Joan Holtz

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ase 7-2
Joan Holtz (C)*
Joan Holtz said to the accounting instructor. "The
general principle for arriving at the amount of a fixed
asset that is to be capitalized is reasonably clear, but
there certainly are a great many problems in applying
this principle to specific situations."
Following are some of the problems Joan Holtz
1. Suppose that the Bruce Manufacturing Company
used its own maintenance crew to build an
additional wing on its existing factory building.
What would be the proper accounting treatment of
the following items?
a. Architects' fees.
b. The cost of snow removal dining construction.
c. Cash discounts earned for prompt payment on
materials purchased for construction.
d. The cost of building a combined construction
office and toolshed that would be tom down
once the factory wing had been completed.
e. Interest on money borrowed to finance
f. Local real estate taxes for the period of constru-
ction on the portion of land to be occupied by
the new wing.
g. The cost of mistakes made during constmctiun.
h. The overhead costs of the maintenance depar-
tment that include supervision; depreciation on
~ Copyright O by the President and Fellows of Harvard
College. Harvard Business School case 198-145.
buildings and equipment of maintenance depa-
rtment shops; heat, light, and power for these
shops; and allocations of cost for such items as
the cafeteria, medical office, and personnel
i. The cost of insurance during construction and
the cost of damages or losses on any injuries or
losses not covered by insurance.
Assume that the Archer Cotlapany bought a large
piece of land, including the buildings thereon, with
the intent of razing the buildings and constructing
a combined hotel and office building in their place.
The existing buildings consisted of a theater and
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