ACCT 3304, Chapter 10 Homework, 5 points
Due at the beginning of class on Mon. April 13
Name___________________________
Section: 11am_____ Noon_____
I. Multiple Choice - indicate your answer to the left of the question.
_____ 1. On August 1, 2012, Mendez Corporation purchased a new machine on a deferred payment basis.
A down payment of $2,000 was made and 4 annual installments of $18,000 each are to be made
beginning on September 1, 2012. The cash equivalent price of the machine was $69,000 (the present
value of future cash flows). Costs of installation (excluding the storage costs) amounted to $2,400.
The amount to be capitalized as the cost of the machine is
a.
b.
c.
d.
$69,000.
$71,400.
$72,300.
$78,000.
_____ 2.
Brauch Theater Corporation recently purchased the Bergstrom Theater and the land on which it is
located. Brauch plans to tear down the old building immediately and build a new modern theater
on the site. The cost of tearing down the Bergstrom Theater should be
A.
Written off as an extraordinary loss in the year the old theater is demolished.
B.
Capitalized as part of the cost of the land.
C.
Recognized immediately in the income statement as an operating expense.
D.
Capitalized as part of the cost of the new theater.
______3.
Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction
used to multiply an expenditure made on April 1 to find weighted-average accumulated
expenditures is
a.
8/8.
b.
8/12.
c.
9/12.
d.
11/12.
_____ 4.
In September of 2012, Jenks Co. incurred the following costs for one of its new machines:
Cash price of machine
$65,000
Installation and assembly
5,000
Housing and foundation for machine
18,000
Insurance on the machine for the first year of operation
7,000
What total amount would be capitalized in the Machinery account from these 2012 expenditures?
a. $65,000.
b. $77,000.
c. $88,000.
d. $95,000.
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II.
On March 1, 2012, Donner Company began construction on an office building. The following
expenditures were incurred for construction:
Date
3/1/12
4/1/12
5/1/12
12/31/12
Expenditures
$150,000
200,000
300,000
100,000
The office was completed and ready for occupancy on July 1, 2013 (Note: you are only required to
do the calculations through 2012). To help pay for construction, $300,000 was borrowed on
January 1, 2012, on an 8%, three-year note payable. Other than the construction note, the only
debt outstanding during 2012 was:
$500,000, 8%, note payable (40,000 interest expense)
$1,000,000, 6% bond payable (60,000 interest expense)
Total $1,500,000
$100,000 interest expense
Note: the average interest rate on these two notes is 100,000/1,500,000 = 6.67%
A.
Calculate average accumulated
expenditures for 2012:
$_____________________
B.
Calculate avoidable interest for 2012:
$_____________________
C.
Prepare the journal entry to capitalize
interest costs for 2012:
D.
Calculate the total capitalized value of the office building
at 12/31/12:
$____________________
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III. Exchange of property
Company S owns equipment which it wishes to trade for new equipment. The old equipment is on the
books at the following amounts:
Cost
$70,000
Accum. Depr. 40,000
Book Value $30,000
Prepare the journal entries for the following independent situations. Show your schedules to the right of
the journal entry:
A.
Assume the fair value of the old equipment is $40,000 and that Company S trades for new
equipment; the transaction does contain commercial substance; Company S receives $5,000 in
the exchange.
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FV Given
BV Given
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B.
Assume the fair value of the old equipment is $18,000 and that Company S trades for new
equipment; the transaction does not contain commercial substance. Company S pays $5,000 in
the exchange.
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FV Given
BV Given
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C.
Assume the fair value of the old equipment is $40,000 and that Company S trades for new
equipment; the transaction does not contain commercial substance; Company S receives $4,000
in the exchange.
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FV Given
BV Given
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