I need help on this question:
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 members 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 | | $390,000 | | Construction contract: building, 20 years of useful life, residual value of $39,000 | | 1,170,000 | | Equipment | | (See below) | | Furniture | | 195,000 | | Training costs (employees learning to use equipment) | | 35,100 | | Avoidable interest calculated at 8% on financing of construction project from inception until put in use | | 58,500 | |
| | | The equipment purchased for the new plant was bought on a deferred payment contract signed on December 1. FFI issued a $8-million, five-year, noninterest-bearing note payable to the equipment supplier at a time when the annual market rate of interest was 5%. The note will be repaid with five equal payments made on December 1 of each year, beginning in 2021. |
| 2. | | FFI purchased a used computer and a printer at an auction for $1,950. The printer needed a new drum. The cost of the new drum was $390. The used computers fair market value was $1,560 if purchased separately. The printer was worth $780 without a drum and $1,170 with the drum replaced. |
| 3. | | On July 1, 2020, FFI sold a delivery truck for $7,800. The truck originally cost $19,500, and accumulated depreciation on the truck to December 31, 2019, was $7,800. 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 $3,900. The cost of this equipment was $5,460, and the accumulated depreciation on the equipment at December 31, 2019, was $2,340. 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 | | $3,120 | | Glass for broken windows | | 7,800 | | Improved security system | | 19,500 | |
| 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 | | $39,000 | | Design, testing, and construction of prototype equipment | | 273,000 | | Costs to determine the best production process for the new equipment | | 31,200 | | Advertising costs to alert customers about the new product | | 36,660 | |
| 7. | | The company has goodwill and an intangible asset as follows: |
| | | | Asset | | Details | | Original Cost as at December 31, 2019 | | Accumulated Amortization as at December 31, 2019 | | Amortization Method | | Goodwill | | Recorded in 2015 when the company took over the business of its predecessor | | $390,000 | | $0 | | Not applicable | | Customer list | | Purchased in 2015 when the company took over the business of its predecessor | | $195,000 | | $87,750 | | Straight-line over 10 years | |
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 $39,000 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 $35,880. Goodwill has a recoverable value of $546,000 as at December 31, 2020.
Requirement:
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. Policy Choice to Capitalize Expense Capitalize or Expense Land Building Equipment Furniture Training costs Avoidable interest 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. Policy Choice to Capitalize Expense Capitalize or Expense Computer Printer 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. Carrying Value Fair Value Assets Liabilities Net income 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. Paint Glass Security System Assets Liabilities Net income 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. Research and Potentially Other Expenses Development Costs to determine how a video game would work with exercise equipment Design, testing, and construction of prototype equipment Costs to determine the best production process for the new equipment Advertising costs to alert customers about the new product Part G: Intangible assets and 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. Not Impaired (X) Impaired (X) Writedown Required ($) Customer list Goodwill 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. Policy Choice to Capitalize Expense Capitalize or Expense Land Building Equipment Furniture Training costs Avoidable interest 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. Policy Choice to Capitalize Expense Capitalize or Expense Computer Printer 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. Carrying Value Fair Value Assets Liabilities Net income 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. Paint Glass Security System Assets Liabilities Net income 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. Research and Potentially Other Expenses Development Costs to determine how a video game would work with exercise equipment Design, testing, and construction of prototype equipment Costs to determine the best production process for the new equipment Advertising costs to alert customers about the new product Part G: Intangible assets and 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. Not Impaired (X) Impaired (X) Writedown Required ($) Customer list Goodwill
