CASE 97 Accounting for Land and Plant Assets

A company may acquire plant assets (among other ways) for cash, on a deferred payment plan, by exchanging other assets, or by a combination of these ways.

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a. Identify six costs that should be capitalized as the cost of the land. For your answer, assume that land with an existing building is acquired for cash and that the existing building is to be removed in the immediate future so that a new building can be constructed on the site.

b. At what amount should a company capitalize a plant asset acquired on a deferred payment plan?

c. In general, at what amount should plant assets received in exchange for other nonmonetary assets be recorded? Specifically, at what amount should a company record a new machine acquired by exchanging an older, similar machine and paying cash? Would your answer be the same if cash were received?