M61.docx
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M61.docx
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M61
M6-1
c.$60,000$36,000$24,000
M6-2
b.Fairvalueandincidentalcostsincurred
M6-3
b.$4,000,M6-4d.Lessthanbookvalue
M6-5b.$16,750,M6-6c.Addedtothecostoftheland
M6-7d.Betterment,M6-8b.$190,000
M6-9c.$29,000,M6-10c.$120,000lessimputedinterest
E6-2Lump-SumPurchase
Answers
E6-7AssetAcquiredbyDonation
Answers
1.
Land65,000
Building44,000
DonatedCapital109,000
2.Theagreementtoemploy350peoplefor10yearsisdisclosedinanotetothefinancialstatements,ifmaterial.
3.Eventhoughtitlewouldnotpasstothecompanyfor10years,thelandandbuildingisstillrecordedonthebooksofthecompany.Disclosureofthecontingencyassociatedwiththetitleisincludedinthenotestothefinancialstatements
E6-9Self-Construction
Answers
1.Ifthecompanyisoperatingatfullcapacitysothattheconstructioncauseslessregularproductiontotakeplace,thecostoftheconstructedassetshouldbeasfollows:
Materialsandsupplies$20,000
Directlabor48,000
Overhead(50%ofdirectlabor)24,000
Supervisor'sovertime4,000
$96,000
Underthisalternative,theconstructionisaccountedforinthesamewayasregularproducts.Theovertimemightbeexcludedifithasbeenincludedintheoverheadrate.Anunfavorablevariancemightbechargedtotheconstruction.
Ifthecompanyisoperatingwithexcesscapacity,thecostoftheconstructedassetshouldbeasfollows:
Materialsandsupplies$20,000
Directlabor48,000
Overtime-supervisor4,000
$72,000
Sinceregularproductioncontinues,noneofthefixedoverheadisallocatedtotheconstructionproject,sothattheunitcostoftheregularproductsisnotreduced.Thisalternativerecognizesthatthecostoftheassetistheadditionalcostincurredtoproduceitandthattheoverheadwouldbeincurredwhetherornottheconstructiontakesplace.
Notethatthesetwosolutionsarethelogicallydesirableresultsundertheconditionsdescribed,butthereisnorequirementthatcompaniesactuallyusethealternativeintheseparticularcircumstances.
2.Ifthebidfromtheoutsidecontractorswas$80,000,itisquestionablewhethertheuseofthefulloverheadrateisappropriate.Theincrementalapproachseemsmorereasonableinthissituation.
Ifthebidwas$60,000,theHarshmanCompanyhasclearlyincurredexcessivecoststoconstructthebuilding.Thebuildingshouldberecordedat$60,000andtheexcesscostsshouldberecordedasalossonconstruction.
E6-12InclusioninProperty,Plant,andEquipment
Answers
Thefollowingareincludedinproperty,plant,andequipment:
6.Fullydepreciatedassetsstillbeingused
7.Leaseholdimprovements
Thefollowingarenotincludedinproperty,plant,andequipment:
1.Idleequipmentawaitingsale
2.Landheldforfutureuseasaplantsite
3.Landheldforinvestment
4.Depositsonmachinerynotyetreceived
5.Progresspaymentsonbuildingbeingconstructed
8.Assetsleasedtoothers
P6-1AssetsAcquiredbyExchange
Answers
P6-5Comprehensive
Answers
P6-6ClassificationofCostsAssociatedwithAssets
Answers
P6-7InterestDuringConstruction
Answers
P6-8CostsSubsequenttoAcquisition
Answers
Note:
Thisquestionrequiresknowledgethatcorrectionsoferrorsinprioryears
arerecordedtoRetainedEarnings.ThiswasbrieflydiscussedinChapter5.
AdjustingentriesatDecember31,2009tocorrectthebooks.Thebuildingand
machineryshouldberecordedinseparateaccounts.
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