Question
1. Fullerton Waste Management purchased land and a warehouse for $740,000. In addition to the purchase price, Fullerton made the following expenditures related to the
1. Fullerton Waste Management purchased land and a warehouse for $740,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: brokers commission, $44,000; title insurance, $10,000; miscellaneous closing costs, $13,000. Assume that Fullerton decides to use the warehouse rather than demolish it. An independent appraisal estimates the fair values of the land and warehouse at $630,000 and $210,000, respectively.
Determine the amounts Fullerton should capitalize as the cost of the land and the building.
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2. Calaveras Tire exchanged equipment for two pickup trucks. The book value and fair value of the equipment were $35,000 (original cost of $87,500 less accumulated depreciation of $52,500) and $24,500, respectively. Calaveras also paid $6,500 in cash. Assume the exchange has commercial substance.
At what amount will Calaveras value the pickup trucks? How much gain or loss will the company recognize on the exchange?
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3. Calaveras Tire exchanged equipment for two pickup trucks. The book value and fair value of the equipment were $37,000 (original cost of $90,500 less accumulated depreciation of $53,500) and $49,500, respectively. Calaveras also paid $7,500 in cash. Assume the exchange has commercial substance.
At what amount will Calaveras value the pickup trucks? How much gain or loss will the company recognize on the exchange?
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4. A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $580,000; March 31, $680,000; June 30, $480,000; October 30, $840,000. To help finance construction, the company arranged a 7% construction loan on January 1 for $860,000. The companys other borrowings, outstanding for the whole year, consisted of a $4 million loan and a $6 million note with interest rates of 8% and 6%, respectively. Assuming the company uses the specific interest method, calculate the amount of interest capitalized for the year. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%).)
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5. A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $510,000; March 31, $610,000; June 30, $410,000; October 30, $630,000. To help finance construction, the company arranged a 8% construction loan on January 1 for $720,000. The companys other borrowings, outstanding for the whole year, consisted of a $2 million loan and a $4 million note with interest rates of 10% and 7%, respectively. Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year. (Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e. 0.1234 should be entered as 12.34%).)
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