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intermediate accounting 11th
Intermediate Accounting IFRS International Adaptation 5th Edition Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield - Solutions
25. Tanaka Ltd. has land that cost ¥15,000,000. Its fair value on December 31, 2025, is ¥20,000,000. Tanaka chooses the revaluation model to report its land. Explain how the land and its related valuation should be reported.
24. Shumway Oil uses successful-efforts accounting for its exploration and evaluation costs but also provides full-cost results as well. Under full-cost results, Shumway Oil would have reported retained earnings of $42 million and net income of $4 million. Under successful-efforts accounting,
23. In the extractive industries, businesses may pay dividends in excess of net income. What is the maximum permissible? How can this practice be justified?
22. Explain the difference between exploration and development costs as used in the extractive industries.
21. Describe cost depletion.
20. List (a) the similarities and (b) the differences in the accounting treatments of depreciation and cost depletion.
19. It has been suggested that plant and equipment could be replaced more quickly if depreciation rates for income tax and accounting purposes were substantially increased. As a result, business operations would receive the benefit of more modern and more efficient plant facilities. Discuss the
18. Explain how gains or losses on impaired assets should be reported in income.
17. Toro SA has equipment with a carrying amount of €700,000. The value-in-use of the equipment is €705,000, and its fair value less cost of disposal is €590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its
16. Last year, Wyeth Company recorded an impairment on an asset held for use. Recent appraisals indicate that the asset has increased in value. Should Wyeth record this recovery in value?
15. Walkin Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a write-down is permitted.
14. Andrea Shen purchased a computer for €8,000 on July 1, 2025. She intends to depreciate it over 4 years using the double-declining-balance method. Residual value is €1,000. Compute depreciation for 2026.
13. Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree? Discuss.
12. A building that was purchased December 31, 2001, for £2,500,000 was originally estimated to have a life of 50 years with no residual value at the end of that time. Depreciation has been recorded through 2025. During 2026, an examination of the building by an engineering firm discloses that its
11. What is component depreciation?
10. What are the major factors considered in determining what depreciation method to use?
9. Silverman Company purchased machinery for $162,000 on January 1, 2025. It is estimated that the machinery will have a useful life of 20 years, residual value of $15,000, production of 84,000 units, and working hours of 42,000. During 2025, the company uses the machinery for 14,300 hours, and the
8. Workman Group purchased a machine on January 2, 2025, for€800,000. The machine has an estimated useful life of 5 years and a residual value of €100,000. Depreciation was computed by the 150%declining-balance method. What is the amount of accumulated depreciation at December 31, 2026?
7. What basic questions must be answered before the amount of the depreciation charge can be computed?
6. For what reasons are plant assets retired? What are physical and economic factors?
5. The plant manager of a manufacturing firm suggested in a conference of the company’s executives that accountants should speed up depreciation on the machinery in the finishing department because improvements were rapidly making those machines obsolete, and a depreciation fund big enough to
4. Explain how estimation of service lives can result in unrealistically high valuations of property, plant, and equipment.
3. Some believe that accounting depreciation measures the decline in the value of property, plant, and equipment. Do you agree? Explain.
2. Identify the factors that are relevant in determining the annual depreciation charge, and explain whether these factors are determined objectively or whether they are based on judgment.
