Columbia Company, which manufactures machine tools, had the following transactions related to plant assets in 2014. Asset A: On June 2, 2014, Columbia purchased a stamping machine at a retail price of $12,000. Columbia paid 6% sales tax on this purchase. Columbia paid a contractor $2,800 for a specially wired platform for the machine, to ensure noninterrupted power to the machine. Columbia estimates the machine will have a 4-year useful life, with a salvage value of $2,000 at the end of 4 years. The machine was put into use on July 1, 2014.
Asset B: On January 1, 2014, Columbia, Inc. signed a fixed-price contract for construction of a warehouse facility at a cost of $1,000,000. It was estimated that the project will be completed by December 31, 2014. On March 1, 2014, to finance the construction cost, Columbia borrowed $1,000,000 payable April 1, 2015, plus interest at the rate of 10%. During 2014, Columbia made deposit and progress payments totaling $750,000 under the contract; the weighted-average amount of accumulated expenditures was $400,000 for the year.
The excess-borrowed funds were invested in short-term securities, from which Columbia realized investment revenue of $13,000. The warehouse was completed on December 1, 2014, at which time Columbia made the final payment to the contractor. Columbia estimates the warehouse will have a 25-year useful life, with a salvage value of $20,000. Columbia uses straight-line depreciation and employs the “half-year” convention in accounting for partial-year depreciation. Columbia’s fiscal year ends on December 31. Instructions (a) At what amount should Columbia record the acquisition cost of the machine?
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Charles Babbage Charles Babbage may have spent his life in vain, trying to make a machine considered by most of his friends to be ridiculous. 150 years ago, Babbage drew hundreds of drawings projecting the fundamentals on which today's computers are founded. But the technology was not there to meet his dreams. He was born on December 26, 1791, in Totnes, Devonshire, England. As a child he was ...
(b) What amount of capitalized interest should Columbia include in the cost of the warehouse? (c) On July 1, 2016, Columbia decides to outsource its stamping operation to Medek, Inc. As part of this plan, Columbia sells the machine (and the platform) to Medek, Inc. for $7,000. What is the impact of this disposal on Columbia’s 2016 income before taxes? Solution (a) Historical cost is measured by the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition for its intended use. For Columbia, this is: Price$12,000 Tax 720 Platform2,800 Total$15,520 (b)
Since Columbia has outstanding debt incurred specifically for the construction project, in an amount greater than the weighted-average accumulated expenditures of $400,000, the interest rate of 10% is used for capitalization purposes. Capitalization stops upon completion of the project at December 31, 2014. Therefore, the avoidable interest is $40,000, which is less than the actual interest. The investment revenue of $13,000 is irrelevant to the question addressed in this problem because such interest earned on the unexpended portion of the loan is not to be offset against the amount eligible for capitalization.
The income effect is a gain or loss, determined by comparing the book value of the asset to the disposal value: Cost$15,520? Less: Accumulated depreciation 6,760* Book value of machine and platform8,760? Less: Cash received for machine and platform7,000? Loss before income taxes$? 1,760? 2014: ? year $1,690 2015: full year3,380 2016: ? year1,690 Total$6,760 Exercise 10-5 Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment. Abstract company’s fee for title search$728 Architect’s fees4,438
Cash paid for land and dilapidated building thereon121,800 Removal of old building$28,000 Less: Salvage7,70020,300 Interest on short-term loans during construction10,360 Excavation before construction for basement26,600 Machinery purchased (subject to 2% cash discount, which was not taken).
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The role of cash flow information in discriminating between bankrupt and non-bankrupt companies remains a contentious issue. In a number of literature reviews on bankruptcy prediction (e. g. Zavgren, 1983; Jones, 1987; Neill et al. 1991; Watson, 1996) the common view is that cash flow information does not contain significant incremental information content over accrual information in ...
