ACC 110 Chapter Notes - Chapter 9: Book Value, Title Search, The Purchase Price

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20 Dec 2016

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Capital expenditures: costs that benefit future periods are capitalized in a long-lived asset accounts and recorded as either property, plant, or equipment. Asset retirement costs: if there are obligations to dismantle, remove, or restore the long-lived asset when it is retired, there costs must also be estimated and included in the cost of the asset. Property, plant, and equipment are often subdivided into 4 classes: land, like a building site, land improvements ex. Fences, parking lots, driveways, sprinkler system: buildings ex. All costs related to the purchase of land, including costs such as survey, title search, and legal fees are added to the. If additional work is required to prepare the land for its intended use, such as clearing, draining, grading, and filling, these costs are also recorded as capital expenditures in the land account. Land improvements are structural addition made to land such as driveways, sidewalks, fences, and parking lots.

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Can someone please provide the solutions. No explanation needed,just the answers so I can double check my work.

2. Firms with tangiblelong-term assets and less predictable cash flows, such as automanufacturers and steel companies, whose sales vary with changes ineconomic conditions, tend to use

a.	a more nearly equal mix of long-term debt and shareholdersâequity financing.
b.	a greater amount of long-term debt [80%] than shareholdersâequity financing [20%].
c.	a smaller amount of long-term debt [20%] than shareholdersâequity financing [80%].
d.	a greater amount of long-term debt [80%] than assets [20%].
e.	a greater amount of shareholdersâ equity [80%] than assets[20%].

3. During Year 3,Carrington Company made the following expenditures relating toplant machinery and equipment:

Â·	Continuing, frequent, and low cost repairs	$46,000
Â·	Special long-term protection devices were attached to tenmachines	11,000
Â·	A broken gear on a machine was replaced	5,000

How much should be charged to repairs and maintenance in Year3?

a.	$46,000
b.	$51,000
c.	$57,000
d.	$41,000
e.	none of the above

4. Which of the followingis/are not capitalized as an intangible asset?

a.	costs of an internally developed patent
b.	legal costs to defend a patent successfully
c.	goodwill acquired when a company purchases another company
d.	costs to purchase a patent
e.	none of the above

5. Repairs and maintenancedo not include

a.	the costs of restoring an asset's service potential afterbreakdowns.
b.	expenditures that increase the asset's life.
c.	routine costs such as for cleaning and adjusting.
d.	major tune-ups including labor and parts.
e.	All of the above are not considered to be repairs ormaintenance.

12. Sigma Company suffers a loss to itsbuilding in a fire and spends $100,000 on repairs and improvements.It judges that $80,000 of the expenditure replaces long-livedassets lost in the fire, and $20,000 represents improvements to thebuilding. Which of the following is the single journal entry thatSigma Company will make?

a.	Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 100,000
b.	Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 100,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000
c.	Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000 Building . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 20,000 Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 80,000
d.	Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 20,000 Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 80,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000
e.	Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000 Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 100,000

16. Firms treat expenditures as assetswhen they:

a.	have acquired rights to the future use of a resource as a resultof a past transaction or event.
b.	can reliably measure the cost of the expected benefits at thetime of initial recognition.
c.	can exercise the entityâs right to, or control of, thebenefit.
d.	can obtain the future service potential and control othersâaccess to it.
e.	all of the above

Clarion Realty

Clarion Realty has decided to construct its own office building.The construction will be partially financed through a constructionloan and any remainder will be financed from internally generatedfunds. The internal accountants have collected the followinginformation concerning the construction.

	Average Balance	Construction	Other
Year	Construction Account	Debt @ 6%	Debt @ 10%
1	$2,000,000	$1,000,000	$500,000
2	$4,000,000	$1,000,000	$250,000
3	$3,000,000	$800,000	$200,000

22. The amount, if any, of capitalizedinterest cost for Year 1 is

a.	$0
b.	$50,000
c.	$60,000
d.	$110,000
e.	$170,000

23. The amount, if any, of capitalizedinterest cost for Year 2 is

a.	$0
b.	$50,000
c.	$60,000
d.	$180,000
e.	$230,000

33. When a firm constructs its ownbuildings or equipment:

a.	it recognizes the labor, material, and overhead costs incurredas an asset.
b.	U.S. GAAP and IFRS require firms to include, or capitalize,interest costs during construction in the cost of aself-constructed asset.
c.	it recognizes the labor, material, and overhead costs incurredas a period expense.
d.	U.S. GAAP and IFRS require firms to expense interest costsincurred during construction of a self-constructed asset.
e.	both choices a and b are correct.

ACC 110 Chapter Notes - Chapter 9: Book Value, Title Search, The Purchase Price

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