All Related Questions of Capitalizing

Q: Lenexa State Bank has followed the practice of capitalizing certain marketing costs

Lenexa State Bank has followed the practice of capitalizing certain marketing costs and amortizing these costs over their expected life. In the current year, the bank determined that the future benefi...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: Harper Corporation has the following portfolio of investments at December 31,

Harper Corporation has the following portfolio of investments at December 31, 2014, that qualify and are accounted for using the fair value through other comprehensive income (FV-OIC) method: Early in...

Q: Marmon Drilling Limited leases property on which oil has been discovered.

Marmon Drilling Limited leases property on which oil has been discovered. Wells on this property produced 21,000 barrels of oil during the current year and it was sold at an average of $85 per barrel....

Q: Khamsah Mining Ltd. is a small private company that purchased a

Khamsah Mining Ltd. is a small private company that purchased a tract of land for $720,000. After incurring exploration costs of $83,000, the company estimated that the tract will yield 120,000 tonnes...

Q: One alleged advantage of leasing voiced in the past was that it

One alleged advantage of leasing voiced in the past was that it kept liabilities off the balance sheet, thus making it possible for a firm to obtain more leverage than it otherwise could have. This ra...

Q: Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals

Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of ex...

Q: GAAP provides guidelines for the inclusion of interest in the initial cost

GAAP provides guidelines for the inclusion of interest in the initial cost of a self-constructed asset. Required: 1. What assets qualify for interest capitalization? What assets do not qualify for in...

Q: The conceptual framework indicates the desired fundamental and enhancing qualitative characteristics of

The conceptual framework indicates the desired fundamental and enhancing qualitative characteristics of accounting information. Several constraints impede achieving these desired characteristics. Answ...

Q: Indicate with the appropriate letter the nature of each adjustment described below

Indicate with the appropriate letter the nature of each adjustment described below: Type of Adjustment A. Change in accounting principle (reported retrospectively) B. Change in accounting principle (e...

Q: Senior Life Co. is an HMO for businesses in the Portland

Senior Life Co. is an HMO for businesses in the Portland area. The following account balances appear on the balance sheet of Senior Life Co.: Common stock (800,000 shares authorized; 500,000 shares is...

Q: Ray, the owner of a small entity, asked Holmes,

Ray, the owner of a small entity, asked Holmes, CPA, to conduct an audit of the entity’s records. Ray told Holmes that the audit was to be completed in time to submit audited financial statements to a...

Q: What are the short-term effect and the long-term

What are the short-term effect and the long-term effect of improperly capitalizing expenditures on the financial statements?

Q: Which of the following would not overstate current-period net income

Which of the following would not overstate current-period net income? a. Capitalizing an expenditure that should be expensed. b. Failing to record a liability as an expense. c. Failing to record a che...

Q: Five years ago Bridget decided to purchase a limited partnership interest in

Five years ago Bridget decided to purchase a limited partnership interest in a fast-food restaurant conveniently located near the campus of Southeast State University. The general partner of the resta...

Q: Marti Meyers, vice president of marketing for LaserFlo, was concerned

Marti Meyers, vice president of marketing for LaserFlo, was concerned as she reviewed the costs for the AP2000 laser printer she was planning to launch next month. The AP2000 is a new commercial print...

Q: R&D Inc. has the following financial data for the

R&D Inc. has the following financial data for the current year (millions): Earnings before R&D expenditures……………………………………. $21.5 Interest expense……………………………….………………………………. $0.0 R&D expenditures…………………...

Q: On September 30 of the current year, Fox Corporation files for

On September 30 of the current year, Fox Corporation files for bankruptcy. At the time, it estimates that the total FMV of its assets is $725,000, whereas the total amount of its outstanding debt amou...

Q: Luca Hanson owns Luca’s Limousine, which operates a fleet of limousines

Luca Hanson owns Luca’s Limousine, which operates a fleet of limousines and shuttle buses. Upon reviewing the most recent financial statements, he became confused over the recent decline in net income...

Q: On January 1, 2010, Carey, Inc., entered into

On January 1, 2010, Carey, Inc., entered into a No cancellable lease agreement, agreeing to pay $3,500 at the end of each year for four years to acquire a new computer system having a market value of...

Q: Select the best answer. 1. A local chapter

Select the best answer. 1. A local chapter of the Society for Protection of the Environment benefited from the voluntary services of two attorneys. One served as a member of the Society’s board of di...

Q: What is the city’s threshold policy on capitalizing general capital assets and

What is the city’s threshold policy on capitalizing general capital assets and intangible assets?

