Q1 On March 1, Mocl Co. began construction of a small building. The following expenditures
were incurred for construction:
March 1
May 1
July 1
$ 75,000
180,000
100,000
April 1
June 1
$ 74,000
270,000
The building was completed and occupied on July 1. To help pay for construction $50,000
was borrowed on March 1 on a 12%, three-year note payable. The only other debt
outstanding during the year was a $500,000, 10% note issued two years ago.
Instructions
(a) Calculate the weighted-average accumulated expenditures.
(b) Calculate avoidable interest.
capitalization
Weighted-average
date
expenditures
period
Accum. expend
March 1
75,000
4/12
25,000
April 1
74,000
3/12
18,500
May 1
180,000
2/12
30,000
June 1
270,00
1/12
22,500
July 1
100,000
0
0
96,000
Weighted-average
Avoidable
Accum. expend
rate
interest
50,000
12
6,000
46,000
10
4,600
96,000
10,600
Q2 Equipment that cost $80,000 and has accumulated depreciation of $43,000 is
exchanged for equipment with a fair value of $32,000 and $8,000 cash is received. The
exchange has commercial substance.
Instructions
(a) Show the calculation of the gain to be recognized from the exchange.
(b) Prepare the entry for the exchange.
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Q3 Presented below are the components related to an office building that Lockard
Company is considering purchasing for €10,000,000.
Component
Building structure
Building engineering
Building external works
Useful Life
60-year life
30-year life
30-year life
Value
5,400,000
2,400,000
900,000
Instructions
(a) Compute depreciation expense for 2010, assuming that Lockard uses
component depreciation.
(b) Assume that the building engineering was replaced in 20 years at a cost of
€2,600,000. Prepare the entry to record the replacement of the old component
with the new component.
Q.1
a.
Date
March 1
April 1
May 1
June 1
July 1
Expenditures
75,000
74,000
180,000
270,00
100,000
Capitalization
Period
4/12
3/12
2/12
1/12
0
Weighted-average
Accum. expend
25,000
18,500
30,000
22,500
0 .
96,000.
b.
Weightedaverage
Accum. expend
50,000
46,000.
96,000.
Avoidable
Rate
0.12
0.10
Interest
$ 6,000
4,600
$10,600
Q.2
a.
Cost
Accumulated depreciation
Book value
Fair value ($32,000 + $8,000)
Gain
$80,000
(43,000)
37,000
40,000
$3,000
b.
Accumulated Depreciation ……………………… 43,000
Equipment ………………………………………. 32,000
Cash ……………………………………………... 8,000
Equipment ………………………………..
80,000
Gain on Disposal …………………………
3,000
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Q.3
a.
Component
Building structure
Building engineering
Building external works
Depreciation Expense
5,400,000 ÷ 60 = 90,000
2,400,000 ÷ 30 = 80,000
900,000 ÷ 30 = 30,000
€200,000
b.
Building engineering ……………………… 2,600,000
Accumulated Depreciation
(€2,400,000 x 20/30) …………………….. 1,600,000
Loss on Disposal of Plant Assets …………. 800,000
Building Engineering …………….
2,400,000
Cash ………………………………
2,600,000
Aisha AlThekrallah
130044526
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