Financial Accounting: In an Economic Context

PROBLEMS

P9-1

How much to capitalize?

Stonebrecker International recently purchased new manufacturing equipment. The equipment cost $1 million. The company also incurred additional costs related to the acquisition of the equipment. The total cost to transport the equipment to Stonebrecker's plant was $80,000, half of which was paid by Stonebrecker. The company also paid $8,000 to insure the equipment while it was being transported to its plant. The initial installation costs totaled $20,000. After installing the equipment, however, it was discovered that the floor under the equipment would have to be reinforced. Materials and direct labor to reinforce the floor totaled $15,000. While the equipment was being installed and the floor was being reinforced, the plant workers could not perform their normal functions. The cost to Stonebrecker of the employee downtime was $10,000. Stonebrecker estimates that the equipment will have a salvage value of $100,000 in ten years.

REQUIRED:

a. What dollar amount should Stonebrecker capitalize on its books for this equipment?

b. Prepare the journal entry to capitalize the equipment.

c. What is the depreciation base of this equipment?

d. Over the life of this equipment, what dollar amount will be depreciated under the straight-line method? Under the double-declining-balance method?

P9-2

Lump-sum purchases and cost allocations

The JHP Company purchased a building, some office equipment, two cranes, and some land on January 1, 2011, for a total of ...