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Question 11
On July 1, 2005, Casa Development Co. purchased a tract of land
for $1,200,000. Casa incurred additional costs of $300,000 during
the remainder of 2005 in preparing the land for sale. The tract
was subdivided into residential lots as follows: Using the relative
sales value method, what amount of costs should be allocated to
the Class A lots?
Question 12
On January 2 of the current year, Cruises, Inc. borrowed $3
million at a rate of 10% for three years and began construction of
a cruise ship. The note states that annual payments of principal
and interest in the amount of $1.3 million are due every
December 31. Cruises used all proceeds as a down payment for
construction of a new cruise ship that is to be delivered two years
after the start of construction. What should Cruise report as
interest expense related to the note in its income statement for the
second year?
Question 13
Puff Co. acquired 40% of Straw, Inc.'s voting common stock on
January 2, 2005, for $400,000. The carrying amount of Straw's
net assets at the purchase date totaled $900,000. Fair values
equaled carrying amounts for all items except equipment, for
which fair values exceeded carrying amounts by $100,000. The
equipment has a five year life. Goodwill, if any, is expected to
have a useful life of 10 years. During 2005, Straw reported net
income of $150,000. What amount of income from this investment
should Puff report in its 2005 income statement?
Question 14