Q: Almost two years ago, the DEF Partnership was formed when Demetrius

Almost two years ago, the DEF Partnership was formed when Demetrius, Ebony, and Farouk each contributed $100,000 in cash. They are equal general partners in the real estate partnership, which has a De...

Q: According to SFAS No. 34, interest on self‐constructed

According to SFAS No. 34, interest on self‐constructed assets should be capitalized. Team Debate: Team 1: Present arguments in favor of capitalizing interest. Tie your arguments to the concepts and de...

Q: Entre Preneur found a site for his new haute cuisine restaurant.

Entre Preneur found a site for his new haute cuisine restaurant. The site has a vacant gasoline station. He purchased the property for $900,000 and had the station demolished at a cost of $30,000. A g...

Q: One advantage of leasing voiced in the past is that it kept

One advantage of leasing voiced in the past is that it kept liabilities off the balance sheet, thus making it possible for a firm to obtain more leverage than it otherwise could have. This raised the...

Q: On January 1, 2010, Carey, Inc., entered into

On January 1, 2010, Carey, Inc., entered into a No cancellable lease agreement, agreeing to pay $3,500 at the end of each year for four years to acquire a new computer system having a market value of...

Q: Your conversation with Mr. Gerrard, which took place in February

Your conversation with Mr. Gerrard, which took place in February 2011 (see Case 6.28), continued as follows: Case 4.26: Gerrard Construction Co. is an excavation contractor. The following summarized...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fi ne zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: In each of the following situations, explain why the taxpayer's action

In each of the following situations, explain why the taxpayer's action is or is not tax evasion: a. Jamal owns an electrical appliance repair service. When a client pays him in cash, he gives the cas...

Q: Gloria Hernandez is the controller of a public company. She just

Gloria Hernandez is the controller of a public company. She just completed a meeting with her superior, John Harrison, who is the CFO of the company. Harrison tried to convince Hernandez to go along w...

Q: For each of the following items, identify which of the management

For each of the following items, identify which of the management accounting guidelines applies: cost–benefit approach, behavioral and technical considerations, or different costs for different purpos...

Q: Chris Jackson was recently promoted to Controller of Research and Development (

Chris Jackson was recently promoted to Controller of Research and Development (R&D) for BrisCor, a Fortune 500 pharmaceutical company that manufactures prescription drugs and nutritional supplements....

Q: During a recent management meeting, Bruce Dunn, director of marketing

During a recent management meeting, Bruce Dunn, director of marketing, proposed that the company begin capitalizing its marketing expenditures as goodwill. In his words, “Marketing expenditures create...

Q: In 2012, EZ-Learn Software developed a software package for

In 2012, EZ-Learn Software developed a software package for assisting calculus instruction in business colleges, at a cost of $2,000,000. Although there are tens of thousands of calculus students in t...

Q: One financial accounting issue encountered when a company constructs its own plant

One financial accounting issue encountered when a company constructs its own plant is whether the interest cost on funds borrowed to finance construction should be capitalized and then amortized over...

Q: Allegro Supply Company, a newly formed corporation, incurred the following

Allegro Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment. Instructions Determine the amounts that should...

Q: Laserwords Inc. is a book distributor that had been operating in

Laserwords Inc. is a book distributor that had been operating in its original facility since 1985. The increase in certification programs and continuing education requirements in several professions h...

Q: Your client is in the planning phase for a major plant expansion

Your client is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The assistant controller does not believe that interest cost can be included i...

Q: Conserv Corporation, a computer software company, is trying to determine

Conserv Corporation, a computer software company, is trying to determine the appropriate accounting procedure to apply to its software development costs. Management is considering capitalizing the dev...

Q: Time Warner, Inc., the world’s largest media and entertainment company

Time Warner, Inc., the world’s largest media and entertainment company, is best known as the publisher of magazines such as Fortune, Time, People, and Sports Illustrated. The Company is a media powerh...

Q: On St. Patrick’s Day 1992, Chambers Development Company, one

On St. Patrick’s Day 1992, Chambers Development Company, one of the largest landfill and waste management firms in the United States, announced that it had been improperly capitalizing costs associate...

Q: Brodhead Manufacturing Company has constructed its own special equipment to produce a

Brodhead Manufacturing Company has constructed its own special equipment to produce a newly developed product. A bid to construct the equipment by an outside company was received for $1,200,000. The a...

Q: Under what classification would you report each of the following items on

Under what classification would you report each of the following items on the financial statements? (a) Revenue from sale of obsolete inventory. (b) Loss on sale of the fertilizer production division...