1. Distinguish among depreciation, depletion, and amortization.
CA9.7 (LO 1) Ethics (Cost of Land vs. Building—Ethics) Tones Company purchased a warehouse in a downtown district where land values are rapidly increasing. Gerald Carter, controller, and Wilma Ankara, financial vice president, are trying to allocate the cost of the purchase between the land and
CA9.6 (LO 1) (Costs of Acquisition) The invoice price of a machine is €50,000. Various other costs relating to the acquisition and installation of the machine, including transportation, electrical wiring, special base, and so on, amount to €7,500. The machine has an estimated life of 10 years,
CA9.5 (LO 3) Writing (Non-Monetary Exchanges) You have two clients who are considering trading machinery with each other. Although the machines are different from each other, you believe that an assessment of expected cash flows on the exchanged assets will indicate the exchange lacks commercial
CA9.4 (LO 2) Writing (Capitalization of Borrowing Costs) Vang Magazine Group started construction of a warehouse building for its own use at an estimated cost of ¥5,000,000 on January 1, 2024, and completed the building on December 31, 2024 (all amounts in thousands). During the construction
CA9.3 (LO 2) (Capitalization of Borrowing Costs) Langer Airline is converting from piston-type planes to jets. Delivery time for the jets is 3 years, during which time substantial progress payments must be made. The multimillion-dollar cost of the planes cannot be financed from working capital;
CA9.2 (LO 1) (Accounting for Self-Constructed Assets) Troopers Medical Labs began operations 5 years ago producing stetrics, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for stetrics far exceeded initial expectations, and the company was unable to
CA9.1 (LO 1, 4, 5) Writing (Acquisition, Improvements, and Sale of Realty) Tonkawa Group purchased land for use as its company headquarters. A small factory that was on the land when it was purchased was torn down before construction of the office building began. Furthermore, a substantial amount
P9.11 (LO 1, 3, 5) (Purchases by Deferred Payment, Lump-Sum, and Non-Monetary Exchanges)Kang Ltd., a manufacturer of ballet shoes, is experiencing a period of sustained growth. In an effort to expand its production capacity to meet the increased demand for its product, the company recently made
P9.10 (LO 3) (Non-Monetary Exchanges) During the current year, Marshall Construction trades an old crane that has a book value of €90,000 (original cost €140,000 less accumulated depreciation€50,000) for a new crane from Brigham Manufacturing. The new crane cost Brigham €165,000 to
P9.9 (LO 3) (Non-Monetary Exchanges) On August 1, Hyde Ltd. exchanged productive assets with Wiggins Ltd. Hyde’s asset is referred to below as Asset A, and Wiggins’ is referred to as Asset B. The following facts pertain to these assets.Asset A Asset B Original cost £96,000 £110,000
P9.8 (LO 3) (Non-Monetary Exchanges) Holyfield SA wishes to exchange a machine used in its operations. Holyfield has received the following offers from other companies in the industry.1. Dorsett Company offered to exchange a similar machine plus €23,000. (The exchange has commercial substance for
P9.7 (LO 2) Groupwork (Capitalization of Borrowing Costs) Laserwords A.Ş. is a book distributor that had been operating in its original facility since 1988. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate
P9.6 (LO 2) (Borrowing Costs) Cho Landscaping began construction of a new plant on December 1, 2025 (all amounts in thousands). On this date, the company purchased a parcel of land for ¥139,000 in cash.In addition, it paid ¥2,000 in surveying costs and ¥4,000 for a title insurance policy. An old
P9.5 (LO 1, 2) (Classification of Costs and Capitalization of Borrowing Costs) On January 1, 2025, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker’s commission of $36,000, legal fees of $6,000, and title guarantee
P9.4 (LO 1, 3, 5) Groupwork (Dispositions, Including Condemnation, Demolition, and Trade-In) Presented below is a schedule of property dispositions for Hollerith Co.Schedule of Property Dispositions Cost Accumulated Depreciation Cash Proceeds Fair Value Nature of Disposition Land $40,000 —
P9.3 (LO 1, 3) (Classification of Land and Building Costs) Spitfire SE started as a company on January 2, 2026, but was unable to begin manufacturing activities until July 1, 2026, because new factory facilities were not completed until that date.The Land and Buildings account reported the
P9.2 (LO 1, 5) (Classification of Acquisition Costs) Selected accounts included in the property, plant, and equipment section of Lobo Corporation’s statement of financial position at December 31, 2024, had the following balances.Land $ 300,000 Land improvements 140,000 Buildings 1,100,000
