EBK INTERMEDIATE ACCOUNTING
EBK INTERMEDIATE ACCOUNTING
10th Edition
ISBN: 9781260481976
Author: SPICELAND
Publisher: MCG COURSE
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Chapter 10, Problem 10.5P

Acquisition costs; journal entries

• LO10–1, LO10–3, LO10–6, LO10–8

Consider each of the transactions below. All of the expenditures were made in cash.

1. The Edison Company spent $12,000 during the year for experimental purposes in connection with the development of a new product.

2. In April, the Marshall Company lost a patent infringement suit and paid the plaintiff $7,500.

3. In March, the Cleanway Laundromat bought equipment. Cleanway paid $6,000 down and signed a noninterest-bearing note requiring the payment of $18,000 in nine months. The cash price for this equipment was $23,000.

4. On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $28,000.

5. The Mayer Company, plaintiff, paid $12,000 in legal fees in November, in connection with a successful infringement suit on its patent.

6. The Johnson Company traded its old machine with an original cost of $7,400 and a book value of $3,000 plus cash of $8,000 for a new one that had a fair value of $10,000. The exchange has commercial substance.

Required:

Prepare journal entries to record each of the above transactions.

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JH, Inc., is a calendar year, accrual basis corporation with Joe as its sole shareholder (basis in his stock is $90,000). On January 1 of the current year, JH Corporation has accumulated E & P of $200,000. Before considering the effect of the distribution described below, the corporation’s current E & P is $50,000. On November 1, JH distributes an office building to Joe. The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $110,000. Assume that the building has been depreciated using the ADS method for both income tax and E & P purposes. What are the tax consequences of the distribution to JH and to Joe? (In your answer, be sure to describe the effects on taxable income for both JH and Joe, the impact of the distribution on JH’s E & P, and Joe’s basis in the building.)
Joe is the sole shareholder of JH Corporation. Joe sold his stock to Ethan on October 31 for $150,000. Joe’s basis in JH stock was $50,000 at the start of the year. JH distributed land to Joe immediately before the sale. JH’s basis in the land was $20,000 (fair market value of $25,000). On December 31, Ethan received a $75,000 cash distribution from JH. During the year, JH has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000. Which of the following statements is true?  a. Joe recognizes a $110,000 gain on the sale of his stock. b. Joe recognizes a $100,000 gain on the sale of his stock. c. Ethan receives $5,000 of dividend income.d. Joe receives $20,000 of dividend income. e. None of the above.

Chapter 10 Solutions

EBK INTERMEDIATE ACCOUNTING

Ch. 10 - Prob. 10.11QCh. 10 - Identify the two exceptions to valuing property,...Ch. 10 - In what situations is interest capitalized?Ch. 10 - Define average accumulated expenditures and...Ch. 10 - Explain the difference between the specific...Ch. 10 - Prob. 10.16QCh. 10 - Prob. 10.17QCh. 10 - Explain the accounting treatment of costs incurred...Ch. 10 - Explain the difference in the accounting treatment...Ch. 10 - Prob. 10.20QCh. 10 - Prob. 10.21QCh. 10 - Prob. 10.22QCh. 10 - Prob. 10.23QCh. 10 - Acquisition cost; machine LO101 Beavert on Lumber...Ch. 10 - Prob. 10.2BECh. 10 - Prob. 10.3BECh. 10 - Cost of a natural resource; asset retirement...Ch. 10 - Asset retirement obligation LO101 Refer to the...Ch. 10 - Prob. 10.6BECh. 10 - Prob. 10.8BECh. 10 - Prob. 10.11BECh. 10 - Nonmonetary exchange LO106 Refer to the situation...Ch. 10 - Nonmonetary exchange LO106 Refer to the situation...Ch. 10 - Prob. 10.14BECh. 10 - Prob. 10.15BECh. 10 - Research and development LO108 Maxtor Technology...Ch. 10 - Prob. 10.18BECh. 10 - Prob. 10.19BECh. 10 - Research and development; various types LO108...Ch. 10 - Prob. 10.21BECh. 10 - Acquisition cost; equipment LO101 Oaktree Company...Ch. 10 - Prob. 10.3ECh. 10 - Prob. 10.7ECh. 10 - Prob. 10.8ECh. 10 - Acquisition costs; noninterest-bearing note ...Ch. 10 - Prob. 10.11ECh. 10 - Prob. 10.14ECh. 10 - Nonmonetary exchange LO106 [This is a variation...Ch. 10 - Prob. 10.16ECh. 10 - Nonmonetary exchange LO106 [This is a variation...Ch. 10 - Prob. 10.18ECh. 10 - Prob. 10.19ECh. 10 - Prob. 10.20ECh. 10 - FASB codification research LO101, LO106, LO107,...Ch. 10 - Prob. 10.30ECh. 10 - Prob. 10.31ECh. 10 - Prob. 10.32ECh. 10 - Intangibles; start-up costs LO101, LO108 Freitas...Ch. 10 - Prob. 10.1PCh. 10 - Prob. 10.4PCh. 10 - Acquisition costs; journal entries LO101, LO103,...Ch. 10 - Prob. 10.6PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Judgment Case 101 Acquisition costs LO101, LO103,...Ch. 10 - Judgment Case 104 Interest capitalization LO107...Ch. 10 - Prob. 10.6DMPCh. 10 - Prob. 10.7DMPCh. 10 - Judgment Case 108 Research and development LO108...Ch. 10 - Prob. 10.9DMPCh. 10 - Prob. 10.11DMPCh. 10 - Prob. 10.13DMPCh. 10 - Prob. 10.15DMPCh. 10 - Prob. 10.16DMP
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