ASSIGNMENT -4
BUS 343
Q1. In 2021, Malawi Inc. exchanged equipment for two delivery trucks. The equipment had been
purchased for $ 95,000 ten years ago and has since been fully depreciated. While the equipment
was recently appraised at $ 22,000, a reliable valuation for the trucks was not available. This
transaction has commercial substance.
Q2. Togo Auto purchased several trucks by issuing a $ 40,000, 4-year, non-interest-bearing note to
Rabat Motors. The market interest rate for this type of transaction is 8%.
Q3. Malawi Auto traded one of its used trailers (cost $ 40,000, accumulated depreciation $ 36,000)
for another used trailer with a fair value of $ 6,400. Malawi also paid $ 600 to complete the
transaction. Assuming the transaction lacks commercial substance, prepare the journal entry to
record the exchange.
Q4. Arabia Inc. traded its fleet of rental cars for a new fleet. Two-thirds of the old fleet's original cost
of $ 375,000 had been depreciated. The new fleet is valued at $ 500,000 and Arabia was required to
make a cash payment of $ 400,000.
Q5. Mongolia Inc. owns equipment that it purchased on January 1, 2021, for $ 4 million.
The following additional information is available:
Dec. 31, 2021 – Book value (after recording 2021 depreciation): $ 3,600,000
Dec. 31, 2021 – Fair value: $ 4,100,000
The company uses the revaluation model (asset adjustment method) to account for its property,
plant, and equipment. Assuming the entry for the current year's depreciation has already been
recorded, prepare the entr(ies) to adjust the asset's carrying amount to fair value.
Q6. In February 2020, Jordan Corp. purchased a vineyard in southern Ontario for $ 7.5 million cash.
This amount included legal fees of $ 18,000 and property taxes of $ 40,000 (of that amount, $
30,000 were in arrears). Based on appraisals, the property's year-end fair values were $ 8.2 million
at the end of 2020, and $ 8 million at the end of 2021. Other information:
1.
The vineyard qualifies as investment property.
2.
Jordan applies the fair value model to all its investment property.
Prepare all required journal entries for 2020 and 2021.
Q7. Dixon Ltd. has recently purchased a piece of specialized manufacturing equipment. The
following costs were incurred when this equipment was installed in the company’s factory facilities
in 2020.
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Cash price paid, net of $1,600 discount, including $3,900 of recoverable tax $82,300
Freight cost to ship equipment to factory 3,300
Direct employee wages to install equipment 5,600
External specialist technician needed to complete final installation 4,100
Repair costs during the first year of operations 1,700
Materials consumed in the testing process 2,200
Direct employee wages to test equipment 1,300
Costs of training employees to use the equipment 1,400
Overhead costs charged to the machine 5,300
Legal fees to draft the equipment purchase contract 2,400
Government grant received on purchase of the equipment (8,000) Insurance costs during
first year of operations 900
Required: Determine the total cost of the equipment purchased. If an item is not capitalized,
describe how it would be reported.
Q8. Argyris Mining Inc. completed construction of a new silver mine in 2020. The cost of direct
materials for the construction was $2,200,000 and direct labour was $1,600,000. In addition, the
company allocated $250,000 of general overhead costs to the project. To finance the project, the
company obtained a loan of $3,000,000 from its bank. The loan funds were drawn on February 1,
2020, and the mine was completed on November 1, 2020. The interest rate on the loan was 8% p.a.
During construction, excess funds from the loan were invested and earned interest income of
$30,000. The remainder of the funds needed for construction was drawn from internal cash
reserves in the company. The company has also publicly made a commitment to clean up the site of
the mine when the extraction operation is complete. It is estimated that the mining of this
particular seam will be completed in ten years, at which time restoration costs of $100,000 will be
incurred. The appropriate discount rate for this type of expenditure is 10%. Required: Determine
the cost of the silver mine to be capitalized in 2020