AC 302 CHAPTER 10 QUESTION AND PROBLEMS

AC 302 CHAPTER 10 QUESTION AND PROBLEMS 
Exercise 10 QUESTION 2
Name				Date		
Instructor				Course		
Intermediate Accounting 14th Edition by Kieso Weygandt and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
E10-2 (Acquisition Costs of Realty) Pollachek Co. purchased land as a factory site for						
$450,000 	. The process of tearing down two old buildings on the site and constructing the 					
factory required 6 months. The company paid				$42,000 	to raze the old buildings and 	
sold salvaged lumber and brick for 			$6,300 	. Legal fees of		$1,850 
were paid for title investigation and drawing the purchase contract. Pollachek paid 						$2,200 
to an engineering firm for a land survey, and			$65,000 	for drawing the factory plans. The land 		
survey had to be made before definitive plans could be drawn. Title insurance on the property cost						
$1,500 	, and a liability insurance premium paid during construction was					$900 
The contractor- charge for construction was			$2,740,000 	. The company paid the contractor in two 		
installments:	$1,200,000 	at the end of three months and			$1,540,000 	upon 
completion. Interest costs of		$170,000 	were incurred to finance the construction.			
						
Instructions:						
Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building.						
						
						
			Land	Building		
	Text Title		Amount			
	Text Title		Amount			
	Less: Salvage		Amount			
	Text Title		Amount			
	Text Title			Amount		
	Text Title			Amount		
	Text Title		Amount			
	Text Title			Amount		
	Text Title			Amount		
	Text Title			Amount		
			Formula	Formula		
						
						

Exercise 10-3
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
E10-3 (Acquisition Costs of Trucks) Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2012. The terms of acquisition for each truck are described below.						
						
						
1. Truck #1 has a list price of		$15,000 	and is acquired for a cash payment of			$13,900 
2. Truck #2 has a list price of		$20,000 	and is acquired for a down payment of			$2,000 
cash and a zero-interest bearing note with a face amount of					$18,000 	The note is due
April 1, 2013, Shabbona would normally have to pay interest at a rate of					10%	for such a
borrowing, and the dealership has an incremental borrowing rate of					8%	
3. Truck #3 has a list price of		$16,000 	It is acquired in exchange for a computer system that			
Shabbona carries in inventory. The computer system costs				$12,000 	and normally sold by	
Shabbona for	$15,200 	Shabbona uses perpetual inventory system.				
4. Truck #4 has a list price of		$14,000 	It is acquired in exchange for			1,000 
shares of common stock in Shabbona Corporation. The stock has a par value per share of						
$10 	and a market value of		$13 	per share.		
						
Instructions:						
Prepare the appropriate journal entries for the foregoing transactions for Shabbona Corporation.						
						
1	Account Title				Amount	
	Account Title					Amount
						
2	Account Title				Amount	
	Account Title				Amount	
	Account Title					Amount
	Account Title					Amount
	"Hint: Use the Excel Present Value formula.
        Cells are formatted to show to 2 decimal places."					
						
						
3	Account Title				Amount	
	Account Title				Amount	
	Account Title					Amount
	Account Title					Amount
						
						
						
						
						
						
4	Account title				Amount	
	Account title					Amount
	Account title					Amount
						
						
Note: Due to significant digits with worksheets, calculators, and tables, minor differences may occur.						
						

Problem 10-1
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P10-1 (Classification of Acquisition and Other Asset Costs) At December 31, 2011, certain accounts included in the property, plant, and equipment section of Reagan Company- balance sheet had the following balances.						
						
						
	Land			$230,000 		
	Buildings			$890,000 		
	Leasehold improvements			$660,000 		
	Machinery and equipment			$875,000 		
						
During 2012 the following transactions occurred:						
1. Land site number 621 was acquired for			$850,000 	In addition, to acquire the land Reagan paid a		
$51,000 	commission to a real estate agent. Costs of				$35,000 	were incurred
to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for						
$13,000 						
2. A second tract of land (site number 622) with a building was acquired for						$420,000 
The closing statement indicated that the land value was				$300,000 	and the building value was	
$120,000 	Shortly after acquisition, the building was demolished at a cost of					$41,000 
A new building was constructed for			$330,000 	plus the following costs:		
	Excavation fees				$38,000 	
	Architectural design fees				$11,000 	
	Building permit fees				$2,500 	
	"Imputed interest on funds used during
       construction (Stock financing)"				$8,500 	
						
