Reference no: EM131566488
ACCT305 Case Study Problem -
The objective of this case study is to learn application of concepts covered in week 1 and 2. This case study tests the skills of the student in measuring cost of long-term assets, intangible asset and the treatment of research and development expenses.
Please read the scenario given below and complete requirement 1 and 2. Please place your solution to case study in Voice Thread with at least a 2-minute narration summarizing your findings. Do not make it available to the class.
Instructions for Creating Voice Thread are available in Course Resources.
Riders Corporation manufactures bicycles. To meet the increased demand for its bicycles recently it acquired land and equipment and entered into a contract with a construction company to construct a new factory. Below are the details of expenses Riders incurred in 2016 in acquiring land and equipment and with regard to construction of factory.
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Purchase price of the land
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$ 850,000
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Demolition and removal of old building
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35,000
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Clearing and grading the land before construction
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110,000
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Various closing costs in connection with acquiring the land
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10,000
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Architect's fee
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12,500
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Payments to contractor for building construction
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1,850,000
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Equipment purchased
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575,000
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Freight charges on equipment
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24,000
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Trees, plants and other landscaping
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30,000
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Installation of a sprinkler system for the landscaping
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4,000
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Cost to build special platforms and install wiring for the equipment
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9,000
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Cost of trial runs to ensure proper installation of the Equipment
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5,000
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Fire and theft insurance on the factory for the first year of use
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18,000
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Construction of building started on March 2016 and completed on December 2017. Riders Corporation had only one interest bearing long-term debt with a book value of $7,500,000 and an effective interest rate of 6%. Payment of $1,850,000 to contractor is made in several installments as shown below.
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March 1, 2016
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$400,000
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July 31,2016
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450,000
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September 30, 2016
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350,000
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November 30, 2016
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450,000
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December 31, 2016
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200,000
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Required:
1. Explain the accounting treatment for each item of expenditure listed above.
2. Determine the initial valuation of each of the assets Riders Corporation acquired in the above transactions.