CPA Becker Chapter 4

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CPA Becker Chapter 4
2013-06-21 16:39:51
CPA Becker Chapter

CPA Becker Chapter 4
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  1. Which costs incurred in connection with machine purchased for use in a company's manufacturing operations should be capitalized?
    • 1. Insurance on machine while in transit
    • 2. Testing preparation of machine for use
  2. Cole Co. began constructing a building for its own use, interest incurred was 50k on specific constructions debt and 20K on other borrowings. Interest on the weighted average amount of caccumulated expenditures for the building during the year was 40K. What amount of interest cost should Cole capitalize?
    40K-Total interest incurred equals the interest on the specific construction debt (50K) plus interest on other borrowings 20K for a total of 70K. Avoidable interest equals the interest on the weighted-average amount of accumulated expenditures (40K). Capitalized interest equals the smaller of the total interest incurred or the avoidable interest. Thus, capitalized interest equals 40K
  3. Merry Co. purchased a machine for 125K for its manufacturing operations and paid shipping of 20K. Merry Co. spent additional 10K testing an preparing machine for use. What amound should Merry Co. record as the cost of the machine?
    155K-The cost of the machine should include all costs that are reasonable and necessary to get the asset in the condition or location for its intended use.
  4. 5. Building sufered uninsured fire damage. The damagd portion fo the building was refurbished with higher quality materials. The cost and related accumulated dpreciation of the damaged portion are identifiable. To account for these events, the owner should:
    Capitalize the cost of refurbishing by adding the cost to the carrying amount of the building.
  5. Company constructed machinery for its own use and for sale to customers. Bank loans financed these assets both during construction and after construction was complete. How much of the interest incurred should be reported as interest expense in the year end income statement?
    Interest incurred for machinery for own use: Interest incurred after completion

    • Interest incurred for machinery held for sale:
    • All interest incurred¬†

    Rule: interest costs incurred during the construction period of machinery to be used by a firm as a fixed asset, should be capitalized as part of the historic cost of acquiring the fixed asset. Interest costs on the fixed asset subsequent to the construction period as well as all interest costs on the routine manufacture of machinery for sale to customers (inventory) should be expensed in the income statement for the period incurred.
  6. Company purchased quipment and had to rearrange assembly line and and remove a wall to install the quipment. What amount of these costs should be capitalized?
    • The entire amount.¬†
    • The cost of the quipment includes all expenditures related directly to the acquisition or construction including invoice price less cash discounts, freight in, installation charges and sales and Federal excise taxes. Cost includes all costs necessary to get the asset to its proper place, at the intended time and in condition for its intended use.
  7. What costs of land are included when recording purchase of land with building that's going to be demolished
    The cost of land includes all costs to acquire the land and get it ready for use.
  8. How are revaluation gains and losses calculated under IFRS?
    As difference between Fair value and carrying value (cost-accumulated depreciation) of the revalued assets on the revaluation date.
  9. Which of the following statements regarding the accounting for investment property under IFRS is correct?
    Gains arising from changes in teh fair value of investment property are reported in other comprehensive income.
  10. How to calculate 1.deplection base; 2. depletion per ton; 3. depletion expense?
    • 1.Purchase price+development costs+estimated restoration costs-expected salvaged value.¬†
    • 2. Depletion price per ton (total from step/#of removable ore estimate)
    • 3. To figure out annual depletion use Depletion price from step 2 and multiply it by total amount of ore removed and sold.