Problem 10–8
Case A.
Requirement 1
Book value less fair value = loss on exchange
Fair value of old tractor + cash given = Initial value of new tractor
Journal entry (not required):
New tractor ($9,000 + 20,000)…………………………………….. 29,000
Requirement 2
Fair value less book value = gain on exchange
Fair value of old tractor + cash given = Initial value of new tractor
Journal entry (not required):
New tractor ($14,000 + 20,000)…………………………………… 34,000
Problem 10–8 (continued)
Case B.
Requirement 1
Fair value less book value = gain on exchange
Fair value of old land + cash given = Initial value of new land
Journal entry (not required):
New land ($700,000 + 50,000)…………………………………….. 750,000
Cash ………………………………………………………………… 50,000
Requirement 2
Book value less fair value = loss on exchange
Fair value of old land + cash given = Initial value of new land
Journal entry (not required):
New land ($400,000 + 50,000)…………………………………….. 450,000
Problem 10–8 (concluded)
Requirement 3
If the exchange lacked commercial substance, no gain is recognized.
Book value of old land + cash given = Initial value of new land
Journal entry (not required):
New land ($500,000 + 50,000)…………………………………….. 550,000
Problem 10–9
Requirement 1
2018:
Expenditures for 2018:
January 1, 2018 $1,000,000 × 12/12 = $1,000,000
March 1, 2018 600,000 × 10/12 = 500,000
Accumulated expenditures
Interest capitalized:
2019:
January 1, 2019
($3,000,000 + 205,000) $3,205,000 × 9/9 = $3,205,000
Accumulated expenditures
Interest capitalized:
$3,870,000
* Weighted-average rate of all other debt:
$ 4,000,000 × 6% =$240,000 $720,000
Problem 10–9 (concluded)
Requirement 2
Accumulated expenditures 9/30/2019
before interest capitalization (above) $4,960,000
Requirement 3
2018
$3,000,000 × 10% = $ 300,000
4,000,000 × 6% = 240,000
2019
Total interest incurred $1,020,000
Problem 10–10
Requirement 1
2018
Expenditures for 2018
January 1, 2018 $1,000,000 × 12/12 = $1,000,000
Accumulated expenditures
Interest capitalized:
* Weighted-average rate of all debt:
$ 3,000,000 × 10% =$ 300,000 $1,020,000
2019:
January 1, 2019
($3,000,000 + 160,925) $3,160,925 × 9/9 = $3,160,925
Accumulated expenditures
Interest capitalized:
Problem 10–10 (concluded)
Requirement 2
Accumulated expenditures 9/30/2019,
before interest capitalization (above) $4,915,925
Requirement 3
2018:
$3,000,000 × 10% = $ 300,000
2019:
Total interest incurred $1,020,000
Problem 10–11
To capitalize the cost of equipment to be used on future projects incorrectly
charged to R&D expense.
To record depreciation on equipment used in R&D projects.
To capitalize filing and legal fees for patent incorrectly charged to R&D
expense.
To reclassify the expenditures made for quality control during commercial
production.
*Quality control costs would either be treated as manufacturing overhead
and included in the cost of inventory (as in this journal entry), or expensed in
the period incurred.
Problem 10–12
Requirement 1
Land
Purchase price (determined below) $714,404
Purchase price of land:
† Present value of note payment:
Land improvements
Building
Construction expenditures:
May 1 $1,200,000
Problem 10–12 (concluded)
Average accumulated expenditures:
May 1, 2018 $1,200,000 × 6/6 = $ 1,200,000
Interest capitalized:
Equipment and furniture and fixtures
Initial
Percent of Total Valuation
Fair Value Fair Value % × $600,000
Initial valuation:
Requirement 2
Interest expense:
Note issued to purchase land and building,
$514,404 × 8% × 9/12 = $ 30,864
Construction loan, $3,000,000 × 8% × 8/12 160,000