Question
In: Accounting
Question text Determining the Cost of an Asset Omar Corporation paid $400,000 for a tract of...
Question text
Determining
the Cost of an Asset
Omar Corporation paid $400,000 for a tract of land that had an old
gas station on it. The gas station was demolished at a cost of
$20,000 and a new warehouse was constructed on the site at a cost
of $640,000.
In addition, several other costs were incurred:
| Legal fees (associated with the purchase of the land) | $45,000 |
| Architect fees (associated with the new warehouse) | $50,000 |
| Interest on the construction loan (for the new warehouse) |
$24,000 |
(a) What value should be assigned to the tract of land?
$Answer ?
(b) What value should be assigned to the new warehouse?
$Answer ?
Solutions
Expert Solution
If land and building are purchased with the initial intent to use the land, demolish the building and build a new building, capitalize the cost to demolish the building as part of the cost of the new building.
Hence, the demolition cost $ 20,000 shall be capitalized in cost of Building.
Any costs directly attributable to bringing the asset to the location and condition of operating shall be capitalized. Hence, Legal Fee & Architect Fees shall be capitalized in respective assets.
Borrowing costs (e.g., interest costs) directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized.
Value of Land:
| Intial Purchase Cost | 4,00,000 |
| Legal Fees | 45,000 |
| Total | 4,45,000 |
Value of Building (Warehouse):
| Construction Cost | 6,40,000 |
| Demolition Cost | 20,000 |
| Architect Fees | 50,000 |
| Interest on the construction loan | 24,000 |
| Total | 7,34,000 |
ekkarill92 answered 2 days agoRelated Solutions
What costs are included in determining the total cost of an asset? Why would a company...
What costs are included in determining the total cost of an
asset?
Why would a company include more than just the purchase price of
an asset?
Some argue that companies depreciate assets because they lose
value. From a financial accounting perspective, is this true? Why
or why not?
What costs are included in determining the total cost of an asset? Why would a company...
What costs are included in determining the total cost of an
asset? Why would a company include more than just the purchase
price of an asset? Some argue that companies depreciate assets
because they lose value. From a financial accounting perspective,
is this true? Why or why not?
5.) On January 1, 2017, Vancouver Corporation paid $400,000 to purchase 40% of the outstanding voting...
5.) On January 1, 2017, Vancouver Corporation paid $400,000 to
purchase 40% of the outstanding voting stock of Montreal
Corporation. The equity method is used to account for the
investment. The following data relate to this investment.
2017
∙ Dividends received from Montreal Corporation amounted to
$20,000.
∙ Net income reported by Montreal Corporation was
$200,000.
∙ Current market value of Montreal Corporation investment on
December 31, 2017, was $700,000. 2018
∙ Dividends received from Montreal Corporation amounted to
$30,000....
Question text Activity-Based Costing Slack Corporation has the following predicted indirect costs and cost drivers for...
Question text
Activity-Based Costing
Slack Corporation has the following predicted indirect costs and
cost drivers for 2016 for the given activity cost pools:
Fabrication Department
Finishing Department
Cost Driver
Maintenance
$80,000
$70,000
Machine hours
Materials handling
30,000
15,000
Material moves
Machine setups
70,000
5,000
Machine setups
Inspections
-
25,000
Inspection hours
$180,000
$115,000
The following activity predictions were also made for the
year:
Fabrication Department
Finishing Department
Machine hours
10,000
5,000
Material moves
3,000
1,500
Machine setups
700
50
Inspection...
Nash Corporation purchased an asset at a cost of $40,000 on March 1, 2020. The asset...
Nash Corporation purchased an asset at a cost of $40,000 on
March 1, 2020. The asset has a useful life of 8 years and a salvage
value of $3,200. For tax purposes, the MACRS class life is 5
years.
MACRS Depreciation Rates by Class of
Property
Recovery
Year
3-year
(200% DB)
5-year
(200% DB)
7-year
(200% DB)
10-year
(200% DB)
15-year
(150% DB)
20-year
(150% DB)
1
33.33
20.00
14.29
10.00
5.00
3.750
2
44.45
32.00
24.29
18.00
9.50
7.219 ...
Parent Corporation paid $400,000 cash for 90% of Subsidiary Corporation's common stock on January 1, 2006,...
Parent Corporation paid $400,000 cash for 90% of Subsidiary
Corporation's common stock on January 1, 2006,
when Subsidiary had $300,000 capital stock and $100,000 retained
earnings. Th book value of Subsidiary's
assets and liabilities were equal to fair values. During 2006,
Subsidiary reported net income of $20,000 and
declared $10,000 in dividends on December 31. Balance sheets for
Parent and Subsidiary at December 31, 2006,
are as follows (in thousands):
Parent Subsidiary
Assets
Cash
$
42
$
20
Receivable -...
Question: An asset has a useful life of 3 years. cost of the asset is $2000....
Question: An asset has a useful life of 3 years. cost of the
asset is $2000. Residual value is $500.
the asset can be used for a total of 1500 hours. it is used for
650 hours in the first year of operations and for 600 hours in the
second year.
Depreciation expense for the three years will be as follows:
Calculate annual depreciation for the first and second year of
the operations using (1) straight-line method (2) Units of...
Because of seasonal fluctuations, Noble Corporation has a problem determining the unit cost of the products...
Because of seasonal fluctuations, Noble Corporation has a
problem determining the unit cost of the products it produces. For
example, high heating costs during the winter months causes
per-unit cost to be higher than per-unit cost in the summer months
even when the same number of units of product is produced. Suggest
several ways that Noble can improve the computation of per-unit
costs.
1. Use Microsoft Excel to solve the question . The initial cost of an asset is...
1. Use Microsoft Excel to solve the question
.
The initial cost of an asset is
BD100000. It has useful life of 9 years. The estimated salvage
value of the asset at the end of useful life is zero. Calculate the
annual depreciation and book value using double-declining balance
method and find out the year in which the switching is done from
double-declining balance method to straight-line method.
Theory related to switching :
Switching between different depreciation methods:- Switching from...
Question text Analysis and Interpretation of Profitability Balance sheets and income statements for Target Corporation follow....
Question text
Analysis and Interpretation of Profitability
Balance sheets and income statements for Target Corporation
follow.
Income Statement
For Fiscal Years Ended ($ millions)
2008
2007
2006
Sales
$ 61,471
$ 57,878
$ 51,271
Credit card revenues
1,896
1,612
1,349
Total revenues
63,367
59,490
52,620
Cost of sales
41,895
39,399
34,927
Selling, general and administrative expenses
13,704
12,819
11,185
Credit card expenses
837
707
776
Depreciation and amortization
1,659
1,496
1,409
Earnings before interest and income taxes
5,272
5,069
4,323...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- what is the effect of food processing sector and retail sector in corona virus to related...
- Examine the DNA sequence shown below. How many possible reading frames does this piece of DNA...
- SHOW STEP BY STEP SPREADSHEET MODEL A furniture manufacturer produces two types of tables – country...
- Oranges contain about 15 wt.% solids and 85 wt.% water. In a plant, manufacturing lines A...
- Leaders have to communicate their vision, strategies and expectations to their followers. Leadership is a complex...
- 4. Italiano Manufacturing Company produces one type of pasta. For the coming quarter, it estimates that...
- CSC 466 Spring 2017 Assignment:: A6 Basic Type System --------------------------------------------------------------- Your assignment: Build the basic type...
ADVERTISEMENT