E10-1B (15–20 minutes)
Item
Land
Land
Improvements
Building
Other Accounts
(a)
($357,500) Notes Payable
(b)
$357,500
(c)
$ 10,400
(d)
9,100
(e)
7,800
(g)
28,600
(h)
325,000
11,700
(k)
14,300
(6,500)
16,900
(n)
(o)
18,200
(p)
3,900
E10-2B (10–15 minutes)
The allocation of costs would be as follows:
Land
Building
Land ………………………………………………………..
$80,000
Razing costs…………………………………………….
8,400
Salvage ……………………………………………………
(1,260)
Legal fees …………………………..……………………
Survey ……………………………………………………..
Title insurance …………………………………………
Liability insurance ……………………………………
Construction ……………………………………………
Interest …………………………………………………….
E10-3B (10–15 minutes)
1.
Truck #1 ……………………………………………………….
34,750
Cash ……………………………………………………….
34,750
2.
Truck #2 ……………………………………………………….
37,408*
Discount on Notes Payable …………………………..
2,542
Cash ……………………………………………………….
Notes Payable …………………………..……………………
35,000
*PV of $35,000 @ 8% for 1 year =
$35,000 X .92593 = $32,408
$32,408 + $5,000.00 = $37,408
3.
Truck #3 ……………………………………………………….
38,000
Cost of Goods Sold …………………………………………………
30,000
Inventory ……………………………………………………….
30,000
Sales ……………………………………………………….
38,000
4.
Truck #4 ……………………………………………………….
26,000
Common Stock ……………………………………………….
10,000
Paid-in Capital in Excess of Par
(1,000 shares X $26 = $26,000) ………………………
16,000
E10-4B (20–25 minutes)
Purchase
Cash paid for equipment, including sales tax of $31,000 …
$522,500
Freight and insurance while in transit …………………………….
7,000
Cost of moving equipment into place at factory………………
2,850
Cost to hire technicians to test equipment ……………………..
10,000
Special electrical wiring required for new equipment ………
3,200
Construction
Material and purchased parts ($100,000 X 0.98) ………………
$ 98,000
Labor costs ………………………………………………………………….
76,700
Overhead costs …………………………..………………………………..
28,000
Cost of installing equipment ………………………………………….
6,500
Total cost ……………………………………………………………………..
$209,200
E10-5B (30–40 minutes)
Land
Buildings
M & E
Other
Attorney fee for title search
$ 750
Architect’s fees
$ 12,500
Assessment by city
18,600
Cash paid for land and barn
220,000
Excavation before construction
12,000
Freight on equipment
$ 860
Hauling charges—equipment
$ 700
2,600
(Loss)
Interest on loans during
construction
16,000
New building
Storage charges caused by
early delivery
(Loss)
Equipment purchased
E10-6B (15–20 minutes)
1.
Land ………………………………………………………………………
262,500
Buildings ……………………………………………………….
218,750
Equipment ……………………………………………………….
218,750
Cash ……………………………………………………….
700,000
$700,000 X
$300,000
= $262,500
Land
$800,000
$250,000
$800,000
$800,000
E10-6B (Continued)
2.
Store Equipment ……………………………………………………..
50,000
Cash …………………………..…………………………..
10,000
Note Payable …………………………………………………..
40,000
Office Equipment …………………………………………………….
Accounts Payable ($50,000 X 0.99) …………………..
49,500
Land ……………………………………………………………………….
Contribution Revenue …………………………..
Warehouse …………………………..…………………………..
Cash …………………………..…………………………..
E10-7B (20–25 minutes)
(a)
Avoidable Interest
Weighted-Average
Accumulated Expenditures
X
Interest Rate
=
Avoidable Interest
Weighted-average interest rate computation
10% short-term loan
$ 700,000
$ 70,000
500,000
55,000
$1,200,000
Total principal
$1,200,000
E10-7B (Continued)
(b)
Actual Interest
Construction loan
$1,000,000 X 15% =
$150,000
Short-term loan
$700,000 X 10% =
70,000
Long-term loan
$500,000 X 11% =
55,000
Cost
$2,600,000
Interest capitalized
233,360
E10-8B (20–25 minutes)
(a)
Computation of Weighted-Average Accumulated Expenditures
Expenditures
Date
Amount
X
Capitalization
Period
=
Weighted-Average
Accumulated Expenditures
June 1
$ 400,000
7/12
$ 233,333
July 1
600,000
6/12
300,000
September 1
1,200,000
4/12
400,000
December 1
600,000
1/12
Computation of Avoidable Interest
Weighted-Average
Accumulated Expenditures
X
Interest Rate
=
Avoidable Interest
$983,333
10% (Construction loan)
$98,333
Computation of Actual Interest
Actual interest
$1,000,000 X 10%
$10,000,000 X 8%
800,000
$2,500,000 X 10%
250,000
E10-8B (Continued)
(b)
Building ……………………………………………………….
98,333
E10-9B (20–25 minutes)
(a)
Computation of Weighted-Average Accumulated Expenditures
Expenditures
Date
Amount
X
Capitalization
Period
=
Weighted-Average
Accumulated Expenditures
Interest revenue
$150,000 X 8% X 3/12 = $3,000
Avoidable interest
Weighted-Average
Accumulated Expenditures
X
Avoidable Interest
Interest capitalized
$ 7,500
E10-9B (Continued)
(b)
1.