Q: Nivea (www.nivea.com) is a brand owned

Nivea (www.nivea.com) is a brand owned by Beiersdorf AG (www.beiersdorf.com) whose majority shareholder is Tchibo (owns 30 per cent of the Beiersdorf shares). 2014 key figures: Net sales: ……………………………...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: During a recent management meeting, David Bryce, director of marketing

During a recent management meeting, David Bryce, director of marketing, proposed that the company begin capitalizing its marketing expenditures as goodwill. In his words, “Marketing expenditures creat...

Q: On June 30, 2015, Sharper Corporation’s common stock is priced

On June 30, 2015, Sharper Corporation’s common stock is priced at $62 per share before any stock dividend or split, and the stockholders’ equity section of its bala...

Q: Plantation Homes Company is considering the acquisition of Condominiums, Inc.

Plantation Homes Company is considering the acquisition of Condominiums, Inc. early in 2015. To assess the amount, it might be willing to pay, Plantation Homes makes the following computations and ass...

Q: Utilizing Figure 2-3 (Eight Elements of Reasoning), develop

Utilizing Figure 2-3 (Eight Elements of Reasoning), develop the eight elements for the following issue: Daimler Auto Parts, Inc., head quarter edin Munich, Germany, is attempting to register with the...

Q: Healthy Life Co. is an HMO for businesses in the Fresno

Healthy Life Co. is an HMO for businesses in the Fresno area. The following account balances appear on Healthy Life’s balance sheet: Common stock (3,000,000 shares authorized; 2,200,000 shares issued)...

Q: Pfizer, a pharmaceutical company, plans to spend $90 million

Pfizer, a pharmaceutical company, plans to spend $90 million on research and development (R&D) at the beginning of each of the next several years to develop new drugs. As a result of the R&D expenditu...

Q: What is the effect of capitalizing interest costs associated with self-

What is the effect of capitalizing interest costs associated with self-constructed assets on reported income summed over all the periods of the life of a given self-constructed asset, from building th...

Q: Ben Sisko Supply Company, a newly formed corporation, incurred the

Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment. Instructions Determine the amounts that shou...

Q: Laserwords Inc. is a book distributor that had been operating in

Laserwords Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions h...

Q: The overall audit strategy for the audit of Keystone Computers & Networks

The overall audit strategy for the audit of Keystone Computers & Networks, Inc., in this appendix includes a section on significant accounting and auditing matters. The second matter described involve...

Q: This simulation, available online, presents a draft of a nonpublic

This simulation, available online, presents a draft of a nonpublic company audit report document and three exhibits. To allow this DRS to stand alone without consideration of other parts of the Keysto...

Q: Under IAS 22, the depletion of equity reserves caused by the

Under IAS 22, the depletion of equity reserves caused by the accounting treatment for purchased goodwill resulted in some companies capitalizing brands on their statements of financial position. This...

Q: Sosa Company is doing significant work to revitalize its warehouses. It

Sosa Company is doing significant work to revitalize its warehouses. It is not sure whether it should capitalize these costs or expense them. What are the implications for current-year net income and...

Q: a. This chapter outlined seven steps for creating a knowledge management

a. This chapter outlined seven steps for creating a knowledge management system, using Netflix as an example. Think about the steps in the broader context of a functionally organized corporation; who...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: In the previous problem, suppose the fixed asset actually qualifies

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV?Previous problem:You have been hired as a consultant for P...

Q: In the previous problem, suppose the fixed asset actually qualifies

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV?Previous problem:You have been hired as a consultant for P...

Q: What considerations may have motivated the FASB to grant a four-

What considerations may have motivated the FASB to grant a four-year transitional period in capitalizing pre-1977 leases meeting the capitalization tests of SFAS No. 13? What other political behavior...

Q: 1. Human Genome Sciences, Inc., a biopharmaceutical company,

1. Human Genome Sciences, Inc., a biopharmaceutical company, discovers, develops, and markets new gene and protein-based drugs. Its 1998 annual report showed property, plant, and equipment net of accu...

Q: Compare proportionate consolidation with capitalizing of all leases extending beyond a year

Compare proportionate consolidation with capitalizing of all leases extending beyond a year, another example of rigid uniformity.

Q: What do we mean by capitalizing lease payments?

What do we mean by capitalizing lease payments?

Q: Eric Johnson was recently promoted to Controller of Research and Development (

Eric Johnson was recently promoted to Controller of Research and Development (R&D) for Pharma Cor, a Fortune 500 pharmaceutical company, which manufactures prescription drugs and nutritional supplemen...

Q: Five years ago, Bridget decided to purchase a limited partnership interest

Five years ago, Bridget decided to purchase a limited partnership interest in a fast-food restaurant conveniently located near the campus of Southeast State University. The general partner of the rest...

