Exercise 8-22A Identifying companies using property, plant, and equipment

Accounting for Long-Term Operational Assets

Exercise 8-22A Identifying companies using property, plant, and equipment

Executive Jets, LLC operates a charter flight-service company in the northwestern United States. Classic Steps, LLC provides dance lessons across multiple studios. The following financial data is presented for the two companies but without identifying which company each set of data belongs to:

Required
a. Calculate the ratio of sales to property, plant, and equipment for each company.
b. Based on the ratios calculated in requirement a, determine which is the airline company and which is the dance studio. Explain your answer.
c. Based on the ratios calculated in requirement a, which company appears to be using its property, plant, and equipment more efficiently? Explain your answer.
d. Explain why two companies with such different amounts of property, plant, and equipment might have the same amount of current assets.

Exercise 8-23A R&D costs: GAAP vs. IFRS

The Paris Corp. incurred $3,600,000 of research costs and $800,000 of development costs during the current year.

Required
a. Determine the amount of expense recognized on its income statement assuming Paris uses U.S. GAAP.
b. Determine the amount of expense recognized on its income statement assuming Paris uses IFRS.

Exercise 8-24A Accounting for land and buildings under IFRS

Assume the following:

Queensland Company purchased a parcel of land on January 1, Year 1, for $400,000. It constructed a building on the land at a cost of $2,000,000. The building was occupied on January 1, Year 4, and is expected to have a useful life of 40 years and an estimated salvage value of $600,000.

As of December 31, Year 5 and Year 6, the fair value of the land had not been formally revalued because the real estate market had not changed significantly. Due to a jump in real estate prices, during Year 7 the value of the land had increased to $450,000, and the fair value of the building was $2,000,000. The salvage value of the building is still estimated at $600,000. The land and the building were reevaluated by the company in Year 7.

Required
a. Under U.S. accounting rules, what amount would be reported on the company’s Year 6 and Year 7 balance sheets for the land and for the building? Show any necessary computations.
b. Under U.S. accounting rules, what amount of depreciation expense would be reported in Year 7 for the building? Show any necessary computations.
c. Under the IFRS revaluation model, what amount would be reported on the company’s Year 6 and Year 7 balance sheets for the land and for the building? Show any necessary computations.
d. Under the IFRS revaluation model, what amount of depreciation expense would be reported in Year 7 for the building? Show any necessary computations.