Acct 3367 Exam 2 Notes

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ACCT 3367 Exam 2 notes

Chapter 10
o Costs included in/deducted from amount recorded for Land or Building Land: purchase price; closing costs, such as title to the land, attorney’s fees, and recording fees; costs of grading, filling, draining, and clearing; assumption of any liens, mortgages, or encumbrances on the property; and additional land improvements that have an indefinite life. Building: costs incurred during construction and legal fees or permits

o Costs included in Equipment
* Purchase price
* Freight charge
* Insurance, but only while in transit
* Cost of special foundations
* Assembling/installation costs
* Trial runs
o Interest capitalization
 Conditions that permit capitalization of interest in self-constructed projects: * When interest costs are being incurred
* When expenditures have been made
* Activities for reading the asset are being made, such as clearing forest land  Actual vs. Avoidable interest
 How to record
o Valuation based on deferred payment contracts
* Recorded at the present value of the consideration exchanged * If you exchange a note for a truck, the PV of the note is the value you record for the truck. The difference between the note’s PV and the actual amount of the note is the discount or the premium. * Truck

Discount on notes payable
Notes payable

o Relative fair-value method (costs included in purchase price) * Fv price of individual item / (sum of fv of everything) x lump sum purchase price o Exchanges of non-monetary assets
 Commercial substance vs. no commercial substance for gains * Commercial substance: gain recognized
* No commercial substance: 1) cash received – person receiving cash records partial gain 2) no cash received – gain is deferred, which means you
Subtract the deferred gain amt from your new asset.
If you paid cash, you received no cash and therefore didn’t record a...
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