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Exam 10: Operational Assets: Acquisition and Disposition

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Question 41

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What is the amount of interest that Crocus should capitalize in 2008, using the specific interest method?

A) $1.90 million
B) $1.95 million
C) $2.96 million
D) None of these is correct.Average expenditures for 2008: ($54 million 6/6) + $22 million 3/6) = $65 million.The interest is: $65 million .06 6/12 = $1.95 million.

E) C) and D)
F) None of the above

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Question 42

Multiple Choice

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In Case A, Grand Forks would record the new equipment at:

A) $65,000.
B) $75,000.
C) $50,000.
D) $60,000.

E) B) and D)
F) A) and B)

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Question 43

Multiple Choice

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The fixed-asset turnover ratio provides:

Beacon Inc. received a gift of land and building in Twin Pines Park as an inducement to relocate. The land and buildings have fair values of $45,000 and $455,000. Required: Prepare journal entries to record the above transactions.

Why are software development costs treated differently than other types of R&D?

In accounting for oil and gas exploration costs, companies:

Average accumulated expenditures for 2009 was:

Average accumulated expenditures:

The asset retirement obligation (rounded) that should be reported on MMC's balance sheet one year after the extraction activities begin is:

Sales tax paid on equipment acquired for use in the business is not capitalized.

Cool Globe Inc. entered into two transactions, as follows: 1. Purchased equipment paying $20,000 down and signed a noninterest-bearing note requiring the balance to be paid in four annual installments of $20,000 on the anniversary date of the contract. Based on Bright Light's 12% borrowing rate for such transactions, the implicit interest cost is $19,253. 2. Purchased a tract of land in exchange for $10,000 cash down payment and a noninterest-bearing note requiring five $10,000 annual payments, with the first annual payment in one year. The fair value of the land is $46,000. Required: Prepare the journal entries for these transactions.

In computing capitalized interest, average accumulated expenditures:

Use a T- account to show the balances and changes during 2009 in Plank Breweries: Fixed assets account and Accumulated depreciation-fixed assets account (in $ thousands).

What is the amount of interest that Crocus should capitalize in 2009, using the specific interest method (rounded to the nearest thousand dollars) ?

Why would an oil company argue to use the full-cost method of accounting for oil and gas exploration costs?

The asset retirement obligation (rounded) that should be recognized by MMC at the beginning of the extraction activities is:

Simpson and Homer Corporation acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and furniture and fixtures, respectively. The initial values of the building, land, and furniture and fixtures would be:

In computing the capitalized interest for 2009, Crocus' average accumulated expenditures are:

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, 2009. 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 2009 and 2010 income statements? 3. What is the carrying value (book value) of the asset retirement obligation that Calegari will report in its 2009 and 2010 balance sheets? 4. Assume that actual restoration costs incurred in 2014 totaled $1,370,000. What amount of gain or loss will Calegari recognize on retirement of the liability? $\begin{array}{lrr}&\text { Cash Flow}&\text { Probability }\\\text { 1. } & \$ 1,000,000 & 10 \% \\\text { 2. } & 1,400,000 & 60 \% \\\text { 3. } & 1,800,000 & 30 \%\end{array}$

The fair value of the asset, debt or equity securities given in a noncash acquisition should determine the value of the consideration received.