The fine is to be paid in equal amounts in 2011 and 2012. Avoidable interest The amount of interest cost in a period that a company could theoretically avoid if it had not made expenditures for an asset. Describe the accounting problems associated with interest capitalization. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein. Requirement 3 The fixed-asset turnover ratio is computed by dividing net sales revenues by average fixed assets.
Temporary or short-term investment decisions are not related to the interest incurred as part of the acquisition cost of assets. Now assume that Interstate Transportation Company exchange lacks commercial substance. . Students can search for internships and entry-level accounting positions while getting career, resume, and interviewing advice from career coaches. Answers will vary depending on the financial statement dates chosen. . Property, plant, and equipment yield services over a number of years.
Historical cost typically includes the purchase price, freight costs, sales taxes, installation costs, and any related costs incurred after the asset's acquisition such as additions or improvements if they provide future service potential. Requirement 2 The capitalization period for a self-constructed asset starts when 1 expenditures materials, labor, and overhead have been made and 2 interest cost is being incurred. Gains or losses on the retirement of plant assets are shown in the income statement along with other items that arise from customary business activities. This would exclude such indirect costs as depreciation and the salaries of supervisors that would be incurred whether or not the construction project is undertaken. Lump-Sum Purchases — Allocate the total cost among the various assets on the basis of their relative fair market values.
In general, in transactions involving leased capacity, the companies booked the revenue over the life of the contract. Over several weeks, we trained Lynn in the ins and outs of creating and editing videos in the screencasting software, Camtasia. . Issuance of Stock — The market price of the stock issued is a fair indication of the cost of the property acquired. Involuntary conversion The termination of an asset's service as a result of some type of unwanted or unexpected event, such as fire, flood, theft, or condemnation.
The enacted tax rate for 2011 is 30% Required: 1. Kavanagh University of Tennessee Introduction In the past, pregnancy has been considered a condition for confinement, but today it is recognized as a unique time for change. Intermediate Accounting, 16th Edition By Donald E. To record prepaid insurance for the machine. A plant asset is tangible; it is used in the production or sale of other assets or services; and it has a useful life longer than one accounting period.
Palmiero purchased a patent from Vania Co. The capitalization period ends when the asset is substantially complete and ready for its intended use. Question 10—9 Donated assets are valued at their fair values. However, the process of asset acquisition sometimes obscures fair value. Prepare the 2011 journal entries to record the contribution to plan assets and benefit payments to retirees 4. Research and development costs incurred to internally develop an intangible asset are expensed in the period incurred.
For the expenditure made on November 1, the company incurs only 2 months of interest cost. Some criticize this approach because a company can defer the interest cost but report the interest revenue in the current period. Camel made the following entry. Role of principles, objectives, standards, and accounting theory. Construction on the equipment began on Jan.
A direct relationship between research and development costs and future revenues generally cannot be demonstrated. Advocates say that failure to allocate overhead costs understates the initial cost of the asset and results in an inaccurate future allocation. Assets qualifying for capitalization exclude inventories that are routinely manufactured in large quantities on a repetitive basis and assets that are in use or ready for their intended purpose. Moreover, even for those projects that pan out, a direct relationship between research and development costs and specific future revenue is difficult to establish. Adaptive Practice Targeted and personalized opportunities for practice effectively help students prepare for class or quizzes and exams. The accounting for the swaps involves exchanges of similar network capacity. Companies report the difference between the amount recovered from the involuntary conversion, if any, and the asset's book value as a gain or loss.