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Exam 10: Operational Assets: Acquisition and Disposition

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Question 61

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Wendell Corporation exchanged an old truck and $25,500 cash for a new truck. The old truck had a book value of $6,000 (original cost of $25,000 less $19,000 in accumulated depreciation) and a fair value of $7,700. Required: 1. Prepare the journal entry to record the exchange. Assume the exchange has commercial substance. 2. Prepare the journal entry to record the exchange assuming that the exchange lacks commercial substance.

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Question 62

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Assets acquired in a lump-sum purchase are valued based on:

A) Their assessed valuation.
B) Their relative fair values.
C) The present value of their future cash flows.
D) Their cost plus the difference between their cost and fair values.

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Question 63

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Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of:

On August 15, 2009, Willis Inc. purchased all of the outstanding common stock of Bork Inc. paying $7,400,000 cash. The book values and fair values of Willis' assets and liabilities are listed below: Required: Prepare the journal entry to record the acquisition by Willis Inc. $\begin{array}{lrr}&\text { Book Value } & \text { Fair Value } \\\text { Accounts receivable } & \$ 1,080,000 & \$ 975,000 \\\text { Inventories } & 1,620,000 & 2,400,000 \\\text { Property, plant, and equipment } & 5,400,000 & 6,975,000 \\\text { Accounts payable } & 1,800,000 & 1,800,000 \\\text { Bonds payable } & 2,700,000 & 2,475,000\end{array}$

In Case B, Pensacola would record a gain/(loss) of:

Costs incurred after discovery of a natural resource but before production begins are reported as expenses of the period in which the expenditures are made.

During 2009, the Longhorn Oil Company incurred $5,000,000 in exploration costs for each of 20 oil wells drilled in 2009 in west Texas. Of the 20 wells drilled, 14 were dry holes. Longhorn uses the successful efforts method of accounting. Assuming that none of the oil found is depleted in 2009, what oil exploration expense would Longhorn charge for this activity in its 2009 income statement?

Briefly explain how R & D is reported in financial statements.

Operational assets are long-term, revenue producing assets.

Assets acquired under multi-year deferred payment contracts are:

An exclusive 20-year right to manufacture a product or use a process is a:

When is interest capitalized? Briefly describe how the amount to be capitalized is computed.

Show the journal entry to record Boston Beer's sale of property, plant, and equipment during 2007.

Demolition costs to remove an old building from land purchased as a site for a new building are considered part of the cost of the new building.