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Chapter 10: 22Q (page 502)

Neville Enterprises has a number of fully depreciated assets that are still being used in the main operations of the business. Because the assets are fully depreciated, the president of the company decides not to show them on the balance sheet or disclose this information in the notes. Evaluate this procedure

Short Answer

Expert verified

Neville enterprise should not hide the information from the investors about fully depreciated assets. The company mentions that assets are fully depreciated and used in the business operations in the financial statements.

Step by step solution

01

Full discloser

The company discloses all the relevant and material information to the financial statement users and does not hide any fact or information that affects their financial decisions.

02

Disclosure of fully depreciated assets

Neville enterprise uses the incorrect treatment for the fully depreciated assets. The company should disclose that assets are still used by the company even if the assets are fully depreciated. Either Neville enterprise shows these assets in the balance sheet or recognizes them as the gain from the salvage value.

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Most popular questions from this chapter

Question: How should the amount of interest capitalized be disclosed in the notes to the financial statements? How should interest revenue from temporarily invested excess funds borrowed to finance the construction of assets be accounted for?

Question: Two positions have normally been taken with respect to the recording of fixed manufacturing overhead as an element of the cost of plant assets constructed by a company for its own use: (a) It should be excluded completely. (b) It should be included at the same rate as is charged to normal operations.

What are the circumstances or rationale that support or deny the application of these methods?

Use the information for Hanson Company from BE10-2 and BE10-3. Compute avoidable interest for Hanson Company.

Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were \(1,800,000 on March 1, \)1,200,000 on June 1, and \(3,000,000 on December 31.

Hanson Company borrowed \)1,000,000 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, \(2,000,000 note payable and an 11%, 4-year, \)3,500,000 note payable

(Capitalization of Interest) On December 31, 2016, Main Inc. borrowed \(3,000,000 at 12% payable annually to finance the construction of a new building. In 2017, the company made the following expenditures related to this building: March 1, \)360,000; June 1, \(600,000; July 1, \)1,500,000; December 1, \(1,500,000. The building was completed in February 2018. Additional information is provided as follows.

1. Other debt outstanding

10-year, 13% bond, December 31, 2010, interest payable annually \)4,000,000

6-year, 10% note, dated December 31, 2014, interest payable

annually \(1,600,000

2. March 1, 2017, expenditure included land costs of \)150,000

3. Interest revenue earned in 2017 $49,000

Instructions

(a) Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building.

(b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense at December 31, 2017.

Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of \(315,000. The estimated fair values of the assets are land \)60,000, building \(220,000, and equipment \)80,000. At what amounts should each of the three assets be recorded?
See all solutions

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