Problem - Dispositions, Including Condemnation, Demolition and Trade-In
|
Cost
|
Accumulated
Depreciation
|
Cash
Proceeds
|
Fair
Value
|
Nature of
Disposition
|
|
Land
|
$40,000
|
$-
|
$31,000
|
$31,000
|
Condemnation
|
|
Building
|
$15,000
|
$-
|
$3,600
|
$-
|
Demolition
|
|
Warehouse
|
$70,000
|
$16,000
|
$74,000
|
$74,000
|
Destruction by Fire
|
|
Machine
|
$8,000
|
$2,800
|
$900
|
$7,200
|
Trade-In
|
|
Furniture
|
$10,000
|
$7,850
|
$-
|
$3,100
|
Contribution
|
|
Automobile
|
$9,000
|
$3,460
|
$2,960
|
$2,960
|
Sale
|
Land: On February 15, a condemnation award was received as consideration for unimproved land held primarily as an investment. On March 31, another parcel of unimproved land to be held as an investment was purchased for $35,000
Building: On April 2, land and building were purchased at a total cost of $75,000, of which 20% was allocated to the building on the corporate books ($15,000). The real estate was acquired with the intention of demolishing the building. Cash proceeds represent the net proceeds from demolishing the building.
Warehouse: On June 30, the warehouse was destroyed by fire. The warehouse was purchased January 2, 2014 and had depreciated $16,000. On December 27, the insurance proceeds and other funds were used to purchase a replacement warehouse at a cost of $90,000.
Machine: On December 26, the machine was exchanged for another machine having a fair value of $6,300 and cash of $900 was received. (The exchange lacks commercial substance)
Furniture: On August 15, furniture was contributed to a qualified charitable Organization. No other contributions made during the year.
Automobile: On November 3, the automobile was sold to Jared Winger, a stockholder.
Indicate how these items would be reported on the income statement of Hollerith Co.
Land:
Building:
Warehouse:
Machine:
Furniture:
Automobile:
Problem 2 - Interest during Construction
|
|
Construction
Contractor Payments
|
|
|
Purchased Land
|
$139,000
|
3/1
|
$240,000
|
|
Surveying Costs
|
$2,000
|
5/1
|
$330,000
|
|
Title Insurance Policy
|
$4,000
|
7/1
|
$60,000
|
|
Demolition Cost
|
$3,000
|
|
|
|
Sale of materials
|
$1,000
|
Borrowed 12/1/17
|
$600,000
|
|
Architect Cost
|
$30,000
|
Term - years
|
10
|
|
Building Permit Cost
|
$3,000
|
Interest Rate
|
8%
|
Compute the balance in each of the following accounts at December 31, 2017 and December 31, 2018
(a) Land
(b) Buildings
(c) Interest Expense
CA 11-5, Ethics (Depreciation Choice - Ethics)
(a) Who are the stakeholders in this situation?
(b) What are the ethical issues involved?
(c) What should prior do?
Problem 3 - Accounting for Patents
|
Date
|
Activity
|
Cost
|
|
2008-2009
|
Research conducted to develop precipitator
|
$384,000
|
|
Jan. 2010
|
Design and construction of a prototype
|
$87,600
|
|
March 2010
|
Testing of Models
|
$42,000
|
|
Jan. 2011
|
Fees paid engineers and lawyers to prepare
patent application; patent granted 6/30/11
|
$59,500
|
|
Nov. 2012
|
Engineering activity necessary to advance
design of the precipitator to the Mfg stage
|
$81,500
|
|
Dec. 2013
|
Legal fees paid to successfully defend patent
|
$42,000
|
|
April 2014
|
Research aimed at modifying the desing of
the patented precipitator
|
$43,000
|
|
July 2018
|
Legal fees paid in unsuccessful patent
infringement suit against competitor
|
$34,000
|
|
|
|
|
Original Useful Life - 6/30/11
|
17 Years
|
|
Useful Life Revise - 1/1/16
|
5 Remaining years
|
|
Amortization computed for full year 01/01 - 06/30
|
|
|
Amortization not computed for year 07/01-12/31
|
|
Compute the carrying value of the patent on each of the following dates:
(a) December 31, 2011
(b) December 31, 2015
(c) December 31, 2018