Problem 10.7

Problem 10.7 - part (a) requires journal entries from numbers 1-7. related to property, plant, and equipment, what parts should be capitalized with PP &E and what parts should be expensed or nothing done with them at all.

pare a schedule that identifies the costs that would be capitalized and included in the new Build- ings account on the April 30, 2021 statement of financial position, assuming the accountant wants to comply with ASPE, but is aware that Kerr needs to report increased income to support a requested Increase in its bank loan next month. Briefly justify your calculations. c. Comment on the difference in results for parts (a) and (b). Calculate the total expenses related to the building under both scenarios. What else should be considered in determining the amount to be capitalized? P10.7 Vidi Corporation, a private enterprise, made the following purchases related to its property, plant, and equipment during its fiscal year ended December 31, 2020. The company uses the straight-line method of depreciation for all its capital assets. 1. In early January, Vidi issued 140,000 common shares in exchange for property consisting of land and a warehouse. On the date of acquisition, a reliable, independent appraiser estimated that the fair value of the land and warehouse was $600,000 and $300,000, respectively. The seller had advertised a price of $900,000 or best offer for the land and warehouse in a commercial retail magazine. Vidi paid a local real estate broker a finder's fee of $35,000. The most recent sale of Vidi's shares took place a month prior when 15,000 common shares were sold for $9 per share. 2. On March 31, the company acquired equipment on credit. The terms were a $7,000 cash down pay- ment plus payments of $5,000 on March 31 for each of the next two years. The implicit interest rate was 12%. The equipment's list price was $17,000. Additional costs that were incurred to install the equipment included $1,000 to tear down and replace a wall and $1,500 to rearrange existing equip- ment to make room for the new equipment. An additional $500 was spent to repair the equipment after it was dropped during installation During the year, the following events also occurred: 3. A new motor was purchased for $50,000 for a large grinding machine (original cost of the machine. $350,000; accumulated depreciation at the replacement date, $100,000). The motor will not improve APTER 10 Property, plant, and Equipment: Accounting Model Basics the quality or quantity of production, however, it will extend the grinding machine's useful life from the current 8 years to 10 years. (Ignore the IFRS requirement to estimate and remove the cost of the old motor.) 4. The company purchased a small building in a nearby town for $125,000 to use as a display and sales location. The municipal tax assessment indicated that the property was assessed for $95,000, which consists of $68,000 for the building and $27,000 for the land. The building had been empty for six months and needed considerable maintenance work before it could be used. The following costs were incurred in 2020 before the company moved into the building on September 30: former owner's unpaid property taxes on the property for the previous year, $900; current year's (2020) taxes, $1,000; reshingling of roof, $2,200; cost of hauling refuse out of the basement, $230; cost of spray cleaning the outside walls and washing windows, $750; cost of painting inside walls, $3,170; and incremental fire and liability insurance for 15 months starting September 30, $940. 5. The company repaired the plumbing system in its factory for $35,000. The original plumbing costs were not known. 6. On June 30, the company replaced a freezer with a new one that cost $20,000 cash (fair value of $21,000 for the new freezer less trade-in value of the old freezer). The cost of the old freezer was $15,000. At the beginning of the year, the company had depreciated 60% of the old freezer; that is, 10% per year of use. 7. The company painted the factory exterior at a cost of $12,000. Instructions a. Prepare the journal entries to record the acquisitions and/or costs incurred in the above transac tions. In the case of present value calculations, use any of the three methods (PV tables, financial calculator, or Excel functions). Do not round intermediate calculations for the percentage allocation between the assets but round final amounts to the nearest dollar. b. If there are alternative methods to account for any of the transactions, indicate what the alternatives are and your reason for choosing the method that you used. P10.8 The production manager of Chesley Corporation wants to acquire a different brand of machine - s elu info