Exercise 10-1
Capitalized cost of land:
Purchase price
Demolition of old building
Less: Sale of materials
Legal fees for title investigation
Total cost of land
$60,000
$4,000
(2,000)
2,000
2,000
$64,000
Capitalized cost of building:
Construction costs
Architect's fees
Interest on construction loan
Total cost of building
$500,000
12,000
5,000
$517,000
Note: Property taxes on the land for the period after acquisition are not part of
acquisition cost. They are expensed in the period incurred.
Exercise 10-10
To record the acquisition of land in exchange for common stock.
February 1, 2006
Land ................................................................................
Common stock (5,000 shares x $18) ...............................
90,000
90,000
To record the acquisition of a building through purchase and donation.
November 2, 2006
Building .......................................................................... 600,000
Cash ...........................................................................
400,000
Revenue - donation of asset (difference) .......................
200,000
Exercise 10-20
Average accumulated expenditures for 2006:
January 2, 2006
March 1, 2006
July 31, 2006
September 30, 2006
December 31, 2006
$500,000 x
600,000 x
480,000 x
600,000 x
300,000 x
Interest capitalized:
$1,350,000 x 8% = $108,000
12/12
10/12
5/12
3/12
0/12
= $ 500,000
=
500,000
=
200,000
=
150,000
=
-0$1,350,000
Exercise 10-21
Average accumulated expenditures for 2006:
January 2, 2006
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
$ 600,000
1,200,000
800,000
600,000
400,000
x 12/12
x 9/12
x 6/12
x 3/12
x 0/12
= $ 600,000
=
900,000
=
400,000
=
150,000
=
-0$2,050,000
Interest capitalized:
$2,050,000
- 1,500,000 x 8.0% = $120,000
550,000 x 10.5%* = 57,750
$177,750 = interest capitalized
* Weighted-average rate of all other debt:
$5,000,000 x 12% =
3,000,000 x 8% =
$8,000,000
$840,000
= 10.5%
$8,000,000
$600,000
240,000
$840,000
Exercise 10-22
To expense R&D costs incorrectly capitalized.
Research and development expense (below).................... 3,180,000
Patent ..........................................................................
3,180,000
Research and development expenditures:
Basic research to develop the technology
Engineering design work
Development of a prototype
Testing and modification of the prototype
Total
$2,000,000
680,000
300,000
200,000
$3,180,000
To capitalize cost of equipment incorrectly capitalized as patent.
Equipment .......................................................................
Patent ..........................................................................
60,000
60,000
To record depreciation on equipment used in R&D projects.
Research and development expense ...............................
Accumulated depreciation - equipment ......................
10,000
10,000