Question 1

On July 1, 2013, Jekel & Hyde Inc. purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below:  Required:
Indicate the accounts that would be affected by the above transactions and the resulting balance in each account. Apply the interest on the construction loan to the cost of the building only.

Accepted Answer

The answer of On July 1, 2013, Jekel & Hyde...

Question 2

During 2013, the Longhorn Oil Company incurred $5,000,000 in exploration costs for each of 20 oil wells drilled in 2013 in west Texas. Of the 20 wells drilled, 14 were dry holes. Longhorn uses the successful efforts method of accounting. Assuming that none of the oil found is depleted in 2013, what oil exploration expense would Longhorn charge for this activity in its 2013 income statement?

Accepted Answer

Under the successful efforts method, only the costs associated with successful wells are capitalized. Since 14 out of 20 wells were dry, the costs for these dry wells are expensed. Therefore, the exploration expense is 14 wells x $5,000,000 = $70 million.

Question 3

Mad Hatter Enterprises purchased new equipment for $365,000, terms f.o.b. shipping point. Other costs connected with the purchase were as follows:  Required:
Determine the capitalized cost of the equipment.

Accepted Answer

The answer of Mad Hatter Enterprises purchased new equipment for...

Question 4

On January 3, 2013, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2014. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid at closing.
During February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows:  Michelson did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2013:
$6,000,000, 8% long-term note payable
$2,000,000, 5% long-term note payable
In December, the company purchased equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $540,000 and $360,000, respectively. In December, Michelson paid $340,000 for the construction of parking lots and landscaping.
Required:
1. Determine the initial values of the various assets that Michelson acquired or constructed during 2013.
2. How much interest expense will Michelson report in its 2013 income statement?

Accepted Answer

The answer of On January 3, 2013, Michelson & Sons...

Question 5

Use a T- account to show the balances and changes during 2010 in Boston Beer's: Property, Plant, and Equipment account and its Accumulated depreciation-Property, Plant, & Equipment account.

Accepted Answer

The answer of Use a T- account to show the...

Question 6

Show the journal entry to record Plank's disposal of the fixed assets during 2013.

Accepted Answer

The answer of Show the journal entry to record Plank's...

Question 7

Show the journal entry to record Boston Beer's sale of property, plant, and equipment during 2010.

Accepted Answer

The answer of Show the journal entry to record Boston...

Question 8

During 2013, Prospect Oil Corporation incurred $4,000,000 in exploration costs for each of 15 oil wells drilled in 2013. Of the 15 wells drilled, 10 were dry holes. Prospect uses the successful efforts method of accounting. Assuming that Prospect depletes 30% of the oil discovered in 2013, what amount of these exploration costs would remain in its 12/31/13 balance sheet?

Accepted Answer

Out of the 15 oil wells drilled, only 5 were successful. Therefore, the total exploration cost for successful wells is $4,000,000 x 5 = $20,000,000.

Since Prospect depletes 30% of the oil discovered, only 70% of the cost is capitalized. Therefore, the total capitalized cost is $20,000,000 x 70% = $14,000,000.

This amount would remain on the balance sheet at 12/31/13. Therefore, the correct answer is B) $14 million.

Question 9

Required:
Use a T- account to show the balances and changes during 2013 in Plank Breweries:
Fixed assets account and Accumulated depreciation-fixed assets account (in $ thousands).

Accepted Answer

The answer of Required:
Use a T- account to show the...

Question 10

During the current year, Brewer Company acquired all of the outstanding common stock of Miller Inc. paying $12,000,000 cash. The book values and fair values of Miller's assets and liabilities acquired are listed below:  Required:
Prepare the journal entry to record the acquisition by Brewer Company.

Accepted Answer

The answer of During the current year, Brewer Company acquired...

Question 11

In accounting for oil and gas exploration costs, companies:

Accepted Answer

Companies involved in oil and gas exploration have the option to account for exploration costs using either the full-cost or successful efforts method. The slippery slope method is not a recognized accounting approach for this type of activity. Therefore, option B is the best choice as it correctly identifies one of the acceptable accounting methods for oil and gas exploration costs.

Question 12

Schefter Mining operates a copper mine in Wyoming. Acquisition, exploration, and development costs totaled $8.2 million. Extraction activities began on July 1, 2013. After the copper is extracted in approximately six years, Schefter is obligated to restore the land to its original condition, including constructing a park. The company's controller has provided the following three cash flow possibilities for the restoration costs:  The company's credit-adjusted, risk-free rate of interest is 5%, and its fiscal year ends on December 31.
Required:
1. What is the initial cost of the copper mine? (Round computations to nearest whole dollar.)
2. How much accretion expense will Schefter report in its 2013 income statement?
3. What is the carrying value (book value) of the asset retirement obligation that Schefter will report in its 2013 balance sheet?
4. Assume that actual restoration costs incurred in 2019 totaled $860,000. What amount of gain or loss will Schefter recognize on retirement of the liability?

Accepted Answer

The answer of Schefter Mining operates a copper mine in...

