average accumulated expenditures of 600 000 during construction of assets that qualified for capitalization of interest The only debt outstanding during 2012 was a 750 000 10 5 year note payable dated January 1 2010 What is the amount of interest that should be capitalized by Kimmel during 2012 a 0 b 15 000 c 60 000 d 75 000 75 c 600 000 10 60 000 Good example 7 On January 2 2012 Indian River Groves began construction of a new citrus processing plant The automated plant was finished and ready for use on September 30 2013 Expenditures for the construction were as follows January 2 2012 September 1 2012 December 31 2012 March 31 2013 September 30 2013 300 000 900 000 900 000 900 000 600 000 Indian River Groves borrowed 1 650 000 on a construction loan at 12 interest on January 2 2012 This loan was outstanding during the construction period The company also had 6 000 000 in 9 bonds outstanding in 2012 and 2013 a What were the weighted average accumulated expenditures for 2012 b What is the interest capitalized for 2012 c What were the weighted average accumulated expenditures for 2013 by the end of the construction period d What is the interest capitalized for 2013 Answer a 300 000 from Jan 2 12 12 900 000 from Sept 1 4 12 900 000 from Dec 31 0 12 600 000 b 600 000 from part a 12 72 000 c 300 000 from Jan 2 900 000 from Sept 1 900 000 from Dec 31 72 000 from interest capitalized for 2012 9 12 900 000 from March 31 6 12 600 000 from Sept 31 0 12 2 079 000 d 1 650 000 12 9 12 cuz contracture finished on sep 30 148 500 2 079 000 from part c 1 650 000 9 9 12 148 500 177 458 8 Glen Inc and Armstrong Co have an exchange with no commercial substance The asset given up by Glen Inc has a book value of 48 000 and a fair value of 60 000 The asset given up by Armstrong Co has a book value of 80 000 and a fair value of 76 000 Boot of 16 000 is received by Armstrong Co a What amount should Glen Inc record for the asset received b What amount should Armstrong Co record for the asset received Answer a 48 000 16 000 64 000 b 60 000 fair value 9 On April 1 Mooney Corporation purchased for 1 710 000 a tract of land on which was located a warehouse and office building The following data were collected concerning the property Current Assessed ValuationVendor s Original Cost Land 600 000 560 000 Warehouse 400 000 360 000 Office building 800 000 680 000 1 800 000 1 600 000 What are the appropriate amounts that Mooney should record for the land warehouse and office building respectively Answer Land 60 180 1 710 000 570 000 Warehouse 40 180 1 710 000 380 000 Office Building 80 180 1 710 000 760 000 10 A machine cost 360 000 has annual depreciation of 60 000 and has accumulated depreciation of 285 000 on December 31 2012 On April 1 2013 when the machine has a fair value of 82 500 it is exchanged for a machine with a fair value of 405 000 and the proper amount of cash is paid The exchange lacked commercial substance a The gain to be recorded on the exchange is b The new machine should be recorded at Answer a 82 500 360 000 285 000 7 500 b 322 500 82 500 405 000