Reference no: EM131330747

Exercises

1. Wasatch Bank recently held an auction to dispose of various assets it had obtained through foreclosures and other loan settlements. Representatives of Aragon Semi-Conductors attended the auction to bid on an abandoned manufacturing plant that Wasatch Bank included in the sale. The auction brochure listed the manufacturing plant as including all land, buildings and equipment. The brochure indicated that an independent appraisal had been conducted and that land was separately valued at $3,500,000, the building at $8,000,000 and the equipment at $14,500,000. This information is believed to be reasonably accurate and fair.

Aragon Semi Conductors wanted the site for a recycling business it planned to start at the location. All of the equipment would be used in this new operation. The minimum bid price was set at $16,250,000. As it turned out, the auction was poorly attended. Aragon was the only bidder on this property, and was fortunate to acquire the property at the opening bid minimum.

Required: Determine the correct cost allocation to the land, buildings and equipment.

2. Robert Smith Company purchased a new machine for its assembly process on June 1, 2015. The cost of this machine was $122,000. The company estimated that the machine would have a salvage value of $12,000 at the end of its service life. Its life is estimated at 5 years.

Required: Compute the depreciation expense under the following methods:

1) Straight-line method
2) Sum-of-the-years-digits
3) Double declining balance

3. Six Star Corporation purchased a piece of equipment at the beginning of 2012. The equipment cost $120,000. Its estimated service life is 7 years and has an expected salvage value of $6,000. The sum-of-the-years-digits method is used. The depreciation schedule has a $20,357 annual depreciation expense for a certain year.

Required: Determine what year the depreciation expense of $20,357 is on the depreciation schedule. Round all answers to the nearest whole dollar.

4. Benson Company purchased equipment for $80,000 in 2012. The machinery originally had an estimated life of 10 years and a salvage value of $5,000. Benson used the straight-line depreciation method. In 2016, the estimated life was changed to 8 years.

Required: What is the annual depreciation expense for 2016?

5. During 2016, Pentz Company had the following transactions pertaining to its new office building:

Purchase price of land	$66,000
Legal fees for contracts to purchase land	2,200
Architects' fees	8,800
Demolition of old building on site	5,500
Sale of scrap from old building	3,300
Construction cost of new building (fully completed)	385,000

In Pentz's December 31, 2016 balance sheet, what amounts should be reported as the cost of land and cost of building?

6. On March 1, Mocl Co. began construction of a small building. The following expenditures were incurred for construction:

1-Mar	$150,000	1-Apr	$148,000
1-May	360,000	1-Jun	540,000
1-Jul	200,000

The building was completed and occupied on July 1. To help pay for construction $100,000 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a $1,000,000, 10% note issued two years ago.

Instructions

Calculate the weighted-average accumulated expenditures.

7. Ole Inc. began constructing a building for its own use in January 2015. During 2015 Ole incurred interest of $72,000 on specific construction debt, and $28,800 on other borrowings. Interest computed on the weighted average amount of accumulated expenditures for the building during 2015 was $57,600. What is the amount of interest cost that Ole should capitalize?