Question

Pina Reclaimers entered into a contract with Grouper Demolition to manage the processing of recycled materials on Grouper various demolition projects. Services for the 3-year contract include collecting, sorting, and transporting reclaimed materials to recycling centers or contractors who will reuse them. Pina incurs selling commission costs of $2,010 to obtain the contract. Before performing the services, Pina also designs and builds receptacles and loading equipment that interfaces with Grouper demolition equipment at a cost of $27,620. These receptacles and equipment are retained by Pina and can be used for other projects. Grouper promises to pay a fixed fee of $12,080 per year, payable every 6 months for the services under the contract. Pina incurs the following costs: design services for the receptacles to interface with Grouper equipment $2,880, loading equipment controllers $6,250, and special testing and OSHA inspection fees 52,010 (some of Grouper projects are on government property). Determine the costs that should be capitalized as part of Pina Reclaimers revenue arrangement with Grouper Demolition. (If answer is 0, please enter 0. Do not leave any fields blank.) Commission Costs Design Services Cost of loading Equipment Controllers Inspection Fees Receptacles and loading Equipment LINK TO TEXT Grouper also expects to incur general and administrative costs related to this contract, as well as costs of wasted materials and labor that likely cannot be factored into the contract price. Can these costs be capitalized? General and administrative costs Costs of wasted materials and labor

Answer 1

Above question is about capitalisation of costs incurred . Refer below images for more detailed solution with explanation.
solotion : a The $ 2010 commission costs related to obtaining contract are recognized as an asset. The design services $2880 controllers $6250, testing is inspection fees $2010 Should be capitalized as well as they are specific to the contract. The $27620 cost for the receptables and loading equipment appear to be independent of the contract, as pina will retain these and likely use them in other projects. costs to be capitalized: Commission cost $2010 Design Services $2880 ext of loading . $6250 equipment Inspection controllers & fees $ 2010 $ 0 Receptables es loading ea vipment (Refer #

bj companies only capitalize and recoverable (assuming more than one year). costs that are that the contract direct, incremental periode is General and administrative costs (unless those costs are explicitly chargeable to the costomer under the contract) and wasted materials & labor are not eligible for capitalization and should be expensed as incorred. costs to be capitalized : General & administrative costs costs of wasted materials & labor (Refer the above points). $ 0 $0