Intermediate Accounting Assignment - Decommissioning Costs, NonMonetary Transactions, Revaluation, Borrowing Costs and Intangible Assets
Problem 1 -
In 20x0, the Nevue Corporation obtained the mining rights for a property in Northern Ontario for $10,000,000. During the year 20x0, Nevue invested another $6,000,000 to build the infrastructure of the mine. The mind became operational on December 31, 20x0. Nevue expects that the mine will be operational for 15 years after which the site will have to be restored at a cost of $8,000,000. The total output of the mine is expected to be 500,000 tonnes of ore. Nevue will be using the units of production method of depreciation for both the mining rights and the infrastructure.
Required -
a) During 20x1 and 20x2, the total tonnes of ore mined was 26,000 and 38,000 respectively. Assuming a discount rate of 5%, prepare all journal entries for the years ended December 31, 20x0, 20x1 and 20x2.
b) In 20x8, Nevue estimates that the total output of the mine will be 450,000 tonnes and that the mine will be closing on December 31, 20x12. The cost to restore the site is now estimated to be $8,500,000. Total tonnes mined to December 31, 20x7 was 210,000 tonnes. A total of 31,000 tonnes were extracted in 20x8. Assuming a discount rate of 4%, prepare all journal entries for the year ended December 31, 20x8.
Problem 2 -
The Wesley Corporation, a publicly accountable entity, exchanged an office building for a strip mall with an unrelated organization. Data on the two properties are as follows:
Office Building Strip Mall
Original Cost $1,600,000 $1,300,000
Accumulated depreciation 1,000,000 750,000
Fair value 900,000 850,000
Required -
a) Prepare the journal entry to record the exchange on the books of Wesley on the assumption that the transaction has commercial substance.
b) Prepare the journal entry to record the exchange on the books of Wesley on the assumption that the transaction does not have commercial substance.
c) What would the difference be if Wesley was a private company subject to ASPE? Discuss only... do not prepare journal entries for this part.
Problem 3 -
On December 31, 20x0, the Nevue Corporation purchased two office buildings. Nevue decided to use the revaluation model for the buildings. Data for the two buildings is as follows:
Building 1 Building 2
Original cost $12,000,000 $8,000,000
December 31, 20x2 Fair Value 12,200,000 7,350,000
December 31, 20x4 Fair Value 10,600,000 7,000,000
December 31, 20x6 Fair Value 10,400,000 6,900,000
The useful life of each building is 40 years with no residual value.
On June 30, 20x7, Building 2 is sold for $6,850,000.
Required -
a) Write all journal entries for Building 1 from Dec 31, 20x0 to December 31, 20x6.
b) Write all journal entries for Building 2 from Dec 31, 20x0 to June 30, 20x7.
Problem 4 -
On June 30, 20x6, the Clementi Corporation, a publicly accountable entity began constructing an asset. Construction continued through September 30, 20x7 when the asset was available for use. Costs incurred in the construction of the asset are as follows:
June 30, 20x6 $300,000
October 31, 20x6 200,000
February 28, 20x7 150,000
April 30, 20x7 250,000
August 31, 20x7 400,000
Clementi has a December 31 year-end. The company's general borrowing for the years ended December 31, 20x6 and 20x7 are as follows:
Dec 31, 20x6 Dec 31, 20x7
Line of credit, 6% in 20x6 and 5.5% in 20x7 $10,000,000 $15,000,000
Bank Loan, 4% 20,000,000 16,000,000
Bonds payable, 5% 50,000,000 50,000,000
Required -
Assuming that the asset is a qualifying asset for purposes of capitalization of borrowing costs, calculate the total cost of the asset as at September 30, 20x7.
Note that you will first have to calculate the cost of the asset as at December 31, 20x6. The balance at Dec 31, 20x6 (including any borrowing costs capitalized) then gets carried forward to 20x7 and becomes the opening balance at Jan 1, 20x7.