7/31
Cash …………………………..………………………….
450,000
Note Payable …………………………..
450,000
Machine …………………………..…………………….
300,000
Trading Securities …………………………..
150,000
2.
11/1
Cash …………………………..………………………….
153,000
Interest Revenue
($150,000 X 8% X 3/12) ………………….
Trading Securities ………………………….
150,000
Machine …………………………..…………………….
150,000
3.
12/31
Machine …………………………..…………………….
7,500
Interest Expense
($21,450 – $7,500) …………………………..
Cash ($45,000 X 6%) ……………………….
Interest Payable
E10-10B (20–25 minutes)
Situation I. $96,000—The requirement is the amount Navarone should report
as capitalized interest at December 31, 2014. The amount of interest eligible
for capitalization is
Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest
Since Navarone has outstanding debt incurred specifically for the construction
E10-10B (Continued)
Situation II. $44,500—The requirement is total interest costs to be capitalized.
GAAP identifies assets which qualify for interest capitalization: assets
Situation III. $75,000—The requirement is to determine the amount of interest
to be capitalized on the financial statements at June 30, 2015. The GAAP
requirements are met: (1) expenditures for the asset have been made, (2)
activities that are necessary to get the asset ready for its intended use are in
progress, and (3) interest cost is being incurred. The amount to be capitalized
E10-11B (10–15 minutes)
(a)
Equipment ……………………………………………………….
12,000
Accounts Payable …………………………………………..
Accounts Payable ……………………………………………………
12,000
Equipment ($12,000 X .02) …………………………..
Cash …………………………..…………………………..
E10-11B (Continued)
(b)
Equipment (new) …………………………………………………….
11,880*
Loss on Disposal of Equipment …………………………..
1,920**
Accumulated Depreciation ………………………………………
7,200
Accounts Payable …………………………………………..
11,400
Equipment (old) ………………………………………………
**Cost
Accumulated depreciation
Fair market value
Accounts Payable …………………………………………………..
11,400
Cash ……………………………………………………….
11,400
(c)
Equipment ($12,960 X .92593) …………………………..
12,000
Discount on Note Payable ……………………………………….
Note Payable ………………………………………………….
12,960
Interest Expense …………………………………………………….
Note Payable …………………………..…………………………..
12,960
Discount on Note Payable …………………………..
Cash ……………………………………………………….
12,960
E10-12B (15–20 minutes)
(a)
Land ……………………………………………………………………….
173,000
Contribution Revenue …………………………..
173,000
(b)
Land ……………………………………………………………………….
150,000
Buildings ……………………………………………………….
350,000
Common Stock ($10 X 10,000) ………………………….
100,000
Additional Paid-in Capital* …………………………..
400,000
(c)
Machinery ……………………………………………………….
Materials ……………………………………………………….
Direct Labor ……………………………………………………
Factory Overhead
[(25% X $20,000) + $3,000 + $1,250] ……………….
E10-13B (20–25 minutes)
1.
Land ……………………………………………………………………….
175,000
Building ……………………………………………………….
525,000
Machinery and Equipment ……………………………………….
350,000
Common Stock (12,500 X $10) ………………………….
125,000
Paid-in Capital in Excess of Par
($1,050,000 – $125,000) …………………………..
925,000
(The cost of the plant assets is
$1,050,000, or 12,500 X $84. The
cost is allocated in proportion to the
appraised value: 1/6 to Land, 1/2 to
Building, and 1/3 to Machinery
and Equipment.)
E10-13B (Continued)
2.
Buildings ($73,000 + $184,000) …………………………..
257,000
Machinery and Equipment ……………………………………….
Land Improvements ………………………………………………..
Land ………………………………………………………………………
Cash ……………………………………………………….
3.
Machinery and Equipment ……………………………………….
172,900
Cash ……………………………………………………….
of $170,000.)
E10-14B (15–20 minutes)
(a)
Equipment ……………………………………………………….
399,271*
Discount on Notes Payable …………………………..
100,729
Notes Payable …………………………..……………………
500,000
*PV of $100,000 annuity @ 8% for 5 years
($100,000 X 3.99271) = $399,271
(b)
Interest Expense …………………………………………………….
Notes Payable ……………………………………………………….
100,000
Discount on Notes Payable …………………………..
31,942
Cash ……………………………………………………….
100,000
*(8% X $399,471)
Year
Note Payment
8% Interest
Reduction
of Principal
Balance
1/2/14
$399,271
12/31/14
$100,000
E10-14B (Continued)
(c)
Interest Expense ……………………………………………………..
26,497
Notes Payable ……………………………………………………….
Discount on Notes Payable …………………………..
Cash …………………………..…………………………..
(d)
Depreciation Expense ……………………………………………..
Accumulated Depreciation …………………………..
*($399,271 ÷ 10)
E10-15B (15–20 minutes)
(a)
Equipment ……………………………………………………….
64,927*
Discount on Notes Payable …………………………..
10,073
Cash …………………………..…………………………..
Notes Payable …………………………………………………
*PV of $10,000 annuity @ 8% for
5 years ($10,000 X 3.99271)
Down payment
(b)
Notes Payable ……………………………………………………….
10,000
Interest Expense (see schedule) …………………………..
Cash …………………………..…………………………..
Discount on Notes Payable …………………………..
Year
Note Payment
8% Interest
Reduction
of Principal
Balance
12/31/13
$39,927