Acquisition and Retirement
Response to the following :
Among the principal topics related to the accounting for property, plant, and equipment of a company are acquisition and retirement.
Required:
1. Explain the expenditures that a company capitalizes when it acquires equipment for cash.
2. Assume that a company cannot determine the market value of equipment acquired by reference to a similar purchase for cash. Explain how the company determines the capitalizable cost of equipment purchased by exchanging it for each of the following three items:
a. Bonds having an established market price.
b. Common stock not having an established market price.
c. Similar equipment having a determinable market value.
3. Explain the factors that a company uses to determine whether it capitalizes expenditures relating to property, plant, and equipment already in use.
4. Explain how a company accounts for the gain or loss on the sale of property, plant, and equipment for cash.