Judgment Case 10–3 Self-constructed assets • LO10–7 Chilton Peripherals manufactures printers, scanners, and other computer peripheral equipment. In the past, the company purchased equipment used in manufacturing from an outside vendor. In March 2018, Chilton decided to design and build equipment to replace some obsolete equipment. A section of the manufacturing plant was set aside to develop and produce the equipment. Additional personnel were hired for the project. The equipment was completed and ready for use in September. Required: 1. In general, what costs should be capitalized for a self-constructed asset? 2. Discuss two alternatives for the inclusion of overhead costs in the cost of the equipment constructed by Chilton. Which alternative is generally accepted for financial reporting purposes? 3. Under what circumstance(s) would interest be included in the cost of the equipment?
Judgment Case 10–3 Self-constructed assets • LO10–7 Chilton Peripherals manufactures printers, scanners, and other computer peripheral equipment. In the past, the company purchased equipment used in manufacturing from an outside vendor. In March 2018, Chilton decided to design and build equipment to replace some obsolete equipment. A section of the manufacturing plant was set aside to develop and produce the equipment. Additional personnel were hired for the project. The equipment was completed and ready for use in September. Required: 1. In general, what costs should be capitalized for a self-constructed asset? 2. Discuss two alternatives for the inclusion of overhead costs in the cost of the equipment constructed by Chilton. Which alternative is generally accepted for financial reporting purposes? 3. Under what circumstance(s) would interest be included in the cost of the equipment?
Chilton Peripherals manufactures printers, scanners, and other computer peripheral equipment. In the past, the company purchased equipment used in manufacturing from an outside vendor. In March 2018, Chilton decided to design and build equipment to replace some obsolete equipment. A section of the manufacturing plant was set aside to develop and produce the equipment. Additional personnel were hired for the project. The equipment was completed and ready for use in September.
Required:
1. In general, what costs should be capitalized for a self-constructed asset?
2. Discuss two alternatives for the inclusion of overhead costs in the cost of the equipment constructed by Chilton. Which alternative is generally accepted for financial reporting purposes?
3. Under what circumstance(s) would interest be included in the cost of the equipment?
Definition Definition Total cost of procuring or producing a product or the cost that an individual or business owner undertakes for the manufacturing of goods.
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Joe transferred land worth $200,000, with a tax basis of $40,000, to JH Corporation, an existing entity, for 100 shares of its stock. JH Corporation has two other shareholders, Ethan and Young, each of whom holds 100 shares. With respect to the transfer:a. Joe has no recognized gain. b. JH Corporation has a basis of $160,000 in the land.c. Joe has a basis of $200,000 in his 100 shares in JH Corporation. d. Joe has a basis of $40,000 in his 100 shares in JH Corporation. e. None of the above.
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