Case A
Robert Sporting Goods Company has been experiencing growth in the demand for its products, post COVID-19. To be able to meet quantity commitments, the company has to obtain additional manufacturing capacity. It purchased land for a new factory site for $600 000 on January 1, 2021 and paid $60 000 to tear down two buildings that were on the land. Salvage from the demolition was sold for $5 400.
Legal fees of $3 480 were paid for title investigation and making the purchase along with the Architect's fees of $31 200. Title insurance cost of $2 400, and liability insurance during construction cost of $2 600 were incurred.
Excavation works amounted $10,440. The contractor, BDO Construction Ltd was paid
$2 200 000. An assessment made by the Government Housing and Infrastructure Authorities (GHIA) for pavements was valued at $6 400.
Interest costs incurred during construction amounted to $170 000.
Required:
What is the cost of the land that should be capitalized on the books by Robert Sporting Goods Company? Complete the schedule below. If a
line item does not apply place zero in the field in the number column. Do not leave any number fields blank.
Land |
$ |
Purchase value |
Answer |
Demolition cost |
Answer |
Salvage value |
Answer |
Legal fees for title investigation |
Answer |
Architect fees |
Answer |
Title insurance cost |
Answer |
Liability insurance cost |
Answer |
Excavation cost |
Answer |
Contractor fees |
Answer |
Assessment for pavement cost |
Answer |
Interest cost |
Answer |
Capitalized cost of Land |
Answer |
Case B
Required:
What amount should be recorded as machinery depreciation for the year ended December 31, 2021 and 2022 respectively? Complete the schedule provided below.
Sum of the years' digits factor |
$ Answer |
Depreciable base |
$ Answer |
April 1, 2021 to March 31, 2022 Depreciation expense |
$ Answer |
April 1, 2022 to March 31, 2023 Depreciation expense |
$ Answer |
Depreciation expense for yearended December 31, 2021 |
$ Answer |
Depreciation expense for year ended December 31, 2022 |
$ Answer |
Case C
Robert Sporting Goods Company had purchased some equipment (Q107) on January 1, 2014 for $104 000 with an estimated salvage value of $8 000 and a 10-year useful life. On December 31, 2020, there was $67 200 in the Accumulated Depreciation account for this equipment using the straight-line method of depreciation. In preparation for expansion, on March 31, 2021, that equipment was sold for $21 000.
Required:
i) Complete the following schedule of useful working.
Equipment (Q107): |
$ Answer |
Cost |
$ Answer |
Salvage Value |
$ Answer |
Depreciable base |
$ Answer |
Annual Depreciation charge |
$ Answer |
Accumulated depreciation to the date of disposal |
$ Answer |
ii) Prepare the necessary journal entries to record the disposal of the equipment on March 31, 2021. When selecting from dropdown lists, if a line item does not apply, select NA and place zero in the field in the number column. Do not leave any number fields blank.
March 31, 2021
Dr |
$ Answer |
|
Dr Cash |
$ Answer |
|
Dr |
$ Answer |
|
Dr |
$ Answer |
|
Cr |
|
$ Answer |
Cr |
|
$ Answer |
Case D
Robert Sporting Goods Company constructed a building that qualified for interest capitalization. The construction began at the beginning of the 2020 and was completed at the end of the year.
The construction cost totaled $10 200 000 and the weighted average accumulated expenditure associated with the asset was $6 800 000.
Robert Sporting Goods Company had outstanding notes payable during the entire year of construction comprising $6 000 000 8% interest and $9 000 000 9% interest. None of these borrowings were specified for the construction of the qualified asset.
Required:
Complete the following schedules to calculate the following for 2020:
i) Actual interest
ii) Capitalization rate
iii) Avoidable interest
iv) Capitalized interest
v) Interest expensed
vi) Capitalized cost of the building
|
Principal ($)
|
Interest ($)
|
8% Note Payable
|
Answer |
Answer |
9% Note Payable
|
Answer |
Answer |
Total |
Answer |
Answer |
2020:
i. Actual interest |
|
ii. Capitalization rate |
|
iii. Avoidable interest |
|
iv) Capitalized interest
|
|
v) Interest expensed
|
|
vi. Capitalized cost of the building |
|
Case E
Robert Sporting Goods Company has another piece of equipment (Q102) with the following cost and accumulated depreciation at its year ended December 31, 2020:
Equipment (Q102) $9 000 000
Accumulated Depreciation 3 000 000
Due to obsolescence and physical damage, the equipment was found to be impaired. At the year-end Robert Sporting Goods Company had determined the following information:
Fair value less cost of Disposal $4 500 000
Value in use or discounted net cash flows $4 000 000
Undiscounted net cash flows $5 500 000
Required:
Assess equipment (Q102) for impairment and prepare the journal entry (if necessary) to report any impairment loss for the year. When selecting from dropdown lists, if a line item does not apply, select NA and place zero in the field in the number column. Do not leave any number fields blank.
Answer |
$ Answer |
Answer |
$Answer |
Answer |
$Answer |