F3 M4

Question 1

costs included in land

Answer 1

1) purchase price of land
2) demolition (razing) of old building
3) legal fees
4) title insurance
5) less salvage materials
6) broker’s commissions
7) clearing brush and trees
8) mortgages, real estate taxes
8) site development

Question 2

costs included in land improvements

Answer 2

1) fences
2) water systems
3) sidewalks
4) paving
5) landscaping
6) lighting
7) interest costs during construction period based on weighted average accumulated exp.

Question 3

costs included in buildings

Answer 3

1) purchase price
2) repair charges neglected by previous owner
3) alterations and improvements
4) architect’s fees
5) possible addition of construction-period interest

Question 4

costs included in equipment

Answer 4

1) invoice price
2) less cash and other discounts
3) freight-in
4) installation charges
5) testing and preparation for use
6) sales and federal excise taxes
7) possible addition of construction period interest

Question 5

weighted average accumulated expenditures calc

Answer 5

-treated very similarly to weighting common stock shares outstanding
-however long expenditures were outstanding out of certain number of months out of the year

Question 6

how are the proceeds on sale of building removed treated?

Answer 6

-any proceeds from sale of any existing buildings or scrap are deducted from the cost of land

Question 7

leasehold improvements

Answer 7

-capitalized and amortized over the lesser of the life of improvements or remaining term or lease

Question 8

are debt issuance costs included in capitalization of an asset?

Answer 8

No, they are reduced from the carrying amt of the bond or loan

Question 9

when should expenditures be capitalized?

Answer 9

when they are additions or benefit several periods, or improve efficiency

Question 10

when does depreciation of an asset begin?

Answer 10

when it has been placed into service

Question 11

basket purchase of land and buildings

Answer 11

allocate the purchase price based on the ratio of appraised values of individual items

Question 12

steps on calculating basket purchase of land and buildings

Answer 12

1) total purchase price of assets to get total amt
2) divide each asset from the total amt
3) multiply ratio to the lump sum price including the appraisal costs
4) those would be the costs assigned to each asset

Question 13

the component method

Answer 13

-how a company will use the economic benefits of the asset
1) identify the asset
2) assign capitalized costs to asset
3) depreciate asset (component)

Question 14

what must you do when a building is uninsured and was damaged, including any capitalized portions?

Answer 14

capitalize the cost of items to be capitalized and record a loss in current period equal to the carrying amt of the damaged portion of the building

Question 15

weighted average interest calc

Answer 15

weighted average of accumulated expenditures * related interest rate

Note: if there is more than one loan, do the same process as first loan. Capitalizable interest cannot go above

Question 16

steps to calculate interest costs capitalized

Answer 16

1) determine avg accumulated expenditures by using weighted average
2) multiply expenditures by interest rate on specific borrowing
3) makes avoidable interest
4) calculate actual interest by taking each loan and multiplying them by related interest rates and total them up
5) capitalize the lower amt of interest in comparison to actual interest

Question 17

is interest earned capitalized or impact interest expense?

Answer 17

No, interest earned on money invested is just interest revenue and booked on I/S

Question 18

when does interest capitalization end?

Answer 18

when the asset is substantially complete and ready for its intended use