P9.1 (LO 1, 2) (Classification of Acquisition and Other Asset Costs) At December 31, 2024, certain accounts included in the property, plant, and equipment section of Reagan Ltd.’s statement of financial position had the following balances.Land £230,000 Buildings 890,000 Leasehold improvements
E9.27 (LO 5) (Disposition of Assets) On January 1, 2025, Pavlova Company received a notice from the government that a new highway was being built and that land and a building owned by the company were going to be claimed in the process. The company employed an appraiser and estimated that the land
E9.25 (LO 4) (Analysis of Subsequent Expenditures) Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the statements of financial position and income statements for a number of years.Instructions For
E9.24 (LO 4) (Analysis of Subsequent Expenditures) The following transactions occurred during 2026. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated residual value. Depreciation is charged for a full year
E9.23 (LO 4) Groupwork (Analysis of Subsequent Expenditures) Accardo Resources Group has been in its plant facility for 15 years. Although the plant is quite functional, numerous repair costs are incurred to maintain it in sound working order. The company’s plant asset book value is currently
E9.22 (LO 3) (Government Grants) Yilmaz SA is provided a grant by the local government to purchase land for a building site. The grant is a zero-interest-bearing note for 5 years. The note is issued on January 2, 2025, for €5 million payable on January 2, 2030. Yilmaz’s incremental borrowing
E9.21 (LO 3) (Government Grants) Rialto Group received a £100,000 grant from the government to acquire £500,000 of delivery equipment on January 2, 2025. The delivery equipment has a useful life of 5 years. Rialto uses the straight-line method of depreciation. The delivery equipment has a zero
E9.20 (LO 3) (Non-Monetary Exchange) Yintang Group has negotiated the purchase of a new piece of automatic equipment at a price of HK$7,000 plus trade-in, f.o.b. factory. Yintang paid HK$7,000 cash and traded in used equipment. The used equipment had originally cost HK$62,000; it had a book value
E9.19 (LO 3) (Non-Monetary Exchange) Santana SA exchanged equipment used in its manufacturing operations plus R$2,000 in cash for similar equipment used in the operations of Delaware Co. The following information pertains to the exchange.Santana SA Delaware Co.Equipment (cost) R$28,000 R$28,000
E9.18 (LO 3) (Non-Monetary Exchange) Montgomery Ltd. purchased an electric wax melter on April 30, 2026, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase.List price of new melter £15,800 Cash paid 10,000 Cost of old melter (5-year life,
E9.17 (LO 3) (Non-Monetary Exchange) Alatorre SpA, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who
E9.16 (LO 2, 3) Groupwork (Asset Acquisition) Logan Industries purchased the following assets and constructed a building as well. All this was done during the current year.Assets 1 and 2: These assets were purchased at a lump sum for €104,000 cash. The following information was
E9.15 (LO 3) (Purchase of Computer with Zero-Interest-Bearing Debt) Windsor plc purchased a computer on December 31, 2024, for £130,000, paying £30,000 down and agreeing to pay the balance in five equal installments of £20,000 payable each December 31 beginning in 2025. An assumed interest rate
E9.14 (LO 3) (Purchase of Equipment with Zero-Interest-Bearing Debt) Sterling Inc. has decided to purchase equipment from Central Industries on January 2, 2025, to expand its production capacity to meet customers’ demand for its product. Sterling issues a $900,000, 5-year, zero-interestbearing
E9.13 (LO 1, 3) (Entries for Acquisition of Assets) The following information is related to Rommel Group.1. On July 6, Rommel acquired the plant assets of Studebaker SE, which had discontinued operations.The appraised value of the property is:Land € 400,000 Building 1,200,000 Machinery 800,000
E9.12 (LO 1, 3) (Entries for Asset Acquisition, Including Self-Construction) Below are transactions related to Impala Company.a. The City of Pebble Beach gives the company 5 acres of land as a plant site. The fair value of this land is determined to be $81,000.b. A total of 14,000 ordinary shares
E9.11 (LO 3) (Entries for Equipment Acquisitions) Song Engineering purchased conveyor equipment with a list price of W15,000. Presented below are three independent cases related to the equipment(amounts in thousands).a. Song paid cash for the equipment 8 days after the purchase. The vendor’s
E9.10 (LO 2) (Capitalization of Borrowing Costs) The following two situations involve the capitalization of borrowing costs.Situation I: On January 1, 2025, Columbia Outfitters signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of R$4,000,000. It was
