ACC 304 Week 3 Homework Chapter 10

IFRS Multiple Choice Question 01

Under IFRS, Sampson Company, who has a non-current asset which has been classified as
held-for-sale, should
o
o
o
o

Value the asset at its depreciated historical cost.

Not depreciate the asset.
Test the assets value monthly for impairment.
Depreciate the asset over its remaining life.

IFRS Multiple Choice Question 02

Miller Company, a company who uses IFRS reporting standards, sells a non-current asset
classified as held-for-sale. Which of the following statements is true regarding the
treatment of a gain on a subsequent increase in the fair value less cost?
o The gain should be recognized to the extent that it is not in excess of the
cumulative impairment loss that has been recognized.
o The gain should not be recognized.
o The gain should be recognized in full in the income statement.
o The gain should be recognized but only in retained earnings.

IFRS Multiple Choice Question 03

Danson Company, a company who uses IFRS reporting standards, has a non-current asset
that has been classified as held-for-sale. When the asset no longer meets this definition,
Danson should
o Measure the asset at the lower of its carrying value before it was classified as
held-for-sale and its recoverable amount at the date when the company decided
not to sell it.
o Remove the asset from the statement of financial position.
o Leave the non-current asset on the financial statements at the current carrying
value.
o Re-measure the asset at fair value.

IFRS Multiple Choice Question 04

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ACC 304 Week 3 Homework Chapter 10

Elton Industries, a company who uses IFRS reporting standards, has assets and liabilities
of a disposal group classified as held-for-sale shown on its statement of financial position.
Which of the following presents the best treatment for these?
o The assets and liabilities should be netted and presented as a deduction from
equity on the statement of financial position.
o On the balance sheet, the disposal group assets should be shown separately from
other assets, while the disposal group liabilities should be shown separately from
other liabilities.
o There should be no separate disclosure of these assets and liabilities on the
statement of financial position.
o These assets and liabilities should be netted and presented as a single amount either a current asset or a current liability on the statement of financial position.

IFRS Multiple Choice Question 05

Woodson Company, a company who uses IFRS reporting standards, has identified a group
of plant assets for disposal. On January 1, 2014, the carrying value of these assets was $14.5
million. The assets were revalued to $13.5 million on January 5, 2014, when they were
identified as property for the disposal group. In addition, Woodson thinks that it will cost
$1.5 million to sell these assets. What carrying amount should these assets reflect for yearend financial statements to be prepared on January 10, 2014?
o
o
o
o

$13.0 million
$12.0 million
$14.5 million
$13.5 million

--------------------------------------------------------------------------------------------------------------------Brief Exercise 10-2

Hanson Company is constructing a building. Construction began on February 1 and was
completed on December 31. Expenditures were $1,884,000 on March 1, $1,224,000 on June
1, and $3,002,300 on December 31. Compute Hansons weighted-average accumulated
expenditures for interest capitalization purposes.
Weighted-Average Accumulated Expenditures $_____555,481.82

Brief Exercise 10-10

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Mehta Company traded a used welding machine (cost $26,433, accumulated depreciation
$8,811) for office equipment with an estimated fair value of $14,685. Mehta also paid
$8,811 cash in the transaction.
Prepare the journal entry to record the exchange. (The exchange has commercial
substance.) (Credit account titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0
for the amounts.)
Account Titles and Explanation

Debit

Credit

Machinery
Equipment
Accumulated Depreciation
Cash
Loss on Disposal of Equipment

17,622______
14,685
8,811

____________
8,811
5,874

Brief Exercise 10-14

Ottawa Corporation owns machinery that cost $37,600 when purchased on July 1, 2011.
Depreciation has been recorded at a rate of $4,512 per year, resulting in a balance in
accumulated depreciation of $15,792 at December 31, 2014. The machinery is sold on
September 1, 2015, for $19,740. Prepare journal entries to (a) update depreciation for 2015
and (b) record the sale. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles
are automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)
No.

Account Titles and Explanation

Debit

(a)

Depreciation Expense
Machinery
Sales Revenue
Gain on Disposal of Machinery
Machinery
Accumulated Depreciation Machinery

15,792

(b)

Credit
21,808

19,740
2,068
21,880
15,792

--------------------------------------------------------------------------------------------------------------------Exercise 10-2
Martin Buber Co. purchased land as a factory site for $960,000. The process of tearing down two
old buildings on the site and constructing the factory required 6 months.
The company paid $100,800 to raze the old buildings and sold salvaged lumber and brick for
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ACC 304 Week 3 Homework Chapter 10

$15,120. Legal fees of $4,440 were paid for title investigation and drawing the purchase contract.
Martin Buber paid $5,280 to an engineering firm for a land survey, and $163,200 for drawing the
factory plans. The land survey had to be made before definitive plans could be drawn. Title
insurance on the property cost $3,600, and a liability insurance premium paid during
construction was $2,160. The contractors charge for construction was $6,576,000. The company
paid the contractor in two installments: $2,880,000 at the end of 3 months and $3,696,000 upon
completion. Interest costs of $408,000 were incurred to finance the construction.
Determine the cost of the land and the cost of the building as they should be recorded on the
books of Martin Buberk Co. Assume that the land survey was for the building.
Cost of the Land

