Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Question
Chapter 10, Problem 16GI
To determine
Explain whether the company must capitalize the interest to the land or the building account.
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Students have asked these similar questions
A real estate company has incurred
expenses for the acquisition of a permit
allowing the construction of a building. It has
also acquired equipment that will be used for
the construction of various buildings. Can
borrowing costs on the acquisition of the
permit and the equipment be capitalized until
the construction of the building is complete?
Respond in no more than three (3)
sentences.
When an entity acquires land with a building on it and immediately tears down the building so that the land can be used for the construction of a plant, the cost incurred to tear down the building shall be
a. Expensed as incurred
b. Amortized over the estimated time period between the tearing down of the building and the completion of the plant
c. Added to the cost of the building
d. Added to the cost of the land
Which of the following statements is TRUE regarding capitalization of interest?
O Interest cost capitalized in connection with the purchase of land to be used as a
building site should be debited to the land account and not the building account.
The amount of interest cost capitalized during the period should not exceed the
actual interest costs incurred.
When excess borrowed funds not immediately needed for construction are
temporarily invested, any interest carned should be offset against interest cost
incurred when determining the amount of interest cost to be capitalized.
The minimum amount of interest to be capitalized is determined by multiplying a
weighted average interest rate by the amount of average accumulated expenditures
on qualifying assets during the period.
Chapter 10 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 10 - Prob. 1GICh. 10 - Prob. 2GICh. 10 - What is the relationship between the book value...Ch. 10 - Prob. 4GICh. 10 - Prob. 5GICh. 10 - Prob. 6GICh. 10 - What are asset retirement obligations? How should...Ch. 10 - Prob. 8GICh. 10 - Prob. 9GICh. 10 - Prob. 10GI
Ch. 10 - At what amount does a company record the cost of a...Ch. 10 - Prob. 12GICh. 10 - Prob. 13GICh. 10 - Prob. 14GICh. 10 - Prob. 15GICh. 10 - Prob. 16GICh. 10 - Prob. 17GICh. 10 - What is the distinction between a capital and an...Ch. 10 - Distinguish between additions and...Ch. 10 - Distinguish between ordinary repairs and...Ch. 10 - Prob. 21GICh. 10 - Hickory Company made a lump-sum purchase of three...Ch. 10 - Prob. 2MCCh. 10 - Electro Corporation bought a new machine and...Ch. 10 - Prob. 4MCCh. 10 - Lyle Inc. purchased certain plant assets under a...Ch. 10 - Ashton Company exchanged a nonmonetary asset with...Ch. 10 - Prob. 7MCCh. 10 - Prob. 8MCCh. 10 - Prob. 9MCCh. 10 - Prob. 10MCCh. 10 - On January 1, Duane Company purchases land at a...Ch. 10 - Prob. 2RECh. 10 - Utica Corporation paid 360,000 to purchase land...Ch. 10 - Prob. 4RECh. 10 - Prob. 5RECh. 10 - Prob. 6RECh. 10 - Nabokov Company exchanges assets with Faulkner...Ch. 10 - Prob. 8RECh. 10 - Dexter Construction Corporation is building a...Ch. 10 - Prob. 10RECh. 10 - Prob. 11RECh. 10 - Ricks Towing Company owns three tow trucks. During...Ch. 10 - Inclusion in Property, Plant, and Equipment...Ch. 10 - Prob. 2ECh. 10 - Acquisition Costs Voiture Company manufactures...Ch. 10 - Determination of Acquisition Cost In January 2019,...Ch. 10 - Asset Retirement Obligation Big Cat Exploration...Ch. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Exchange of Assets Two independent companies,...Ch. 10 - Exchange of Assets Use the same information as in...Ch. 10 - Prob. 11ECh. 10 - Exchange of Assets Goodman Company acquired a...Ch. 10 - Exchange of Assets Use the same information as in...Ch. 10 - Prob. 14ECh. 10 - Self-Construction Harshman Company constructed a...Ch. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Expenditures after Acquisition McClain Company...Ch. 10 - Prob. 21ECh. 10 - Prob. 1PCh. 10 - Classification of Costs Associated with Assets The...Ch. 10 - Prob. 3PCh. 10 - Comprehensive At December 31, 2018, certain...Ch. 10 - Assets Acquired by Exchange Bremer Company made...Ch. 10 - Assets Acquired by Exchange Bussell Company...Ch. 10 - Self-Construction Olson Machine Company...Ch. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Events Subsequent to Acquisition The following...Ch. 10 - Prob. 11PCh. 10 - Prob. 1CCh. 10 - Prob. 2CCh. 10 - Cost Issues Deskin Company purchased a new machine...Ch. 10 - Prob. 4CCh. 10 - Prob. 5CCh. 10 - Prob. 6CCh. 10 - Prob. 7CCh. 10 - Prob. 9CCh. 10 - Prob. 10CCh. 10 - Prob. 11C
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Similar questions
- A company may acquire plant assets (among other ways) for cash, on a deffered payment plan, by exchanging other assets, or by a combination of these ways. Required: Identify six costs that should be capitalized as the cost of the land. For your answer, assume that land with an existing building is acquired for cash and that the existing building is to be removed in the immediate future so that a new building can be constructed on the site! At what amount should a company capitalize a plant asset acquired on a deffered payment plan? In general, at what amount should plant assets received in exchange for other nonmonetery assets to be recorded a new machine acquired by exchanging an older, similar machine and paying cash? Would your answe be the same if cash were received?arrow_forwardWho will have control over the operation of the property and decisions involving capital improvements, approving leases to tenants, financing and possibly refinancing the property, and when to sell the property?arrow_forwardA 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?arrow_forward
- An asset is being constructed for an enterprise's own use. The asset has been financed with a specific new borrowing. The interest cost incurred during the construction period as a result of expenditures for the asset is * A. interest expense in the construction period. B. a part of the historical cost of acquiring the asset to be written off over the estimated useful life of the asset. C. a part of the historical cost of acquiring the asset to be written off over the term of the borrowing used to finance the construction of the asset. D. recorded as a deferred charge and amortized over the term of the borrowing.arrow_forwardWhich costs would most likely be capitalized in the “Land Improvements” account? Costs associated with clearing the land for its intended business use Costs associated with paving and fencing on the land Costs associated with constructing a building on the landarrow_forwardOne financial accounting issue encountered when a companyconstructs its own plant is whether the interest coston funds borrowed to finance construction should becapitalized and then amortized over the life of the assetsconstructed. What is the justification for capitalizingsuch interest?arrow_forward
- All of the following costs associated with acquiring a building should be capitalized except a. The costs of buildings permits b. The cost of a strike associated with the construction of the building c. the contract price d. the costs of excavation for the buildingarrow_forward7. Which of the following statements is true regarding capitalization of interest? A) The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period B) Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account. C) The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. D) When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized.arrow_forwardWhen a company purchases land with a building on it and immediately tears down thebuilding so that the land can be used for the construction of a plant, the costs incurredto tear down the building should be:a. expensed as incurredb. added to the cost of the plantc. added to the cost of the landd. amortized over the estimated time period between the tearing down of thebuilding and the completion of the planarrow_forward
- Why should corporations have their real estate appraised on a regular basis?arrow_forwardWhat are some of the potential problems with using a “going-in” capitalization rate that is obtained from previous property sales transactions to value a property being offered for sale today?arrow_forwardIndicate whether each of the following statements is true or false. When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building. Answer Special assessments for local improvements such as streetlights and sewers should be accounted for as land improvements. Answer Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset.arrow_forward
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