Solved: Rex s Reclaimers entered into a contract with Dan

s Demolition to
Rex s Reclaimers entered into a contract with Dan s Demolition to

Rex's Reclaimers entered into a contract with Dan's Demolition to manage the processing of
recycled materials on Dan's various demolition projects. Services for the 3-year contract include
collecting, sorting, and trans-porting reclaimed materials to recycling centers or contractors who
will reuse them. Rex's incurs selling commission costs of $2,000 to obtain the contract. Before
performing the services, Rex's also designs and builds receptacles and loading equipment that
interfaces with Dan's demolition equipment at a cost of $27,000. These receptacles and
equipment are retained by Rex's and can be used for other projects. Dan's promises to pay a
fixed fee of $12,000 per year, payable every 6 months for the services under the contract. Rex's
incurs the following costs: design services for the receptacles to interface with Dan's equipment
$3,000, loading equipment controllers $6,000, and special testing and OSHA inspection fees
$2,000 (some of Dan's projects are on government property).

Instructions

(a) Determine the costs that should be capitalized as part of Rex's Reclaimers revenue
arrangement with Dan's Demolition.

(b) Dan's 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? Explain.

Rex s Reclaimers entered into a contract with Dan s Demolition to

ANSWER
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