Question 13

In its 2013 annual report to shareholders, Custard Cup Inc. disclosed the following footnote:
Note 4 Property, Plant, and Equipment
Property, plant, and equipment (PPE) at December 31, 2013, and December 31, 2012, consisted of the following:  Depreciation expense for property, plant and equipment was $26 million in 2013.
Required:
Compute the Accumulated depreciation on PPE disposed of by Custard Cup during 2013.

Accepted Answer

The answer of In its 2013 annual report to shareholders,...

Question 14

During the current year, Peterson Data Corporation purchased all of the outstanding common stock of Junior Jackson Inc. (JJI), paying $36 million in cash. Peterson recorded the assets acquired as follows:  The book value of JJI's assets and owners' equity before the acquisition were $22 million and $18 million, respectively.
Required:
Compute the fair value of JJI's liabilities that Peterson assumed in the acquisition.

Accepted Answer

The answer of During the current year, Peterson Data Corporation...

Question 15

Calegari Mining paid $2 million to obtain the rights to operate a coal mine in Tennessee. Costs of exploring for the coal deposit totaled $1,500,000, and development costs of $5 million were incurred in preparing the mine for extraction, which began on January 2, 2013. After the coal is extracted in approximately five years, Calegari is obligated to restore the land to its original condition. The company's controller has provided the following three cash flow possibilities for the restoration costs:  The company's credit-adjusted, risk-free rate of interest is 7%, and its fiscal year ends on December 31.
Required:
1. What is the initial cost of the coal mine? (Round computations to nearest whole dollar.)
2. How much accretion expense will Calegari report in its 2013 and 2014 income statements?
3. What is the carrying value (book value) of the asset retirement obligation that Calegari will report in its 2013 and 2014 balance sheets?
4. Assume that actual restoration costs incurred in 2018 totaled $1,370,000. What amount of gain or loss will Calegari recognize on retirement of the liability?

Accepted Answer

The answer of Calegari Mining paid $2 million to obtain...

Question 16

On January 3, 2013, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2014. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid at closing.
During February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows:

Accepted Answer

Interest expense is a financial charge associated with borrowing money, which can be reported on various tax forms, including Form 1065 for partnerships, either on the main form or on Schedule K.

Question 17

During the current year, Compton Crate Corporation purchased all of the outstanding common stock of Little Lacy Ltd. (LLL), paying $60 million in cash. Compton recorded the assets acquired as follows:  The book value of LLL's assets and owners' equity before the acquisition were $50 million and $30 million, respectively.
Required:
Compute the fair value of LLL's liabilities that Compton assumed in the acquisition.

Accepted Answer

The answer of During the current year, Compton Crate Corporation...

Question 18

On August 15, 2013, Willis Inc. acquired all of the outstanding common stock of Bork Inc. paying $7,400,000 cash. The book values and fair values of Willis' assets and liabilities are listed below:  Required:
Prepare the journal entry to record the acquisition by Willis Inc.

Accepted Answer

The answer of On August 15, 2013, Willis Inc. acquired...

Question 19

Under International Financial Reporting Standards, development expenditures are:

Accepted Answer

Under IFRS, development expenditures can be capitalized if certain criteria are met. These criteria include demonstrating the technical feasibility of the project, having the intention and ability to complete the project, and having a reliable estimate of future economic benefits. If these criteria are met, the development costs can be capitalized and amortized over the useful life of the asset. If the criteria are not met, the development costs must be expensed in the period incurred.

Question 20

Cromartie Ltd. prepares its financial statements according to International Financial Reporting Standards. During 2013 the company incurred $1,245,000 in research expenditures to develop a new product. An additional $756,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed and the new product was patented before the end of the 2013 fiscal year. Sale of the product began in 2012. What amount of the above expenditures would Cromartie expense in its 2013 income statement?

Accepted Answer

Under IFRS, research expenditures are expensed as incurred. Therefore, the $1,245,000 in research expenditures would be expensed in the 2013 income statement. Development costs can be capitalized once certain criteria are met, so the $756,000 would not be expensed.

Quiz 10: Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition

Mad Hatter Enterprises purchased new equipment for $365,000, terms f.o.b. shipping point. Other costs connected with the purchase were as follows: Required: Determine the capitalized cost of the equipment.

Use a T- account to show the balances and changes during 2010 in Boston Beer's: Property, Plant, and Equipment account and its Accumulated depreciation-Property, Plant, & Equipment account.

Show the journal entry to record Plank's disposal of the fixed assets during 2013.

Show the journal entry to record Boston Beer's sale of property, plant, and equipment during 2010.

Required: Use a T- account to show the balances and changes during 2013 in Plank Breweries: Fixed assets account and Accumulated depreciation-fixed assets account (in $ thousands).

During the current year, Brewer Company acquired all of the outstanding common stock of Miller Inc. paying $12,000,000 cash. The book values and fair values of Miller's assets and liabilities acquired are listed below: Required: Prepare the journal entry to record the acquisition by Brewer Company.

In accounting for oil and gas exploration costs, companies:

On August 15, 2013, Willis Inc. acquired all of the outstanding common stock of Bork Inc. paying $7,400,000 cash. The book values and fair values of Willis' assets and liabilities are listed below: Required: Prepare the journal entry to record the acquisition by Willis Inc.

Under International Financial Reporting Standards, development expenditures are: