Project #43458 - P610

 

1a)

Early in its fiscal year ending December 31, 2013, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $800,000. San Antonio paid $200,000 and signed a noninterestbearing note requiring the company to pay the remaining $600,000 on March 28, 2015. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $20,000 were paid at closing.

 

     During April, the old building was demolished at a cost of $70,000, and an additional $50,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows:

 

  

 

  May 30

$

1,200,000

 

  July 30

 

1,500,000

 

  September 1

 

900,000

 

  October 1

 

1,800,000

 


  

     San Antonio borrowed $3,000,000 at 8% on May 1 to help finance construction. This loan, plus interest, will be paid in 2014. The company also had the following debt outstanding throughout 2013:

 

  

  $2,000,000, 9% long-term note payable

  $4,000,000, 6% long-term bonds payable


  

     In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $600,000. The fair values of the equipment and the furniture and fixtures were $455,000 and $245,000, respectively. In December, San Antonio paid a contractor $285,000 for the construction of parking lots and for landscaping. (Use PV of $1.)

  

Required:

 

1.

Determine the initial values of the various assets that San Antonio acquired or constructed during 2013. The company uses the specific interest method to determine the amount of interest capitalized on the building construction. (Round "PV Factor" to 5 decimal places and final answers to the nearest dollar amount.)

  

  Assets

           Initial Value

  Land

  

  Land improvements

  

  Building

  

  Equipment

  

  Furniture & fixtures

  


  

2.

How much interest expense will San Antonio report in its 2013 income statement? (Round "PV Factor" to 5 decimal places, intermediate and final answer to the nearest dollar amount.)

  

  Interest expense

  

 

1b)

At the beginning of 2011, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:

 

   

  Plant and equipment (depreciable assets)

$

150

 million

  Patent

 

40

 million

  Goodwill

 

100

 million


 

     The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a 5-year useful life, no residual value, and is amortized using the straight-line method.

 

     At the end of 2013, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined:

 

   

  Plant and equipment:

 

 

 

     Undiscounted sum of future cash flows

$

80

 million

     Fair value

 

60

 million

  Patent:

 

 

 

     Undiscounted sum of future cash flows

$

20

 million

     Fair value

 

13

 million

  Goodwill:

 

 

 

     Fair value of Ellison Technology

$

450

 million

     Fair value of Ellison's net assets (excluding goodwill)

 

390

 million

     Book value of Ellison's net assets (including goodwill)

 

470

 million*


*After first recording any impairment losses on plant and equipment and the patent.

Required:

 

1.

Compute the book value of the plant and equipment and patent at the end of 2013. (Enter your answers in millions.)

 

 

Book Value

  Plant and equipment

  

  Patent

  


 

4.

Determine the amount of any impairment loss to be recorded, if any, for the three assets. (Enter your answers in millions. Leave no cells blank - be certain to enter "0" wherever required.)

 

 

Impairment Loss

  Plant and equipment

  

  Patent

  

  Goodwill

  


 

 

 

2a)

Exercise 10-3 Acquisition costs; lump-sum acquisition [LO10-1, LO10-2]

Semtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and building:

 

 

  Title insurance

$

16,000

 

  Legal fees for drawing the contract

 

5,000

 

  Pro-rated property taxes for the period after acquisition

 

36,000

 

  State transfer fees

 

4,000

 


 

An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.3 and $1.1 million, respectively. Shortly after acquisition, Semtech spent $82,000 to construct a parking lot and $40,000 for landscaping.

 

Required:

 

1.

Determine the initial valuation of each asset Semtech acquired in these transactions. (Enter your answers in dollars not in millions.)

 

  Assets

  Land

  

  Building

  

  Land improvements

  


 

2.

Determine the initial valuation of each asset, assuming that immediately after acquisition, Semtech demolished the building. Demolition costs were $250,000 and the salvaged materials were sold for $6,000. In addition, Semtech spent $86,000 clearing and grading the land in preparation for the construction of a new building. (Enter your answers in dollars not in millions. Leave no cells blank - be certain to enter "0" wherever required.)

