accounting financial statements and costs, 2 problems

Project Description:

voltage, inc. is a large publicly held corporation. listed below are six selected expenditures made by the company during the current fiscal year ended april 30, 2013. the proper accounting treatment of these transactions must be determined in order that voltage's annual financial statements will be prepared in accordance with generally accepted accounting principles.
for each of the six expenditures presented, determine and justify:

1. the amount, if any, that should be capitalized and be included on voltage's statement of financial position prepared as of april 30, 2013.

2. the amount that should be included in voltage's statement of income for the year ended april 30, 2013.

a. voltage, inc. spent $2,000,000 on a program designed to improve relations with its dealers. this project was favorably received by the dealers and voltage's management believes that significant future benefits should be received from this program. the program was conducted during the fourth quarter of the current fiscal year.

b. a pilot plant was constructed during 2012-13 at a cost of $4,000,000 to test a new production process. the plant will be operated for approximately five years. at the end of that time, the company will make a decision regarding the economic value of the proceeds. this pilot plant is too small for commercial production, so it will be dismantled when the test is over.

c. a new product will be introduced next year. the company spent $3,000,000 during the current year for design of tools, jigs, molds, and dies for this product.

d. voltage, inc. purchased merit company for $5,000,000 in cash in early august 2012. the fair market value of the identifiable assets of merit was $4,000,000.

e. a large advertising campaign was conducted during april 2013 to introduce a new product to be released during the first quarter of the 2013-14 fiscal year. the advertising campaign cost $2,500,000.

f. during the first six months of the 2011-12 fiscal year, $500,000 was expended for legal work in connection with a successful patent application. the patent became effective november 1, 2012. the legal life of the patent is 20 years while the economic life of the patent is expected to be approximately 10 years.

problem 10-9

after securing lease commitments from several major stores, taylor shopping center, inc. was organized and built a shopping center in a growing suburb.

the shopping center would have opened on schedule on january 1, 2013, if it had not been struck by a severe tornado in december. instead, it opened for business on october 1, 2013. all of the additional construction costs that were incurred as a result of the tornado were covered by insurance.

in july 2012, in anticipation of the scheduled january opening, a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space, and manage the property.

a summary of some of the costs incurred in 2012 and the first nine months of 2013 follows:

jan. 1, 2013
2012 sept. 30, 2013
interest on mortgage bonds $720,000 $540,000
cost of obtaining tenants 300,000 360,000
promotional advertising 540,000 557,000

the promotional advertising campaign was designed to familiarize shoppers with the center. had it been known in time that the center would not open until october 2013, the 2012 expenditure for promotional advertising would not have been made. the advertising had to be repeated in 2013.

all of the tenants who had leased space in the shopping center at the time of the tornado accepted the october occupancy date on condition that the monthly rental charges for the first 9 months of 2013 be canceled.

explain how each of the costs for 2012 and the first 9 months of 2013 should be treated in the accounts of the shopping center corporation. give the reasons for each treatment.
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