Loren Company uses many kinds of machines in operations. The entity acquires some machines from others and constructs some machines itself. The following information pertains to a machine constructed by Loren: Cost of material to construct 700,000 Labor cost 430,000 Allocated overhead costs – electricity, factory space, etc. Allocated interest cost of financing machine Cost of installation 220,000 100,000 120,000 Insurance for one year Profit saved by self-construction Safety inspection cost prior to use 20,000 150,000 40,000 What total amount should be capitalized as cost of the machine?

Loren Company uses many kinds of machines in operations. The entity acquires some machines from others and constructs some machines itself. The following information pertains to a machine constructed by Loren: Cost of material to construct 700,000 Labor cost 430,000 Allocated overhead costs – electricity, factory space, etc. Allocated interest cost of financing machine Cost of installation 220,000 100,000 120,000 Insurance for one year Profit saved by self-construction Safety inspection cost prior to use 20,000 150,000 40,000 What total amount should be capitalized as cost of the machine?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Loren Company uses many kinds of machines in operations. The entity acquires some machines from others and constructs some machines itself. The following information pertains to a machine constructed by Loren: Cost of material to construct 700,000 Labor cost 430,000 Allocated overhead costs – electricity, factory space, etc. Allocated interest cost of financing machine Cost of installation 220,000 100,000 120,000 Insurance for one year Profit saved by self-construction Safety inspection cost prior to use 20,000 150,000 40,000 What total amount should be capitalized as cost of the machine?
Problem 53-4 (IFRS) Newcombe Company uses many kinds of machines in operations. The entity acquires some machines from others and constructs some machines itself. The following information pertains to a machine constructed by the entity: Cost of material to construct Labor cost Allocated overhead cost Allocated interest cost of financing machine Cost of installation Insurance for one year 700,000 430,000 220,000 100,000 120,000 20,000 150,000 40,000 Profit saved by self-construction Safety inspection cost prior to use What total amount should be capitalized as cost of the machine?
Write CAPITALIZED if the subsequent cost incurred SHALL FORM PART of the carrying amount of the PPE or EXPENSED OUTRIGHT if the subsequent cost incurred SHALL NOT FORM PART of the carrying amount of the PPE. Rearranged the production PPEs in Factory B for P 400,000 to accommodate a newly purchased equipment that will make the production process faster and more efficient. Repaired one of the machineries for P 350,000 as part of factory’s annual examination. Repaired another machinery for P 275,000 to prolong its remaining useful life from five years to seven years. Replaced a significant part of a production equipment for P 900,000. The equipment has an original cost of P 4,000,000 and accumulated depreciation as of date P 1,000,000. The part replaced represented 20% of the carrying amount and it was sold for a very nominal amount.
The Befort Company field for a patent on a new type of machine. The application costs totaled P12,000. R&D costs incurred to create the machine were P75,000. In the year in which the company filed for and received the patent, it spent P20,000 in the successfuldefense of a patent infringement suit. Required1. At what amount should the company capitalize the patent?2. How would you determine the economic life of the patent?
The Befort Company field for a patent on a new type of machine. The application costs totaled P12,000. R&D costs incurred to create the machine were P75,000. In the year in which the company filed for and received the patent, it spent P20,000 in the successful defense of a patent infringement suit. Required 1. At what amount should the company capitalize the patent? 2. How would you determine the economic life of the patent?
Danube, Toggle, and ConnectOn rely on various intangible assets to operate their businesses. These companies amortize the cost of these assets using the straight-line method over the following average estimated useful lives (in years), as reported in their annual reports. Type of Intangible Asset Developed Technology Danube 5.4 Trade Names 5.9 Toggle 5.6 10.1 ConnectOn 3.5 11.5 Customer Relationships 5.1 5.5 7.5 Required: 1. Based on these estimates, identify the company that uses the longest periods for amortizing most of its classes of intangible assets. Toggle Danube ConnectOn 2. Will these estimates increase or decrease that company's net income relative to its competitors? Increase Decrease
Immortality Co. made the following expenditures relating to a newly invented product Legal and registration costs related to a patent on the product 120,000Special equipment used solely on R&D activities for the newly invented product 720,000Depreciation on the special equipment above 180,000Labor and material costs incurred in producing a prototype model 2,400,000Cost of testing the prototype 960,000 Required:What is the total amount of costs that will be expensed when incurred?
Manny Company uses many kinds of machines in its operations. The following information relates to a machine that was acquired at the beginning of the current year: Cash paid for machine, including VAT of P96,000 Cost of transporting machine Labor cost of installation by expert fitter Labor cost of testing machine Insurance cost for the current year Cost of training for personnel who will use the machine Cost of safety rails and platform surrounding machine Cost of water device to keep machine cool Cost of adjustment to machine to make it operate more efficiently Estimated dismantling cost to be incurred as required by contract 896,000 30,000 50,000 40,000 15,000 25,000 60,000 80,000 75,000 65,000 What total amount should be capitalized as cost of the machine?
ABC Ltd. Incurred the following costs related to the purchase of a machine: $10,500 Invoice price Insurance during transit Pouring cement slab on which the machine must be mounted Interest expense on debt used to buy the asset Shipping costs Annual service contract cost ö $14,600 $12,100 What is the amount capitalized to the balance sheet for the machine? $11,800 200 $13,600 1,000 2,500 100 300
Problem C ABC Co. acquired a new machine. Details of the acquisition are as follows: Cash paid for machine including VAT of P60,000 Royalty payment based on units produced Cost of transporting machine Cost of installation by expert fitter Labor of testing machine Materials used and damaged as a result of testing the machine 560,000 19,000 15,000 40,000 20,000 10,000 Repair cost of new machine damaged in the process of installation 12,000 Cost of training for personnel who will use the machine 25,000 Cost of safety rails and platforms surrounding machine 50,000 70,000 Cost of water device to keep machine cool Cost of adjustment to machine to make it operate more efficiently Estimated dismantling cost to be incurred as required by contract Cost of removing old machine Loss on premature retirement – old machine Gratuity paid to operator of old machine, who was laid off 75,000 67,000 10,000 120,000 20,000 Required: Compute for the cost of the new machine.
Global Traders purchases a piece of equipment for $1.5 million and incurs the following expenses: Freight charges = $250,000 Installation charges = $25,000 Cost of training machine maintenance staff = $12,000 Cost of strengthening the factory floor = $5,500 Cost of painting factory walls = $7,000 The amounts capitalized and expensed by the company are closest to: Balance Sheet ($) A 1,775,000 B 1,780,500 C 1,792,500 O Row B Row C Row A Income Statement ($) 24,500 19,000 7,000
Stella Company uses many kinds of machines in its operations. The following information relates to a machine that was acquired at the beginning of the current year: Cash paid for machine, including VAT of P96,000 Cost of transporting the machine Labor cost of installation by expert fitter 896,000 30,000 50,000 Labor cost of testing machine Cost of safety rails and platform surrounding machine Cost of water device to keep machine cool 40,000 60,000 80,000 Cost of adjustment to machine to make it operate more efficiently Estimated dismantling cost to be incurred as required by contract Insurance cost for the current year 75,000 65,000 15,000 Cost of training personnel who will use the machine 25,000 How much should be capitalized as cost of the machine?