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Financial Accounting: In an Economic Context by Jamie Pratt

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ISSUES FOR DISCUSSION

REAL DATA

ID9-1

Lump-sum sales and purchase

MGM Grand, Inc. purchased two Las Vegas casinos and the adjoining land for a total of $167 million. Soon afterwards, the company agreed to sell one of the casinos and 58.7 acres of adjacent land for $110 million.

REQUIRED:

a. What issues need to be addressed in order to determine the gain or loss resulting from the sale of one of the casinos? How should the cost of the sold casino be established?

b. Assume that each casino had a cost of $75 million and the adjacent land originally cost $17 million. Provide the journal entry prepared by MGM Grand to record the sale.

c. Explain how the casino and the land would each be valued on the balance sheet of the purchasing company.

d. Assume that an appraiser assesses the value of the land without the hotel to be $43 million. Compute the annual depreciation charge recognized by the purchasing company if it depreciates buildings using the straight-line rate over a period of twenty-five years. Assume no salvage value.

REAL DATA

ID9-2

Capitalizing marketing costs

Seattle FilmWorks capitalizes the costs of its direct mailings to prospective customers, expensing them over three years rather than in the year they're incurred. There's nothing wrong with this practice per se. If the customers netted by mailing come back with repeat business year after year, you really have booked an asset. But there is no guarantee that the first-time customer will become a regular. Consequently, large ...

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