| Course | ACC 422 Intermediate Financial Accounting II (ACC/422) |
|---|---|
| Week | 1 |
| Paper type | Property, plant and equipment cost paper |
| Length | about 1,020 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 422 Week 1
What Goes Into the Cost of a Cold-Storage Warehouse: Land Bought With an Old Building, Capitalized Construction Interest, Refrigeration Equipment and a Forklift Trade-In
[Student Name]
University of Phoenix
ACC/422: Intermediate Financial Accounting II
Week 1 Assignment
[Instructor Name]
[Date]
The company and all figures are composites written for a model paper; accounting rules come from the sources listed.
A composite cold-storage company rents refrigerated and frozen warehouse space to food producers and grocery distributors. Demand from frozen food makers has outgrown its two existing warehouses, so the company bought a site near an interstate interchange and built a third. The project cost more than $12 million and took a full year. At year end, the controller must decide how much of what was spent belongs in land, building and equipment and how much is expense. Every dollar placed in an asset account will be expensed eventually; the question is whether it belongs in this year's income or spread across the next forty. This paper records the acquisition in four parts.
Land Bought With an Old Building
The company paid $2.4 million for a 20-acre parcel that included a vacant manufacturing building. Title insurance, legal fees and recording costs were $35,000. The old building had no use to the company and was demolished for $90,000, with $15,000 of steel sold for scrap.
Because the company intended to remove the building from the start, the whole purchase price is the cost of preparing land for its intended use. Land is recorded at $2,400,000 plus $35,000 plus $90,000 less $15,000, or $2,510,000. Land is not depreciated. Had the company planned to use the old building, the $2.4 million would have been allocated between land and building by relative fair values, and the building would have been depreciated.
Paving, fencing, lighting and a truck-scale pad, costing $640,000, are land improvements. They have limited lives, about 15 years, so they are recorded separately from land and depreciated.
Constructing the Building
A contractor built the warehouse. The company paid $3 million on January 1, $4 million on July 1 and $2 million on December 31, when the building was completed. Architect and permit fees of $310,000 and insurance during construction of $45,000 are included in the building's cost because they were needed to construct it.
The company borrowed $5 million on January 1 under a construction loan at 6% and also had $10 million of other debt outstanding at 7%. Interest cost incurred to construct an asset over a period of time is capitalized as part of its cost (Financial Accounting Standards Board, 1979). The amount is based on weighted-average accumulated expenditures. The $3 million paid in January was outstanding for 12 months, the $4 million paid in July for 6 months and the $2 million paid in December for none. Weighted-average accumulated expenditures are $3 million plus $2 million plus zero, or $5 million.
Avoidable interest is the interest that would not have been incurred had the building not been constructed. Since weighted-average expenditures of $5 million equal the construction loan, the specific rate of 6% applies to the whole amount, and avoidable interest is $300,000. Actual interest for the year was $300,000 on the construction loan plus $700,000 on the other debt, $1 million in total. The company capitalizes the lower amount, $300,000. Had expenditures exceeded $5 million, the excess would have been multiplied by the 7% weighted rate on other debt.
The building's recorded cost is $9,000,000 plus $310,000 plus $45,000 plus $300,000, or $9,655,000.
Refrigeration Equipment
The company bought refrigeration units and racking for $1,200,000. Freight was $40,000, installation by a specialized contractor $85,000 and testing to confirm the system held minus 10 degrees Fahrenheit $15,000. These costs were all necessary to get the equipment ready for use, so equipment is recorded at $1,340,000. The company also spent $20,000 training staff on the new control software. Training develops people rather than the asset, so it is expensed. During installation, a forklift operator dented two rack uprights, which cost $6,000 to replace; that repair arose from an accident, not from preparing the asset, and is also expensed.
The Forklift Exchange
The company traded its old propane forklift fleet, with a book value of $60,000 and a fair value of $75,000, plus $150,000 in cash, for a new fleet of electric forklifts suited to freezer work. The exchange has commercial substance because the new forklifts will change the company's cash flows significantly through lower fuel and maintenance costs and longer runtimes in the cold. Under the standard on nonmonetary exchanges, the new asset is recorded at the fair value of what was given up, and the gain is recognized (Financial Accounting Standards Board, 2004). The new forklifts are recorded at $225,000, and the company recognizes a $15,000 gain on the old fleet.
Had the exchange lacked commercial substance, for example a trade of propane forklifts for similar propane forklifts, the gain would have been deferred by recording the new fleet at the old fleet's book value plus cash paid, $210,000.
Summary of Recorded Costs
The project added land of $2,510,000, land improvements of $640,000, a building of $9,655,000, refrigeration equipment of $1,340,000 and forklifts of $225,000. Expensed items include $20,000 of training and the $6,000 rack repair, and the $700,000 of interest on other debt remains interest expense.