The building was completed and occupied on September 30, 2012.						
3. A third tract of land (site number 623) was acquired for				$650,000 	and was put on the market	
for resale.						
4. During December 2012, costs of			$89,000 	were incurred to improve leased office space.		
The related lease will terminate on December 31, 2014, and is not expected to be renewed.						
(Hint: Leasehold improvements should be handled in the same manner as land improvements.)						
5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was						
						
$87,000 	freight costs were		$3,300 	installation costs were		$2,400 
and royalty payments for 2010 were			$17,500 			
						
Instructions:						
(a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2012:						
						
	Land		Leasehold Improvements			
	Buildings		Machinery and Equipment			
Disregard the related accumulated depreciation accounts.						
						
REAGAN COMPANY						
Analysis of Land Account for 2012						
Balance, January 1, 2012						Amount
Land site number 621						
Text Title					Amount	
Text Title					Amount	
Text Title				Amount		
Text Title				Amount	Formula	
Total land site number 621						Formula
						
Land site number 622						
Text Title					Amount	
Text Title					Amount	
Text Title					Amount	
Total land site number 622						Formula
Balance at December 31, 2012						Formula
						
REAGAN COMPANY						
Analysis of Building Account for 2012						
Balance, January 1, 2012						
Cost of new building constructed on land site number 622						Amount
Text Title					Amount	
Text Title					Amount	
Text Title					Amount	
Text Title					Amount	Formula
Balance at December 31, 2012						Formula
						
REAGAN COMPANY						
Analysis of Leasehold Account for 2012						
Balance, January 1, 2012						Amount
Text Title						Amount
Balance at December 31, 2012						Formula
						
REAGAN COMPANY						
Analysis of Machinery & Equipment Account for 2012						
Balance, January 1, 2012						Amount
Cost of the new machines acquired						
Text Title					Amount	
Text Title					Amount	
Text Title					Amount	Formula
Balance at December 31, 2012						Formula
						
"(b) List the items in the situation that were not used to determine the answer to (a) above, and indicate
     where, or if, these items should be included in Reagan's financial statements."						
						
						
Enter text answer as appropriate.						
						
						
Enter text answer as appropriate.						
						
						
Enter text answer as appropriate.						
						
						
						

Problem 10-5
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P10-5 (Classification of Costs and Interest Capitalization) On January 1, 2012, Blair Corporation 						
purchased for	$500,000 	a tract of land (site number 101) with a building. Blair paid a real estate 				
broker- commission of		$36,000 	, legal fees of	$6,000 	, and title guarantee insurance	
of	$18,000 	. The closing statement indicated that the land value was				
$500,000 	and the building value was		$100,000 	. Shortly after acquisition, the building was		
razed at a cost of		$54,000 				
Blair entered into a		$3,000,000 	fixed-price contract with Slatkin Builders, Inc. on 			
March 1, 2012, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2013. Additional construction costs were incurred as follows:						
						
						
	Plans, specifications, and blueprints				$21,000 	
	Architects fees for design and supervision				$82,000 	
The building is estimated to have a			40 	year life from date of completion and will be		
depreciated using the		150%	declining balance method.			
To finance construction costs, Blair borrowed				$3,000,000 	on March 1, 2012. The loan	
is payable in 	10 	annual installments of		$300,000 	plus interest at the rate of	
10%	Blair's weighted-average amounts of accumulated building construction expenditures					
were as follows:						
	For the period March 1 to December 31, 2012				$1,300,000 	
	For the period January 1 to September 30, 2013				$1,900,000 	
						
Instructions:						
"(a) Prepare a schedule that discloses the individual costs making up the balance in the land account
     in respect of land site number 101 as of September 30, 2013."						
						
						
	BLAIR CORPORATION					
	Cost of Land (Site #101)					
	As of September 30, 2013					
	Text Title				Amount	
	Text Title				Amount	
	Text Title				Amount	
	Text Title				Amount	
	Text Title				Amount	
	Cost of land				Formula	
						
"(b) Prepare a schedule that discloses the individual costs that should be capitalized in the office
     building account as of September 30, 2013. Show supporting computations in good form."						
						
						
BLAIR CORPORATION						
Cost of Building						
As of September 30, 2013						
Text Title						Amount
Text Title						Amount
Text Title						Amount
Text Title						Amount
Text Title						Amount
Cost of building						Formula
						
Interest to be capitalized:						
2012 	Amount	×	Percentage	=	Formula	
2013 	Amount	×	Percentage	=	Formula