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Chapter 10: Q1Q (page 530)
Question: What are the major characteristics of plant assets?
Answer
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(Nonmonetary Exchange) Carlos Arruza Company exchanged equipment used in its manufacturing operations plus \(3,000 in cash for similar equipment used in the operations of Tony LoBianco Company. The following information pertains to the exchange.
Carlos Arruza Co. | Tony LoBianco Co. | |
Equipment (cost) | \)28,000 | $28,000 |
Accumulated depreciation | 19,000 | 10,000 |
Fair value of equipment | 12,500 | 15,500 |
Cash given up | 3,000 |
Instructions
(Acquisition, Improvements, and Sale of Realty) Tonkawa Company purchased land for use as its corporate headquarters. A small factory that was on the land when it was purchased was torn down before construction of the office building began. Furthermore, a substantial amount of rock blasting and removal had to be done to the site before construction of the building foundation began. Because the office building was set back on the land far from the public road, Tonkawa Company had the contractor construct a paved road that led from the public road to the parking lot of the office building.
Three years after the office building was occupied, Tonkawa Company added four stories to the office building. The four stories had an estimated useful life of 5 years more than the remaining estimated useful life of the original office building.
Ten years later, the land and building were sold at an amount more than their net book value, and Tonkawa Company had a new office building constructed in another state for use as its new corporate headquarters.
Instructions
Fielder Company obtained land by issuing 2,000 shares of its \(10 par value common stock. The land was recently appraised at \)85,000. The common stock is actively traded at $40 per share. Prepare the journal entry to record the acquisition of the land.
Use the information presented for Ottawa Corporation in BE10-14, but assume the machinery is sold for \(5,200 instead of \)10,500. Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale.
Question: Discuss the basic accounting problem that arises in handling each of the following situations. (a) Assets purchased by issuance of common stock. (b) Acquisition of plant assets by gift or donation. (c) Purchase of a plant asset subject to a cash discount. (d) Assets purchased on a long-term credit basis. (e) A group of assets acquired for a lump sum. (f) An asset traded in or exchanged for another asset.
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