Kwik-Bild Corporation sells and erects shell houses. These are frame structures that are completely finished on the
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Kwik-Bild buys shell houses from a manufacturer in unassembled packages consisting of all lumber, roofing, doors, windows and similar materials necessary to complete a shell house. Upon commencing operations in a new area, Kwik-Bild buys or leases land as a site for its local warehouse, field office and display houses. Sample display houses are erected at a total cost of from $10,000 to $30,000, including the cost of the unassembled packages. The chief element of cost of the display houses is the unassembled packages, since erection is a short, low-cost operation. Old sample models are torn down or altered into new models every three to seven years. Sample display houses have little salvage value because dismantling and moving costs amount to nearly as much as the cost of an unassembled package.
Required
1. A choice must be made between (a) expensing the costs of sample display houses in the period in which the expenditure is made, and (b) spreading the costs over more than one period. Discuss the advantages of each method.
2. Is it preferable to amortize the cost of display houses on the basis of (a) the passage of time, or (b) the number of shell houses sold? Explain.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
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