Why the Decisions Matter
Capitalization moves cost from this year to future years. The $300,000 of capitalized interest, for example, will be depreciated over the building's 40-year life, about $7,500 a year, instead of reducing this year's income by the full amount. Weygandt et al. (2021) describe the historical cost principle as recording assets at the cost needed to acquire them and make them ready for use, which is the test applied to each item here. For tax purposes, the company will follow the federal rules for placing property in service and recovering its cost (Internal Revenue Service, 2025), which differ from the book lives and create temporary differences.
Conclusion
Building the warehouse required separate judgments for land, improvements, the building, equipment and vehicles. Demolition went to land, interest on the construction loan went to the building, installation and testing went to equipment and training went to expense. Each decision followed the same test: was the cost needed to acquire the asset and make it ready for its intended use?
References
Financial Accounting Standards Board. (1979). Capitalization of interest cost (Statement of Financial Accounting Standards No. 34).
Financial Accounting Standards Board. (2004). Exchanges of nonmonetary assets: An amendment of APB Opinion No. 29 (Statement of Financial Accounting Standards No. 153).
Internal Revenue Service. (2025). How to depreciate property (Publication 946). https://www.irs.gov/publications/p946
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2021). Accounting principles (14th ed.). Wiley.
What the ACC 422 Week 1 instructions ask
ACC 422 Week 1 generally asks students to determine the cost of property, plant and equipment and record acquisitions. Typical requirements include identifying costs to capitalize for land, land improvements, buildings and equipment, allocating a lump-sum purchase, accounting for self-constructed assets and capitalized interest, recording assets acquired by deferred payment or by issuing stock and handling exchanges of nonmonetary assets with or without commercial substance. Students usually present calculations and journal entries and explain the reasoning behind each capitalization decision. Some prompts ask how the choices affect future depreciation and financial ratios. The explanations should rest on the textbook and the governing standards, cited in APA style, and every amount should be traceable to its source.
How this ACC 422 Week 1 example is built
A cold-storage warehouse project was chosen because it includes nearly every acquisition question in one setting: land bought with a building that must be removed, a long construction period financed with borrowing, specialized equipment that must be delivered, installed and tested and an exchange of vehicles. Each part begins with the facts, then states the rule and the calculation. Interest capitalization is worked with a timeline of payments so the weighted-average accumulated expenditures can be followed. Costs that do not qualify, such as staff training, are named and expensed with a reason. A summary lists the recorded cost of each asset and notes how those amounts will drive depreciation for the next forty years.
ACC 422 Week 1 grading rubric: where the points go
The rubric for this week usually rewards correct capitalization decisions, correct calculations and clear explanation. Faculty check that demolition and title costs are assigned to land, that land improvements with limited lives are separated, that interest capitalization uses avoidable interest limited by actual interest and that equipment cost includes freight, installation and testing but not training or repairs from careless handling. Exchanges must be judged for commercial substance, with gains or losses recognized accordingly. Entries should balance and match the figures in the discussion. Explaining the effect of each decision on future depreciation adds credit, while tidy tables in prose and correct APA references earn the last marks.
ACC 422 Week 1 help: mistakes to avoid
A common ACC 422 Week 1 error is adding the cost of demolishing an old building to the new building instead of to land. The demolition prepares the land for use, so it belongs there, less any salvage. Another is capitalizing all interest paid during construction. Only avoidable interest on weighted-average accumulated expenditures qualifies, and it cannot exceed actual interest. Students also capitalize training or ignore installation and testing. Ask whether the cost was needed to get the asset ready for its intended use. For exchanges, test commercial substance before deciding whether to recognize a gain. Show every figure and date. Finally, summarize the total recorded for each asset class.
Related ACC 422 sample papers
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- ACC 422 Week 3: Current Liabilities and Contingencies
- ACC 422 Week 4: Long-Term Liabilities
- ACC 422 Week 5: Contributed Capital and Earnings
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ACC 422 Week 1 questions, answered
What does ACC 422 Week 1 usually cover?
It usually covers acquiring property, plant and equipment: which costs to capitalize, lump-sum purchases, self-constructed assets and capitalized interest, deferred payment contracts and exchanges of assets.
Where can I find a free ACC 422 Week 1 sample paper?
This page shows a cold-storage warehouse example with every capitalization decision, the interest calculation and the exchange entry worked out beside margin notes. Send the problem from your course and the opening draft we prepare around it is free.
What costs are included in the cost of land?
Purchase price, closing costs, title and legal fees, surveying, clearing and grading and the cost of removing old buildings, less salvage, because they prepare the land for its intended use.
How is capitalized interest calculated?
Multiply weighted-average accumulated expenditures on the qualifying asset by the appropriate interest rates to find avoidable interest, then capitalize the lower of avoidable and actual interest.
What is commercial substance in an asset exchange?
An exchange has commercial substance when the company's future cash flows are expected to change significantly; if so, the new asset is recorded at fair value and a gain or loss is recognized.
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