 

  Assets

  Land

  

  Building

  

  Land improvements

  

 

 

2b)

Exercise 10-27 Research and development [LO10-8]

Delaware Company incurred the following research and development costs during 2013:

 

 

  Salaries and wages for lab research

$

400,000

 

  Materials used in R&D projects

 

200,000

 

  Purchase of equipment

 

900,000

 

  Fees paid to outsiders for R&D projects

 

320,000

 

  Patent filing and legal costs for a developed product

 

   65,000

 

  

 

Salaries, wages, and supplies for R&D work
    performed for another company under a contract

 

350,000

 

 



      Total

$

2,235,000

 

 







 

     The equipment has a seven-year life and will be used for a number of research projects. Depreciation for 2013 is $120,000.

 

Required:

Calculate the amount of research and development expense that Delaware should report in its 2013 income statement.

 

  Research and development expense

  



3a) Exercise 10-27 Research and development [LO10-8]

Delaware Company incurred the following research and development costs during 2013:

 

 

  Salaries and wages for lab research

$

400,000

 

  Materials used in R&D projects

 

200,000

 

  Purchase of equipment

 

900,000

 

  Fees paid to outsiders for R&D projects

 

320,000

 

  Patent filing and legal costs for a developed product

 

65,000

 

  Salaries, wages, and supplies for R&D work
    performed for another company under a contract

 

350,000

 

 



      Total

$

2,235,000

 

 







 

     The equipment has a seven-year life and will be used for a number of research projects. Depreciation for 2013 is $120,000.

 

Required:

Calculate the amount of research and development expense that Delaware should report in its 2013 income statement.

 

  Research and development expense

  

 

3b)

At the beginning of 2013, Terra Lumber Company purchased a timber tract from Boise Cantor for $3,200,000. After the timber is cleared, the land will have a residual value of $600,000. Roads to enable logging operations were constructed and completed on March 30, 2013. The cost of the roads, which have no residual value and no alternative use after the tract is cleared, was $240,000. During 2013, Terra logged 500,000 of the estimated five million board feet of timber.

 

Required:

 

Calculate the 2013 depletion of the timber tract and depreciation of the logging roads assuming the units-of-production method is used for both assets. (Do not round intermediate calculations.)

 

 

  Depletion of the timber tract

  

  Depreciation of the logging roads

  


 

3c)

On January 1, 2013, the Allegheny Corporation purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000. The machine is expected to produce 220,000 units during its life.

 

Required:

 

Calculate depreciation for 2013 and 2014 using each of the following methods. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

 

1.

Straight line.

 

  Depreciation

 per year  

 

2.

Sum-of-the-years' digits.

 

 

Depreciation

  2013

   

  2014

   


 

3.

Double-declining balance.

 

 

Depreciation

  2013

   

  2014

   


 

4.

One hundred fifty percent declining balance.

 

 

Depreciation

  2013

   

  2014

   


 

5.

Units of production (units produced in 2013, 30,000; units produced in 2014, 25,000).

 

 

 

Depreciation

  2013

   

  2014

 

Subject Business
Due By (Pacific Time) 10/15/2014 06:00 pm
Report DMCA
TutorRating
pallavi

Chat Now!

out of 1971 reviews
More..
amosmm

Chat Now!

out of 766 reviews
More..
PhyzKyd

Chat Now!

out of 1164 reviews
More..
rajdeep77

Chat Now!

out of 721 reviews
More..
sctys

Chat Now!

out of 1600 reviews
More..
sharadgreen

Chat Now!

out of 770 reviews
More..
topnotcher

Chat Now!

out of 766 reviews
More..
XXXIAO

Chat Now!

out of 680 reviews
More..
All Rights Reserved. Copyright by AceMyHW.com - Copyright Policy