Company uses net method to record discount. 77,000 Freight on machinery purchased1,876 Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered3,052 New building constructed (building construction took 6 months from date of purchase of land and old building)679,000
Assessment by city for drainage project2,240 Hauling charges for delivery of machinery from storage to new building868 Installation of machinery2,800 Trees, shrubs, and other landscaping after completion of building (permanent in nature)7,560 Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation. LandBuildingsMachinery and EquipmentOther Abstract company’s fee for title search$ $ $ $ Architect’s fees Cash paid for land and old building
Removal of old building Interest on short-term loans during construction Excavation before construction for basement Machinery purchased (subject to 2% cash discount, which was not taken).
Company uses net method to record discount. Freight on machinery purchased Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered New building constructed (building construction took 6 months from date of purchase of land and old building) Assessment by city for drainage project Hauling charges for delivery of machinery from storage to new building
Installation of machinery Trees, shrubs, and other landscaping after completion of building (permanent in nature) $ $ $ $ ________________________________________ Copyright © 2000-2013 by John Wiley & Sons, Inc. or related companies. All rights reserved. Plant acquisitions for selected companies are as follows. 1. Belanna Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co. , for a lump-sum price of $1,000,300. At the time of purchase, Torres’s assets had the following book and appraisal values. Book ValuesAppraisal Values
Land$285,800$214,350 Buildings357,250500,150 Equipment428,700428,700 To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made. Land214,350 Buildings357,250 Equipment428,700 Cash1,000,300 2. Harry Enterprises purchased store equipment by making a $2,858 cash down payment and signing a 1-year, $32,867, 10% note payable. The purchase was recorded as follows. Equipment39,012 Cash2,858 Notes Payable32,867 Interest Payable3,287 3. Kim Company purchased office equipment for $21,700, terms 2/10, n/30.
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Financial report analysis of Hershey Foods Corporation, Hershey Foods HistoryINTRODUCTIONHershey Foods Corporation is engaged, with its subsidiaries, in the manufacture, distribution and sale of confectionery and grocery products. The Company's principal product groups include confectionery products sold in the form of bar goods, bagged items and boxed items, as well as grocery products in the ...
Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was: Equipment21,700 Cash21,266 Purchase Discounts434 4. Kaisson Inc. recently received at zero cost land from the Village of Cardassia as an inducement to locate its business in the Village. The appraised value of the land is $38,583. The company made no entry to record the land because it had no cost basis. 5. Zimmerman Company built a warehouse for $857,400. It could have purchased the building for $1,057,460. The controller made the following entry.
Buildings1,057,460 Cash857,400 Profit on Construction200,060 Prepare the entry that should have been made at the date of each acquisition. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. ) No. Account Titles and ExplanationDebitCredit 1. 2. 3. 4. 5. Exercise 10-6 Plant acquisitions for selected companies are as follows. 1. Belanna Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co.
, for a lump-sum price of $1,000,300. At the time of purchase, Torres’s assets had the following book and appraisal values. Book ValuesAppraisal Values Land$285,800$214,350 Buildings357,250500,150 Equipment428,700428,700 To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made. Land214,350 Buildings357,250 Equipment428,700 Cash1,000,300 2. Harry Enterprises purchased store equipment by making a $2,858 cash down payment and signing a 1-year, $32,867, 10% note payable. The purchase was recorded as follows.
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Group Oral Presentation: the drivers and conditions for the survival and success of an Australian business enterpriseQantas Airways Limited ABN 16 009 661 901 October 2005Fact FileQANTAS AT A GLANCEHISTORY Qantas is the world's second oldest airline. It was founded in the Queensland outback in 1920 andis Australia's largest domestic and international airline. Qantas is also recognised as one of ...
Equipment39,012 Cash2,858 Notes Payable32,867 Interest Payable3,287 3. Kim Company purchased office equipment for $21,700, terms 2/10, n/30. Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was: Equipment21,700 Cash21,266 Purchase Discounts434 4. Kaisson Inc. recently received at zero cost land from the Village of Cardassia as an inducement to locate its business in the Village. The appraised value of the land is $38,583. The company made no entry to record the land because it had no cost basis.
5. Zimmerman Company built a warehouse for $857,400. It could have purchased the building for $1,057,460. The controller made the following entry. Buildings1,057,460 Cash857,400 Profit on Construction200,060 Prepare the entry that should have been made at the date of each acquisition. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. ) No. Account Titles and ExplanationDebitCredit