E9.9 (LO 2) (Capitalization of Borrowing Costs) On July 31, 2025, Bismarck Company engaged Duval Tooling Company to construct a special-purpose piece of factory machinery. Construction began immediately and was completed on November 1, 2025. To help finance construction, on July 31 Bismarck issued
E9.8 (LO 2) (Capitalization of Borrowing Costs) On December 31, 2024, Tsang Group borrowed HK$3,000,000 at 12% payable annually to finance the construction of a new building. In 2025, the company made the following expenditures related to this building: March 1, HK$360,000; June 1, HK$600,000;July
E9.7 (LO 2) (Capitalization of Borrowing Costs) McPherson Furniture started construction of a combination office and warehouse building for its own use at an estimated cost of €5,000,000 on January 1, 2025. McPherson expected to complete the building by December 31, 2025. McPherson has the
E9.6 (LO 1, 2, 3) (Correction of Improper Cost Entries) Plant acquisitions for selected companies are presented as follows.1. Natchez Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Vivace Co., for a lump-sum price of $680,000. At the time of purchase, Vivace’s
E9.5 (LO 1, 2) (Treatment of Various Costs) Allegro Supply plc, a newly formed company, incurred the following expenditures related to Land, Buildings, and Equipment.Abstract company’s fee for title search £ 520 Architect’s fees 3,170 Cash paid for land and dilapidated building thereon 92,000
E9.4 (LO 1, 2) (Purchase and Self-Constructed Cost of Assets) Dane ASA both purchases and constructs various equipment it uses in its operations. The following items for two different types of equipment were recorded in random order during the calendar year 2025.Purchase Cash paid for equipment,
E9.3 (LO 1) (Acquisition Costs of Trucks) Haddad Corporation operates a retail computer store.To improve delivery services to customers, the company purchases four new trucks on April 1, 2025. The terms of acquisition for each truck are described below.1. Truck #1 has a list price of $15,000 and is
E9.2 (LO 1, 2) (Acquisition Costs of Realty) Pollachek Co. purchased land as a factory site for$450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick
E9.1 (LO 1, 2) (Acquisition Costs of Realty) The expenditures and receipts below are related to land, land improvements, and buildings acquired for use in a business. The receipts are enclosed in parentheses.a. Money borrowed to pay building contractor (signed a note) €(275,000)b. Payment for
BE9.16 (LO 5) Use the information presented for Ottawa Corporation in BE9.15, but assume the machinery is sold for $5,200 instead of $10,500. Prepare journal entries to (a) update depreciation for 2026 and (b) record the sale.
BE9.15 (LO 5) Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2022. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2025. The machinery is sold on September 1, 2026, for
BE9.14 (LO 3) In 2025, Sato Ltd. received a grant for ¥2 million to defray the cost of purchasing research equipment for its manufacturing facility. The total cost of the equipment is ¥10 million. Prepare the journal entry to record this transaction if Sato uses (a) the deferred revenue approach,
BE9.13 (LO 4) Indicate which of the following costs should be expensed when incurred.a. €13,000 paid to rearrange and reorganize machinery.b. €200,000 paid for addition to building.c. €200 paid for tune-up and oil change on a delivery truck.d. €7,000 paid to replace a wooden floor with a
BE9.12 (LO 3) Slaton Ltd. traded a used truck for a new truck. The used truck cost £20,000 and has accumulated depreciation of £17,000. The new truck is worth £35,000. Slaton also made a cash payment of £33,000. Prepare Slaton’s entry to record the exchange. (The exchange has commercial
BE9.11 (LO 3) Cheng SE traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made a cash payment of $36,000. Prepare Cheng’s entry to record the exchange. (The exchange lacks commercial substance.)
BE9.10 (LO 3) Mehta SE traded a used welding machine (cost €9,000, accumulated depreciation€3,000) for office equipment with an estimated fair value of €5,000. Mehta also paid €3,000 cash in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial
BE9.9 (LO 3) Use the information for Navajo ASA from BE9.8. Prepare the journal entry to record the exchange, assuming the exchange lacks commercial substance.
BE9.8 (LO 3) Navajo ASA traded a used truck (cost €20,000, accumulated depreciation €18,000) for a small computer worth €3,300. Navajo also paid €500 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
BE9.7 (LO 3) Fielder Company obtained land by issuing 2,000 shares of its $10 par value ordinary shares. The land was recently appraised at $85,000. The ordinary shares are actively traded at $40 per share. Prepare the journal entry to record the acquisition of the land.