$ ___1,053,720

Cost of the Building $

7,154,640

Exercise 10-5
Ben Sisko Supply Company, a newly formed corporation, incurred the following
expenditures related to Land, to Buildings, and to Machinery and Equipment.
Abstract companys fee for title search
Architects fees
Cash paid for land and dilapidated building thereon
Removal of old building
Less: Salvage
Interest on short-term loans during construction
Excavation before construction for basement
Machinery purchased (subject to 2% cash discount, which was not taken).
Company uses net method to record discount.
Freight on machinery purchased
Storage charges on machinery, necessitated by noncompletion of
building when machinery was delivered
New building constructed (building construction took 6 months from
date of purchase of land and old building)
Assessment by city for drainage project
Hauling charges for delivery of machinery from storage to new building
Installation of machinery
Trees, shrubs, and other landscaping after completion of building
(permanent in nature)

$1,737
10,588
290,580
$66,800
18,370

48,430
24,716
63,460
183,700
4,476
7,281
1,619,900
5,344
2,071
6,680
18,036

Determine the amounts that should be debited to Land, to Buildings, and to Machinery and
Equipment. Assume the benefits of capitalizing interest during construction exceed the cost
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ACC 304 Week 3 Homework Chapter 10

of implementation. (Please leave spaces blank if there is no answer. Do not enter zeros in
those spaces.)

Exercise 10-8
On December 31, 2013, Main Inc. borrowed $6,240,000 at 13% payable annually to finance
the construction of a new building. In 2014, the company made the following expenditures
related to this building: March 1, $748,800; June 1, $1,248,000; July 1, $3,120,000;
December 1, $3,120,000. The building was completed in February 2015. Additional
information is provided as follows.
1
. Other debt outstanding
10-year, 12% bond, December 31, 2007, interest payable annually $8,320,000
6-year, 11% note, dated December 31, 2011, interest payable
$3,328,000
annually
2
. March 1, 2014, expenditure included land costs of $312,000
3
. Interest revenue earned in 2014
$101,920
(a)
Determine the amount of interest to be capitalized in 2014 in relation to the construction of
the building. (Round answer to 0 decimal places, e.g. 5,275.)
The amount of interest

101,920
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ACC 304 Week 3 Homework Chapter 10

(b)
Prepare the journal entry to record the capitalization of interest and the recognition of
interest expense, if any, at December 31, 2014. (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts.)

Exercise 10-17
Busytown Corporation, which manufactures shoes, hired a recent college
graduate to work in its accounting department. On the first day of work,
the accountant was assigned to total a batch of invoices with the use of an
adding machine. Before long, the accountant, who had never before seen
such a machine, managed to break the machine. Busytown Corporation
gave the machine plus $588 to Dick Tracy Business Machine Company
(dealer) in exchange for a new machine. Assume the following information
about the machines.

For each company, prepare the necessary journal entry to record the
exchange. (The exchange has commercial substance.) (Credit account
titles are automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the account titles
and enter 0 for the amounts.)

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ACC 304 Week 3 Homework Chapter 10

--------------------------------------------------------------------------------------------------------------------Problem 10-1
At December 31, 2013, certain accounts included in the property, plant, and equipment
section of Reagan Companys balance sheet had the following balances.
Land
Buildings
Leasehold improvements
Equipment

$238,520
898,550
664,760
875,810

During 2014, the following transactions occurred.

1 Land site number 621 was acquired for $854,000. In addition, to acquire the land
. Reagan paid a $58,980 commission to a real estate agent. Costs of $42,410 were incurred
to clear the land. During the course of clearing the land, timber and gravel were
recovered and sold for $20,620.
2 A second tract of land (site number 622) with a building was acquired for $425,110. The
. closing statement indicated that the land value was $301,640 and the building value was
$123,470. Shortly after acquisition, the building was demolished at a cost of $44,430. A
new building was constructed for $333,440 plus the following costs.
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Excavation fees
Architectural design fees
Building permit fee
Imputed interest on funds used during construction
(stock financing)

$47,380
20,310
2,830
9,440

The building was completed and occupied on September 30, 2014.

3
.
4
.

A third tract of land (site number 623) was acquired for $652,720 and was put on the
market for resale.
During December 2014, costs of $89,990 were incurred to improve leased office space.
The related lease will terminate on December 31, 2016, and is not expected to be
renewed. (Hint: Leasehold improvements should be handled in the same manner as land
improvements.)
5 A group of new machines was purchased under a royalty agreement that provides for
. payment of royalties based on units of production for the machines. The invoice price of
the machines was $85,580, freight costs were $3,970, installation costs were $3,070, and
royalty payments for 2014 were $17,510.
(a)
Prepare a detailed analysis of the changes in each of the following balance sheet accounts
for 2014. Disregard the related accumulated depreciation accounts.

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