Q: Inglewood Landscaping Corp. began constructing a new plant on December 1

Inglewood Landscaping Corp. began constructing a new plant on December 1, 2017. On this date, the company purchased a parcel of land for $184,000 cash. In addition, it paid $2,000 in surveying costs a...

Q: Khamsah Mining Ltd. is a small private company that purchased a

Khamsah Mining Ltd. is a small private company that purchased a tract of land for $720,000. After incurring exploration costs of $83,000, the company estimated that the tract would yield 120,000 tonne...

Q: Farrey Supply Ltd. is a newly formed public corporation that incurred

Farrey Supply Ltd. is a newly formed public corporation that incurred the following costs related to land, buildings, and machinery: Instructions: (a) Determine the amounts that should be included i...

Q: Harper Corporation had the following portfolio of investments at December 31,

Harper Corporation had the following portfolio of investments at December 31, 2017, that qualified and were accounted for using the FV-OCI method: Early in 2018, Harper sold all the Frank Inc. share...

Q: On January 2, 2012, Kowalchuk Corporation, a small company

On January 2, 2012, Kowalchuk Corporation, a small company that follows ASPE, issued $1.5 million of 10% bonds at 97 due on December 31, 2021. Legal and other costs of $110,000 were incurred in connec...

Q: Venezuela Inc. is building a new hockey arena at a cost

Venezuela Inc. is building a new hockey arena at a cost of $2.5 million. It received a down payment of $500,000 from local businesses to support the project, and now needs to borrow $2 million to comp...

Q: 1. When focusing on changes, you should consider changes from

1. When focusing on changes, you should consider changes from period to period in: a. Recorded balances. b. Relationships between balances. c. Balances of other nonsimilar companies. d. Both a and...

Q: A business can be valued by capitalizing its earnings stream (see

A business can be valued by capitalizing its earnings stream (see example 6.15). How might you use the same idea to value securities, especially the stock of large publicly held companies? Is there a...

Q: Roper Metals Inc. is in negotiations to acquire the Hanson Sheet

Roper Metals Inc. is in negotiations to acquire the Hanson Sheet Metal Company. Hanson’s after-tax earnings have averaged $19 million per year for the last four years without much variation around th...

Q: Discuss the idea of capitalizing a stream of earnings in perpetuity.

Discuss the idea of capitalizing a stream of earnings in perpetuity. Where is this idea useful? Is there a financial asset that makes use of this idea?

Q: On January 2, 2015, Kowalchuk Corporation, a small company

On January 2, 2015, Kowalchuk Corporation, a small company that follows ASPE, issued $1.5 million of 10% bonds at 97 due on December 31, 2024. Legal and other costs of $110,000 were incurred in connec...

Q: You have been hired as a consultant for Pristine Urban-Tech

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago...

Q: In the previous problem, suppose the fixed asset actually qualifies for

In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV? Problem 34: You have been hired as a consultant for Pri...

Q: Inglewood Landscaping Corp. began constructing a new plant on December l

Inglewood Landscaping Corp. began constructing a new plant on December l , 2020. On this date, the company purchased a parcel of land for $184,000 cash. In addition, it paid $2,000 in surveying costs...

Q: Harper Corporation had the following portfolio of investments at December 31,

Harper Corporation had the following portfolio of investments at December 31, 2020, that qualified and were accounted for using the FV-OCI method: Early in 2021, Harper sold all the Frank Inc. shares...

Q: Advanced Life Co. is an HMO for businesses in the Albuquerque

Advanced Life Co. is an HMO for businesses in the Albuquerque area. The following account balances appear on the balance sheet of Advanced Life Co.: Common stock (600,000 shares authorized; 400,000 sh...

Q: The focus of this case is the situation described in Case 10

The focus of this case is the situation described in Case 10–9. What is the appropriate accounting for R&D costs? Do you believe that (1) capitalization is the correct treatment of R&D costs, (2) expe...

Q: Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals

Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of ex...

Q: When preparing its financial statements at the end of 2018, Thorn

When preparing its financial statements at the end of 2018, Thorn Retail Inc. discovered an error in accounting for inventory. When Thorn started to purchase merchandise from a new supplier, it expens...

Q: This case is based on a cost capitalization fraud at WorldCom.

This case is based on a cost capitalization fraud at WorldCom. The case is available online in the Connect eBook. To complete this case, you will identify information that suggests certain costs are n...

Q: Waste Management, Inc., regularly incurs costs (e.g

Waste Management, Inc., regularly incurs costs (e.g., salaries, legal fees, travel) to find new locations for landfill sites. What reasons support capitalizing these costs? What reasons support expens...

