Chapter 10, Problem 10.1DMP

Judgment Case 10–1

Acquisition costs

• LO10–1, LO10–3, LO10–6

A company may acquire property, plant, and equipment and intangible assets for cash, in exchange for a deferred payment contract, by exchanging other assets, or by a combination of these methods.

Required:

1. Identify six types of costs that should be capitalized as the cost of a parcel of land. For your answer, assume that the land has an existing building that is to be removed in the immediate future in order that a new building can be constructed on the site.

2. At what amount should a company record an asset acquired in exchange for a deferred payment contract?

3. In general, at what amount should assets received in exchange for other nonmonetary assets be valued? Specifically, at what amount should a company value a new machine acquired by exchanging an older, similar machine and paying cash?

(AICPA adapted)