Pine Co. Year Ended December 31, Year 4 Asset Schedule Memorandum - Draft The company identified the following expenditures incurred during year 4 that could affect the year-end financial statements. The recommended accounting treatments for the transactions are as follows: Research and Development (R&D) Project: The company completed construction of a facility in year 4. The facility will be used for a project to test prototypes that will start at the beginning of year 5. The cost of construction was $7 million. For this project, 60% of the facility will be used for prototype testing, and 40% of the facility will be used for storage of prototype materials. At the conclusion of the project, the facility will be used for manufacturing operations for the remainder of its estimated useful life. The costs incurred should be capitalized and depreciated over the estimated useful life of the facility, with depreciation included in R&D expense until the project is complete Choose an option below O[Original text] The costs incurred should be allocated, with 60% of the total cost capitalized and the remaining 40% expensed over the period of construction O[Delete text] The costs incurree-should be allocated with 60% of the total-eest capitalized and the remaining 40% expensed-over the period of construction The costs incurred should be capitalized and depreciated over the estimated useful life of the facility, with depreciation included in R&D expense until the project is complete. OThe costs incurred should be expensed over the period of construction OThe costs incurred should be allocated with 40% of the total cost capitalized and the remaining 60% expensed as incurred. OThe costs incurred should be capitalized and depreciated over the estimated useful life of the facility, with depreciation included in cost of goods sold until the project is complete. RESET CANCEL ACCEPT The company also incurred $400,000 for employee wages in year 4 that are directly related to the prototypes. Original text] The employee wages should be capitalized and recognized as an expense over the life of the project Choose an option below [Original text] The employee wages should be capitalized and recognized as an expense over the life of the project. O[Delete text] The employee wages should be capitalized and recognized as an expense over the life of the project: OThe employee wages should be capitalized and recognized as an expense over the estimated useful life of the facility. The employee wages should be recognized as research and development expenses as incurred. The employee wages should be recognized as cost of goods sold. RESET CANCEL ACCEPT Depreciation Expense Journal Entry: On December 31, year 3, the company recognized an impairment loss of $200,000 on manufacturing equipment. The manufacturing equipment was acquired on December 31, year 1, for $900,000. The depreciation expense was incorrectly recorded, so a year 4 debit adjustment to depreciation expense for $150,000 is required Choose an option below O[Original text] The depreciation expense was correctly calculated and recorded for year 4. O[Delete text] The depreciation expense was correctly colectiated and recorded for year, The depreciation expense was incorrectly recorded, so a year 4 credit adjustment to depreciation expense for $150,000 is required. OThe depreciation expense was incorrectly recorded, so a year 4 credit adjustment to depreciation expense for $50,000 is required. The depreciation expense was incorrectly recorded, so a year 4 debit adjustment to depreciation expense for $150,000 is required. OThe depreciation expense was incorrectly recorded, so a year 4 debit adjustment to depreciation evnence for $50 000 is required. Pine Co Journal Entry 12/31/year 4 Account Account name Debit Credit 7080 150,000 Depreciation expense-manul uring equipment Accumulated depreciation manufacturing equipment 1510 150,000 Exhibit #2: Accounting Policy Pine Co. Accounting Policy - Property. Plant and Equipment (PPE) Effective date: January 1. year 4 Policy statement This policy is designed to describe the company's guidelines for recording new and existing assets, disposal of assets, and change in assets PPE definition and classes Capitalized PPE has an economic life in excess of 12 months, is held in the normal course of operations (not for resale), and the cost or value at the fime of acquisition exceeds $3.000 (the capitalization threshold) Expenditures to maintain or improve PPE are capitalized if they extend the useful life of the asset. PPE can be acquired through purchase donation or self- construction The company holds the following classes of PPE Land Buildings Furniture