Q: At the beginning of the year, Young Company bought three used

At the beginning of the year, Young Company bought three used machines from Vince, Inc. The machines immediately were overhauled, were installed, and started operating. Because the machines were diffe...

Q: At the beginning of the year, Grillo Industries bought three used

At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machi...

Q: At the beginning of the year, Oakmont Company bought three used

At the beginning of the year, Oakmont Company bought three used machines from American Manufacturing, Inc. The machines immediately were overhauled, were installed, and started operating. Because the...

Q: Read the following excerpt from a complaint filed by the Securities and

Read the following excerpt from a complaint filed by the Securities and Exchange Commission against WorldCom(posedonline at http://www.sec.gov/litigation/complaints/comp17829.htm). 1. When a company...

Q: The focus of this case is the situation described in Case 10

The focus of this case is the situation described in Case 10–7. What is the appropriate accounting for R&D costs? Do you believe that (1) capitalization is the correct treatment of R&D costs, (2) expe...

Q: One of your responsibilities as division manager of an important component of

One of your responsibilities as division manager of an important component of Paramount Industries is to oversee accounting for the division. One of the issues you are responsible for on a continuous...

Q: Currency futures markets are commonly used as a means of capitalizing on

Currency futures markets are commonly used as a means of capitalizing on shifts in currency values, because the value of a futures contract tends to move in line with the change in the corresponding c...

Q: Explain the difference between how equity mutual funds generate returns for their

Explain the difference between how equity mutual funds generate returns for their investors, versus how private equity funds generate returns for their investors. Which fund do you think would be more...

Q: Swift Corporation incorporated on January 1, 2020, and incurred $

Swift Corporation incorporated on January 1, 2020, and incurred $45,000 in organization costs. a. Should Swift Corporation capitalize or expense these costs? Defend your answer. b. If these costs are...

Q: Much has been written about the accounting fraud and subsequent bankruptcy of

Much has been written about the accounting fraud and subsequent bankruptcy of WorldCom. The Baltimore Run reported that the ”fraud was brazen (and) easy to spot. The scheme was not complicated: the co...

Q: Seattle Film Works capitalizes the costs of its direct mailings to prospective

Seattle Film Works capitalizes the costs of its direct mailings to prospective customers, expensing them over three years rather than in the year they're incurred. There's nothing wrong with this prac...

Q: The 2019 annual report of Cisco Systems discloses that the company expenses

The 2019 annual report of Cisco Systems discloses that the company expenses all advertising and research and development costs, while capitalizing all software development costs. INSTRUCTIONS: Describ...

Q: Loan officer Han Blackford once commented that cash flow analysis has risen

Loan officer Han Blackford once commented that cash flow analysis has risen in importance due to a "trend over the past twenty years toward capitalizing and deferring more and more expenses. Although...

Q: Scandals involving fraudulent accounting practices resulted in public outrage, not only

Scandals involving fraudulent accounting practices resulted in public outrage, not only in the United States but around the world as well. In December 2013, the SEC charged Fifth Third Bank of Cincin...

Q: Moncton Developments Ltd. was established in early 20X2. During the

Moncton Developments Ltd. was established in early 20X2. During the first three years, the company followed the policy of expensing its development costs rather than capitalizing and amortizing them....

Q: Markus Company received two donations during the year. A long-

Markus Company received two donations during the year. A long-term client donated a piece of artwork from his personal art collection to display in the company’s entranceway as a thank-you for all of...

Q: Jerry Maloney, CPA has been working at Mason Pharmaceuticals for fifteen

Jerry Maloney, CPA has been working at Mason Pharmaceuticals for fifteen years. Mason is a Fortune 1000 company whose stock trades on the New York Stock Exchange. He came to Mason after starting his c...

Q: For each of the unrelated situations below, identify the accounting principle

For each of the unrelated situations below, identify the accounting principle or concept violated (if a violation exists) and explain the nature of the violation. If you believe that the treatment is...

Q: One can only imagine the high expectations of investors when the boards

One can only imagine the high expectations of investors when the boards of directors of CUC International, Inc. (CUC) and HFS, Inc. (HFS) agreed to merge in May 1997 to form Cendant Corporation. The $...

Q: For each of the following items, identify which of the management

For each of the following items, identify which of the management accounting guidelines applies: cost–benefit approach, behavioral and technical considerations, or different costs for different purpos...

Q: Henry Maddox was recently promoted to Controller of Research and Development for

Henry Maddox was recently promoted to Controller of Research and Development for Pharmex, a Fortune 500 pharmaceutical company that manufactures prescription drugs and nutritional supplements. The com...