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Mary Holtz A

 Joan Holtz A Article Joan Holtz A Article



Chapter six: Long-Lived Nonmonetary Assets and the Ammortization

Circumstance: Joan Holtz

Reference: Accounting Text and Cases (9th Ed)

Mary Holtz believed to the accounting instructor. " The general rule for coming to the amount of a set asset that is to be capitalized is reasonably very clear, but generally there certainly are a great many problems in applying this principle to specific scenarios. " 1 ) Suppose that the Bruce Developing Company utilized its own repair crew to develop an additional extra wing about its existing factory building. What could be the proper accounting treatment of the next items (items a-i)?

Answer: Note --- amount shown is not really given in the question Building

Architects' fee

Snow removal cost

Removal of outdated building

Curiosity payable on construction

Regional real estate taxes

Cost of mistakes during building

Accumulated cost to do business cost

Insurance on building building

Other expense of damages or loses during construction

Much less: Cash savings










you, 200

one particular, 300

twenty, 000

2, 500

a couple of, 000

a few, 000

twenty-five, 000

six, 500

three or more, 500




65, 500

2, 1000

63, 000



63, 1000. 00

2) Assume that the Archer Company bought a large piece of land, such as the buildings on it, with the intent of razing the properties and creating a mixed hotel and office building inside their place. The current buildings contains a theater and several stores and little apartment buildings, all in active use during the obtain.

a) What accounting treatment should be approved that portionof the purchase price considered to be amount taken care of the properties that are therefore razed?

Terrain and Building

Cash purchased land and building

bucks 3, 1000, 000


$ several, 000, 500

b) How should the costs of demolishing the old properties be cared for? Building

Removal of old building


money 250, 500

$ two hundred fifity, 000




c) In what esteem, if virtually any, should the accounting treatment of this buildings plus the cost of demolishing them differ from your suggestions with respect to (a) and (b) above? For what reason?


Cash paid for terrain and building

Removal of old building

Fresh building built

$ a few, 000, 000

$ 250, 000

money 1, 500, 000

bucks 4, 750, 000



4, 750, 500

3) Midland Manufacturing organization purchased a brand new machine. It can be clear that the invoice selling price of the new machine ought to be capitalized, and it in addition seems fair to capitalize the transport cost to create the machine for the Mindland herb. a) Should certainly this cost be billed to the building, added to the cost of the machine or be expensed? Why? Installing of additional grab beams cost should be charged to the expense of the machine --- " Cost of Installation", since the equipment as mentioned above should be capitalized. The cost received to install the newest machine, it is therefore a cost requirement for machine to ready for operation.

b) Prior to the new machine was functioning properly, a lot of material had been spoiled during trial operates. How must of these costs be treated? Why?

Regular installation routine service crew, engineer, plant superintendednt labor expense and other labor costs sustained and components spoiled during the trial works, all these cost should be billed to the expense of the machine, mainly because all these costs incurred to get the new equipment ready for procedure.

c) Is definitely state florida sales tax on purchasing the machine area of the machine's cost? Why? Yes, state sales tax and other income taxes that may bear to purchase the appliance would be section of the machine costs. d) Should certainly trade-in gain be treated as a reduction in the cost of the modern machine or a gain removal of the older one? Why? The difference involving the trade-in benefit and the declined value in the old machine should be cured as deduction to the expense of the new equipment because receiving...