and fixtures Technology equipment - Manufacturing equipment Assets under construction Roles and responsibilities Controller - Responsible for establishing and maintaining an appropriate and adequate PPE accounting system that facilitates accurate presentation in the financial statements Assistant Controller - Responsible for ensuring the proper maintenance of the PE accounting system including accurate use of general ledger codes, useful life determinate and appropriate capitalization of assets Authorizabon Limits PPE acquired with a cost in excess of $15.000 requires authorization by both the CFO and the controller PPE acquired with a cost between $3,000 and $15.000 should be authored by other the CFO or the controller PPE with a cost between $3000 and $8,000 should be authorized by the CFO, the controller, or the assistant controller Depreciation policy Depreciation is the allocation of the action cost of PPE over is estimated use it Depreciation begins in the more subsequent to acoustion of the PPE. A Ml year of depreciation is recognized in the year of disposition Land is not considered to be a deprecable asset because it has an urimited useful life and the salvage value is generally more than the acquisition cost Depreciation for each class of PPE is computed on a straight-line basis over the estimated uselule as follows Building Furniture and fixtures Technology equipment Manufacturing equipment 40 years 7 years 3 years 6 years Exhibit #3: Assets Under Construction Detail Account: 1000 Annets Under Construction Credit Total 12.750.000 12,780.000 750.000 400,000 830.000 230.000 0,000,000 Date Description 01/01/year 4 Opening balance 02/01/year 4 Payment for capital projects 9/ 2uar 4 Payment for capital projects 04/01/vard Payment for capital eclects 05/05/year & Payment for capital projects 06/30/year Transfer of manufacturing equipment to PPE 07/01/year 4 Payment for capital projects year Paytrent for projects 05/07/ Payment for captures 10/04/year Payment for capit projects 11/10/pare Payment for capital projects 12/22/year 4 Payment for capital projects 12/31/ Trander of building to PPE 12/31/year 4 Closing balance 13,530.000 110.000 14.710.000 14.000 3.500.000 $.135.000 100.000 10,445.000 21.185.000 175.000 950.000 360,000 740.000 510.000 11. DOO 425,000 7.000.000 22.120.000 120,000 5.120.000 Pine Co. Year Ended December 31, Year 4 Asset Schedule Memorandum - Draft The company identified the following expenditures incurred during year 4 that could affect the year-end financial statements. The recommended accounting treatments for the transactions are as follows: Research and Development (R&D) Project: The company completed construction of a facility in year 4. The facility will be used for a project to test prototypes that will start at the beginning of year 5. The cost of construction was $7 million. For this project, 60% of the facility will be used for prototype testing, and 40% of the facility will be used for storage of prototype materials. At the conclusion of the project, the facility will be used for manufacturing operations for the remainder of its estimated useful life. The costs incurred should be capitalized and depreciated over the estimated useful life of the facility, with depreciation included in R&D expense until the project is complete Choose an option below O[Original text] The costs incurred should be allocated, with 60% of the total cost capitalized and the remaining 40% expensed over the period of construction O[Delete text] The costs incurree-should be allocated with 60% of the total-eest capitalized and the remaining 40% expensed-over the period of construction The costs incurred should be capitalized and depreciated over the estimated useful life of the facility, with depreciation included in R&D expense until the project is complete. OThe costs incurred should be expensed over the period of construction OThe costs incurred should be allocated with 40% of the total cost capitalized and the remaining 60% expensed as incurred. OThe costs incurred should be capitalized and depreciated over the estimated useful life of the facility, with depreciation included in cost of goods sold until the project is complete. RESET CANCEL ACCEPT The company also incurred $400,000 for employee wages in year 4 that are directly related to the prototypes. Original text] The employee wages should be capitalized and recognized as an expense over the life of the project Choose an option below [Original text] The employee wages should be capitalized and recognized as an expense over the life of the project. O[Delete text] The employee wages should be capitalized and recognized as an expense over