10 Acquisition and Disposition of Property, Plant, and Equipment BRIEF EXERCISES 10
BRIEF EXERCISES
BE10-1 (L01) Previn Brothers Inc. purchased land at a price of $27,000. Closing costs were $1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?
BE10-2 (L03) 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’s weighted-average accumulated expenditures for interest capitalization purposes.
BE10-3 (L03) Hanson Company (see BE10-2) borrowed $1,000,000 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $2,000,000 note payable and an 11%, 4-year, $3,500,000 note payable. Compute the weighted-average interest rate used for interest capitalization purposes.
BE10-4 (L03) Use the information for Hanson Company from BE10-2 and BE10-3. Compute avoidable interest for Hanson
Company.
BE10-5 (L04) Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc.
The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.
BE10-6 (L04) Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $315,000. The estimated fair values of the assets are land $60,000, building $220,000, and equipment $80,000. At what amounts should each of the three assets be recorded?
BE10-7 (L04) 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.
BE10-8 (L04) Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
BE10-9 (L04) Use the information for Navajo Corporation from BE10-8. Prepare the journal entry to record the exchange, assuming the exchange lacks commercial substance.
BE10-10 (L04) Mehta Company traded a used welding machine (cost $9,000, accumulated depreciation $3,000) for office equipment with an estimated fair value of $5,000. Mehta also paid $3,000 cash in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
BE10-11 (L04) Cheng Company traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made a cash payment of $36,000. Prepare Cheng’s entry to record the exchange. (The exchange lacks commercial substance.)
BE10-12 (L04) Slaton Corporation traded a used truck for a new truck. The used truck cost $20,000 and has accumulated depreciation of $17,000. The new truck is worth $35,000. Slaton also made a cash payment of $33,000. Prepare Slaton’s entry to record the exchange. (The exchange has commercial substance.)
BE10-13 (L05) Indicate which of the following costs should be expensed when incurred.
(a) $13,000 paid to rearrange and reinstall machinery.
(b) $200,000 paid for addition to building.
(c) $200 paid for tune-up and oil change on delivery truck.
(d) $7,000 paid to replace a wooden floor with a concrete floor.
(e) $2,000 paid for a major overhaul on a truck, which extends the useful life.
BE10-14 (L06) Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2014. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2017. The machinery is sold on September 1, 2018, for $10,500. Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale.
BE10-15 (L06) Use the information presented for Ottawa Corporation in BE10-14, but assume the machinery is sold for $5,200 instead of $10,500. Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale.
