Fit Fixtures Incorporated (FFI) is a manufacturer of exercise equipment such as treadmills, stair climbers, and elliptical machines. The company has a December 31 year end and uses ASPE. The accounting staff member who normally looks after the capital asset accounts was on maternity leave for the year, and the company put all transactions in a temporary account called Asset Additions and Disposals.

The company policy on calculating depreciation for partial periods of ownership is to take 50% of the normal amount of depreciation in the year of addition or disposal. Due to the staff member's maternity leave, no depreciation or amortization expense has yet been taken in 2020.

1. The company completed construction of a new plant in Saskatchewan on December 15, 2020, to help it better meet the needs of its customers west of Ontario. The costs associated with this construction project were as follows:

Land ............................................................................................... $ 500,000

Construction contract: building, 20 years of useful life, residual value

of $50,000 ..................................................................................... 1,500,000

Equipment (See below)

Furniture .......................................................................................... 250,000

Training costs (employees learning to use equipment) ............... 45,000

Avoidable interest calculated at 8% on financing of construction

project from inception until put in use .......................................... 75,000

The equipment purchased for the new plant was bought on a deferred payment contract signed on December 1. FFI issued a $5-million, five-year, non-interest bearing note payable to the equipment supplier at a time when the annual market rate of interest was 6%. The note will be repaid with five equal payments made on December 1 of each year, beginning in 2021. Show calculations using factor Table A.4, a financial calculator, or Excel function PV. Round final amounts to the nearest dollar.

2. FFI purchased a used computer and a printer at an auction for $2,500. The printer needed a new drum. The cost of the new drum was $500. The used computer's fair market value was $2,000 if purchased separately. The printer was worth $1,000 without a drum and $1,500 with the drum replaced.

3. On July 1, 2020, FFI sold a delivery truck for $10,000. The truck originally cost $25,000, and accumulated depreciation on the truck to December 31, 2019, was $10,000. The truck was amortized on a straight-line basis over a five-year period, with no residual value. The sale was recorded as a debit to Cash and a credit to Asset Additions and Disposals. No amortization was recorded in the current year.

4. Due to an office redesign in the Ontario building, FFI traded some old equipment for different equipment with a similar life and value in use. The fair value of the equipment disposed of was $5,000. The cost of this equipment was $7,000, and the accumulated depreciation on the equipment at December 31, 2019, was $3,000. This transaction was not recorded in the books of account. No entry was made to record the exchange.

5. Shortly after the new factory was completed, vandals attacked the building and caused significant damage. The costs to correct the damage, which were not covered by insurance, included:

New paint to cover graffiti ............................. $ 4,000

Glass for broken windows .............................. 10,000

Improved security system .............................. 25,000

6. During the year, the company developed a new piece of exercise equipment that has a built-in video game. It was the policy to amortize development costs on a straight-line basis over three years, with 50% of the normal amount in the year of development. The costs associated with product development included:

Costs to determine how a video game would work with exercise

equipment ............................................................................................................................ $ 50,000

Design, testing, and construction of prototype equipment ............................................ 350,000

Costs to determine the best production process for the new equipment ...................... 40,000

Advertising costs to alert customers about the new product ........................................... 47,000

7. The company has goodwill and an intangible asset as follows:

The customer list has lost value and will not provide benefits through to 2025, as was originally predicted. It is now expected to provide undiscounted future cash flows of $50,000 in total over the next two years. There are no estimated costs to sell the list, as it will not be sold, and the value in use is $46,000. Goodwill has a recoverable value of $700,000 as at December 31, 2020.

Instructions

Part A: New Saskatchewan plant

Determine whether each expenditure related to the new Saskatchewan plant must be capitalized or expensed or whether it could be either (depends on policy choice). Place the dollar amount in the appropriate column in the table below.

Part B: Used equipment purchased at auction

Allocate the expenditure related to the used computer and printer bundle to each component, and identify whether each component must be capitalized or expensed or whether it could be either (depends on policy choice). Place the dollar amount allocated to each component in the appropriate column in the table below.

Part C: Delivery truck disposition

Account for the disposition of the delivery truck by preparing a journal entry in good form.

Part D: Office equipment swap

Determine the impact on the company's assets, liabilities, and net income of measuring the transaction with the carrying value versus the fair value. Write "increase," "decrease," or "no impact" in each space.

Part E: Vandal attack

Determine the impact on the company's assets, liabilities, and net income of the three expenditures related to the vandal attack. Write "increase," "decrease," or "no impact" in each space.

Part F: Research and development costs

Determine whether each expenditure is clearly a research cost or could potentially be a development cost (if the six criteria are met at the point when the costs are incurred). Place the dollar amount of each expenditure in the Research and Other Expenses or Potentially Development cost column.

Part G:Intangible assetsand Goodwill

Determine whether the assets listed are impaired, and if so, the amount of the writedown. Place an X in the Impaired or Not Impaired column for both assets (only one X per asset). If the asset is impaired, enter the amount of the writedown in the Writedown Required ($) column.