the life of the project: OThe employee wages should be capitalized and recognized as an expense over the estimated useful life of the facility. The employee wages should be recognized as research and development expenses as incurred. The employee wages should be recognized as cost of goods sold. RESET CANCEL ACCEPT Depreciation Expense Journal Entry: On December 31, year 3, the company recognized an impairment loss of $200,000 on manufacturing equipment. The manufacturing equipment was acquired on December 31, year 1, for $900,000. The depreciation expense was incorrectly recorded, so a year 4 debit adjustment to depreciation expense for $150,000 is required Choose an option below O[Original text] The depreciation expense was correctly calculated and recorded for year 4. O[Delete text] The depreciation expense was correctly colectiated and recorded for year, The depreciation expense was incorrectly recorded, so a year 4 credit adjustment to depreciation expense for $150,000 is required. OThe depreciation expense was incorrectly recorded, so a year 4 credit adjustment to depreciation expense for $50,000 is required. The depreciation expense was incorrectly recorded, so a year 4 debit adjustment to depreciation expense for $150,000 is required. OThe depreciation expense was incorrectly recorded, so a year 4 debit adjustment to depreciation evnence for $50 000 is required. Pine Co Journal Entry 12/31/year 4 Account Account name Debit Credit 7080 150,000 Depreciation expense-manul uring equipment Accumulated depreciation manufacturing equipment 1510 150,000 Exhibit #2: Accounting Policy Pine Co. Accounting Policy - Property. Plant and Equipment (PPE) Effective date: January 1. year 4 Policy statement This policy is designed to describe the company's guidelines for recording new and existing assets, disposal of assets, and change in assets PPE definition and classes Capitalized PPE has an economic life in excess of 12 months, is held in the normal course of operations (not for resale), and the cost or value at the fime of acquisition exceeds $3.000 (the capitalization threshold) Expenditures to maintain or improve PPE are capitalized if they extend the useful life of the asset. PPE can be acquired through purchase donation or self- construction The company holds the following classes of PPE Land Buildings Furniture and fixtures Technology equipment - Manufacturing equipment Assets under construction Roles and responsibilities Controller - Responsible for establishing and maintaining an appropriate and adequate PPE accounting system that facilitates accurate presentation in the financial statements Assistant Controller - Responsible for ensuring the proper maintenance of the PE accounting system including accurate use of general ledger codes, useful life determinate and appropriate capitalization of assets Authorizabon Limits PPE acquired with a cost in excess of $15.000 requires authorization by both the CFO and the controller PPE acquired with a cost between $3,000 and $15.000 should be authored by other the CFO or the controller PPE with a cost between $3000 and $8,000 should be authorized by the CFO, the controller, or the assistant controller Depreciation policy Depreciation is the allocation of the action cost of PPE over is estimated use it Depreciation begins in the more subsequent to acoustion of the PPE. A Ml year of depreciation is recognized in the year of disposition Land is not considered to be a deprecable asset because it has an urimited useful life and the salvage value is generally more than the acquisition cost Depreciation for each class of PPE is computed on a straight-line basis over the estimated uselule as follows Building Furniture and fixtures Technology equipment Manufacturing equipment 40 years 7 years 3 years 6 years Exhibit #3: Assets Under Construction Detail Account: 1000 Annets Under Construction Credit Total 12.750.000 12,780.000 750.000 400,000 830.000 230.000 0,000,000 Date Description 01/01/year 4 Opening balance 02/01/year 4 Payment for capital projects 9/ 2uar 4 Payment for capital projects 04/01/vard Payment for capital eclects 05/05/year & Payment for capital projects 06/30/year Transfer of manufacturing equipment to PPE 07/01/year 4 Payment for capital projects year Paytrent for projects 05/07/ Payment for captures 10/04/year Payment for capit projects 11/10/pare Payment for capital projects 12/22/year 4 Payment for capital projects 12/31/ Trander of building to PPE 12/31/year 4 Closing balance 13,530.000 110.000 14.710.000 14.000 3.500.000 $.135.000 100.000 10,445.000 21.185.000 175.000 950.000 360,000 740.000 510.000 11. DOO 425,000 7.000.000 22.120.000 120,000 5.120.000