Acquisition Costs
Response to the following problem:
A company may acquire plant assets (among other ways) for cash, on a deferred-payment plan, by exchanging other assets, or by a combination of these ways.
Required
1. Identify six costs that a company should capitalize as the cost of land. For your answer, assume that a company acquires land with an existing building for cash and that it removes the existing building immediately so that it can construct a new building on that site.
2. At what amount should a company record a plant asset acquired on a deferred-payment plan?
3. In general, at what amount should a company record plant assets received in exchange for other nonmonetary assets? Specifically, at what amount should a company record a new machine acquired by exchanging an older, similar machine and paying cash? What amount should it recognize as a gain or loss?