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
.........................................................................25,000
..............................................Note payable (face value)
.........................................................................55,000

68,661
11,339

Present value of note payment:

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

Requirement 2
2011: $43,661 x 8% = $3,493
2012: ($43,661 + 3,493) x 8% = $3,772
Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

10-1

Exercise 10-3

Truck - new ($800 + 14,000)...........

Accumulated depreciation (balance).............................
Loss ($1,000 - 800) .......................................................
............................................................................Cash
.........................................................................14,000
.....................................................Truck - old (balance)
.........................................................................13,000

14,800
12,000
200

Exercise 10-4

Truck - new ($1,500 + 14,000).......... 15,500

Accumulated depreciation (balance)............................. 12,000
............................................................................Cash
.........................................................................14,000
.....................................................Truck - old (balance)
.........................................................................13,000
.................................................................Gain ($1,500 - 1,000)
..............................................................................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
The McGraw-Hill Companies, Inc., 2011
10-2

Intermediate Accounting, 6/e

($ in millions)

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

Software development costs.......................................
............................................................................Cash
................................................................................10

6
4

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

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

10-3

..........................Gain on exchange of assets ($125,000 100,000)

.................................................................................... 25,000

Filzinger:
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
Expenditures for 2011:
January 1, 2011
March 31, 2011
June 30, 2011
October31, 2011

2011:
$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
The McGraw-Hill Companies, Inc., 2011
10-4

Intermediate Accounting, 6/e

2012:
January 1, 2012
($2,500,000 + 145,000)
January 31, 2012
March 31, 2012
May 31, 2012

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

x
x
x
x

Accumulated expenditures
(before interest) $4,045,000
Average accumulated expenditures -

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

=
=
=
=

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

$3,245,000

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

Alternate Exercise and Problem Solutions

$400,000
180,000
$580,000

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

The McGraw-Hill Companies, Inc., 2011

10-5

Problem 10-2 (concluded)

Requirement 2
Accumulated expenditures 6/30/12,
before interest capitalization (above)
2012 interest capitalized (above)
Total cost of building

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

Requirement 3
2011:
$2,000,000 x 10% =
5,000,000 x 8% =
3,000,000 x 6% =
Total interest incurred
Less: Interest capitalized
2011 interest expense

$ 200,000
400,000
180,000
780,000
(145,000)
$ 635,000
2012:

Total interest incurred

Less: Interest capitalized
2012 interest expense

The McGraw-Hill Companies, Inc., 2011

10-6

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

Intermediate Accounting, 6/e