BE9.6 (LO 3) Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $315,000. The estimated fair values of the assets are land $60,000, building $220,000, and equipment $80,000. At what amounts should each of the three assets be recorded?
BE9.5 (LO 3) Chopra plc purchased a truck by issuing an £80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.
BE9.4 (LO 2) Using the information from BE9.2 and BE9.3, determine the amount of borrowing cost that Zhang Ltd. would capitalize.
BE9.3 (LO 2) Zhang Ltd. (see BE9.2) had outstanding all year a 10%, 5-year HK$4,000,000 note payable and an 11%, 4-year HK$3,500,000 note payable. Compute the capitalization rate used for borrowing cost capitalization purposes.
BE9.2 (LO 2) Zhang Ltd. is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were HK$1,800,000 on March 1, HK$1,200,000 on June 1, and HK$3,000,000 on December 31. Compute Zhang’s average carrying amount for borrowing cost capitalization
BE9.1 (LO 1) Previn Brothers Inc. purchased land at a price of $27,000. Closing costs were $1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?
23. What are the general rules for how gains or losses on disposal of plant assets should be reported in income?
22. Neville Enterprises has a number of fully depreciated assets that are still being used in the main operations of the business. Because the assets are fully depreciated, the president of the company decides not to show them on the statement of financial position or disclose this information in
21. To what extent do you consider the following items to be proper costs of property, plant, and equipment? Give reasons for your opinions.a. Overhead of a business that builds its own equipment.b. Cash discounts on purchases of equipment.c. Borrowing costs during construction of a building.d.
20. New machinery, which replaced a number of employees, was installed and put in operation in the last month of the fiscal year. The employees had been dismissed after payment of an extra month’s wages, and this amount was added to the cost of the machinery.Discuss the propriety of the charge.
19. What accounting treatment is normally given to the following items in accounting for plant assets?a. Additions.b. Major repairs.c. Improvements.d. Replacements.
18. Once equipment has been installed and placed in operation, subsequent expenditures relating to this equipment are frequently thought of as repairs or general maintenance and, hence, chargeable to operations in the period in which the expenditure is made. Actually, determination of whether such
17. Ito Ltd. receives a local government grant to help defray the cost of its plant facilities. The grant is provided to encourage Ito to move its operations to a certain area. Explain how the grant might be reported.
16. Crowe AG purchased a heavy-duty truck on July 1, 2022, for€30,000. It was estimated that it would have a useful life of 10 years and then would have a residual value of €6,000. The company uses the straight-line method of depreciation. It was traded on August 1, 2026, for a similar truck
15. Stan Ott is evaluating two recent transactions involving exchanges of equipment. In one case, the exchange has commercial substance.In the second situation, the exchange lacks commercial substance.Explain to Stan the differences in accounting for these two situations.
14. Pueblo Co. acquires machinery by paying $10,000 cash and signing a $5,000, 2-year, zero-interest-bearing note payable. The note has a present value of $4,208, and Pueblo purchased a similar machine last month for $13,500. At what cost should the new equipment be recorded
13. Ocampo SA purchased for €2,200,000 property that included both land and a building to be used in operations. The seller’s book value was €300,000 for the land and €900,000 for the building. By appraisal, the fair value was estimated to be €500,000 for the land and €2,000,000 for the
12. Magilke Industries acquired equipment this year to be used in its operations. The equipment was delivered by the suppliers, installed by Magilke, and placed into operation. Some of it was purchased for cash with discounts available for prompt payment. Some of it was purchased under long-term
11. Discuss the basic accounting problem that arises in handling each of the following situations.a. Assets purchased by issuance of ordinary shares.b. Acquisition of plant assets by grant.c. Purchase of a plant asset subject to a cash discount.d. Assets purchased on a long-term credit basis.e. A
10. How should the amount of borrowing cost capitalized be disclosed in the notes to the financial statements? How should interest revenue from temporarily invested excess funds borrowed to finance the construction of assets be accounted for?
9. What interest rates should be used in determining the amount of borrowing cost to be capitalized? How should the amount of borrowing cost to be capitalized be determined?
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