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Chapter 9: Q3RQ (page 525)
How do land improvements differ from land?
Yes, Land and Land improvements differ from each other.
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Accounting for intangibles
Midland States Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Midland States Telecom purchased goodwill as part of the acquisition of Sheldon Wireless Enterprises, which had the following figures:
Book value of assets \( 900,000
Market value of assets 1,400,000
Market value of liabilities 530,000
Requirements
1. Journalize the entry to record Midland States Telecom’s purchase of Sheldon Wireless for \)440,000 cash plus a $660,000 note payable.
2. What special asset does Midland States Telecom’s acquisition of Sheldon Wireless identify? How should Midland States Telecom account for this asset after acquiring Sheldon Wireless? Explain in detail.
Question: P9-36B Determining asset cost and recording partial-year depreciation
Safe Parking, near an airport, incurred the following costs to acquire land, make land improvements, and construct and furnish a small building:
a | Purchase price of three acres of land | $86,000 |
b | Delinquent real estate taxes on the land to be paid by safe parking | 6,300 |
c | Additional dirt and earth removing | 8,400 |
d | Title insurance and the land acquisition | 3,400 |
e | Fence around the boundary of the property | 9,600 |
f | Building permit for building | 900 |
g | Architect’s fee for design of building | 20,100 |
h | Signs near the front of property | 9,000 |
i | Material used to construct the building | 217,000 |
J | Labor to construct the building | 172,000 |
k | Interest cost on construction loan for the building | 9,500 |
l | Parking lots on the property | 29,400 |
m | Lights for parking lots | 11,600 |
n | Salary of construction supervisor(80% to building; 20% to parking lot and concrete walks) | 80,000 |
o | Furniture | 11,700 |
p | Transportation of furniture from seller to the building | 1,900 |
q | Additional fencing | 6,900 |
Safe Parking depreciates land improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a straight-line basis with zero residual value.
Requirements
1. Set up columns for Land, Land Improvements, Building, and Furniture. Show how to account for each cost by listing the cost under the correct account. Determine the total cost of each asset.
2. All construction was complete and the assets were placed in service on September 1. Record partial-year depreciation expense for the year ended December 31. Round to the nearest dollar.
Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company, which had the following figures:
Book value of assets \( 700,000
Market value of assets 1,000,000
Market value of liabilities 510,000
Requirements
1. Journalize the entry to record Core’s purchase of Surety Wireless for \)280,000 cash plus a $420,000 note payable.
2. What special asset does Core’s acquisition of Surety Wireless identify? How should Core Telecom account for this asset after acquiring Surety Wireless? Explain in detail.
Question:Jim Reed manages a fleet of utility trucks for a rural county government. He’s been in his job for 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the residual value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at residual value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.
Requirements
1. When a business sells a fully depreciated asset for its residual value, is a gain or loss recognized?
2. How do businesses determine what residual values to use for their various assets? Are there “hard and fast” rules for residual values?
3. How would an organization prevent the kind of fraud depicted here?
Budget Banners pays \(200,000 cash for a group purchase of land, building, and equipment. At the time of acquisition, the land has a market value of \)22,000, the building \(187,000, and the equipment \)11,000. Journalize the lump-sum purchase.
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