Chapter 10

Property, Plant, and Equipment and

Intangible Assets: Acquisition and Disposition

EXERCISES
Exercise 10-1

Calculation of goodwill:

Consideration exchanged
$25,000,000
Less fair value of net assets:
Book value of net assets
$16,250,000
Plus: Fair value in excess of book value:
Property, plant , and equipment
1,000,000
Intangible assets
2,970,000
Less: Book value in excess of fair value:
Receivables
(150,000) 20,070,000
Goodwill
$ 4,930,000

Exercise 10-2Requirement 1

Machine ($25,000 cash + $43,661 present value of note).........

Discount on note payable (difference)...............................
Cash............................................................................
Note payable (face value)..............................................

68,661
11,339
25,000
55,000

Present value of note payment:

PV = $55,000 (.79383) = $43,661
Present value of $1: n=3, i=8% (from Table 2)

Requirement 2
2013: $43,661 x 8% = $3,493
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2014: ($43,661 + 3,493) x 8% = $3,772

Exercise 10-3
Truck - new ($800 + 14,000).............................................
Accumulated depreciation (balance)..................................
Loss ($1,000 - 800) ...........................................................
Cash............................................................................
Truck - old (balance).....................................................

14,800
12,000
200
14,000
13,000

Exercise 10-4
Truck - new ($1,500 + 14,000)............................................
Accumulated depreciation (balance)..................................
Cash............................................................................
Truck - old (balance).....................................................
Gain ($1,500 - 1,000) ....................................................

15,500
12,000
14,000
13,000
500

Exercise 10-5 Research and development expense:

Salaries and wages for lab research
$ 350,000
Materials used in R&D projects
400,000
Equipment
85,000
Fees paid to outsiders for R&D projects
465,000
Total
$1,300,000
The patent filing and legal costs are capitalized as the cost of the patent. The inprocess research and development costs are shown as a separate line item on the
income statement, if material.

Exercise 10-6Requirement 1
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($ in millions)

Research and development expense................................

Software development costs............................................
Cash............................................................................

6
4
10

Requirement 2
(1) Percentage-of-revenue method:

$5,000,000
= 25% x $4,000,000 = $1,000,000
$20,000,000
(2) Straight-line method:
1/3 or 33.33 % x $4,000,000 = $1,333,333
The straight-line method is used since it produces the greater amortization,
$1,333,333.
Requirement 3

Software development costs

Less: Amortization to date
Net

$4,000,000
(1,333,333 )
$2,666,667

PROBLEMS
Problem 10-1
Brown:
Cash................................................................................ 15,000
New equipment ($125,000 - 15,000)................................... 110,000
Accumulated depreciation - old asset (balance)................ 200,000
Old equipment (balance)...............................................
300,000
Gain on exchange of assets ($125,000 100,000)..........
25,000

Filzinger:

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New equipment ($110,000 + 15,000).................................. 125,000

Accumulated depreciation - old asset (balance)................ 220,000
Cash............................................................................
15,000
Old equipment (balance)...............................................
278,000
Gain on exchange of assets ($110,000 58,000)............
52,000

Problem 10-2Requirement 1
2013:
Expenditures for 2013:
January 1, 2013
March 31, 2013
June 30, 2013
October31, 2013

$500,000
600,000
800,000
600,000

x 12/12 =
x 9/12 =
x 6/12 =
x 2/12 =

Accumulated expenditures
(before interest) $2,500,000
Average accumulated expenditures -

$500,000
450,000
400,000
100,000

$1,450,000

Interest capitalized:
$1,450,000 x 10% = $145,000 = Interest capitalized
2014:
January 1, 2014
($2,500,000 + 145,000)
January 31, 2014
March 31, 2014
May 31, 2014

$2,645,000
300,000
500,000
600,000

Accumulated expenditures
(before interest) $4,045,000
Average accumulated expenditures TheMcGrawHillCompanies,Inc.,2013
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x
x
x
x

6/6
5/6
3/6
1/6

=
=
=
=

$2,645,000
250,000
250,000
100,000

$3,245,000
IntermediateAccounting,7/e

Interest capitalized:
$2,000,000 x 10.0% x 6/12 =
1,245,000 x 7.25%* x 6/12 =
$3,245,000

$100,000
45,131
$145,131 = Interest capitalized

* Weighted-average rate of all other debt:

$5,000,000 x 8% =
3,000,000 x 6% =
$8,000,000

AlternateExerciseandProblemSolutions

$400,000
180,000
$580,000

$580,000
= 7.25%
$8,000,000

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Problem 10-2 (concluded)

Requirement 2
Accumulated expenditures 6/30/14,
before interest capitalization (above)
2014 interest capitalized (above)
Total cost of building

$4,045,000
145,131
$4,190,131

Requirement 3
2013:
$2,000,000 x 10% =
5,000,000 x 8% =
3,000,000 x 6% =
Total interest incurred
Less: Interest capitalized
2013 interest expense

$ 200,000
400,000
180,000
780,000
(145,000)
$ 635,000
2014:

Total interest incurred

Less: Interest capitalized
2014 interest expense

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$ 780,000
(145,131)
$ 634,869

IntermediateAccounting,7/e