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Temple University Fox School of Business and Management Dr. Steven Balsam Accounting 011 Final Exam-Answers December 13, 2006 Instructions: You have 150 minutes. Answer the questions on the pages provided and please remember to show all work so that you may receive partial credit. Also please put your name on each page in case the pages get separated. Good luck!

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Name ________________________________ Multiple Choice – 2 points each Use the following information for questions 1 through 3 On March 1, 2004, Fairly Company purchased land for an office site by paying \$360,000 cash. Fairly began construction on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2004 \$240,000 April 1, 2004 336,000 May 1, 2004 600,000 June 1, 2004 960,000 The office was completed and ready for occupancy on July 1. To help pay for construction, \$480,000 was borrowed on March 1, 2004 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2004 was a \$200,000, 12%, 6-year note payable dated January 1, 2004. 1. The weighted-average accumulated expenditures on the construction project during 2004 were a. \$256,000. b. \$1,956,000. c. \$208,000. d. \$464,000. (\$600,000 × 4/12) + (\$336,000 × 3/12) + (\$600,000 × 2/12) + (\$960,000 × 1/12) = \$464,000. 2
Name ________________________________ 2. The actual interest cost incurred during 2004 was a. \$60,000. b. \$67,200. c. \$33,600. d. \$56,000. (\$480,000 × 9% × 10/12) + (\$200,000 × 12%) = \$60,000 3. Assume the weighted-average accumulated expenditures for the construction project are \$580,000. The amount of interest cost to be capitalized during 2004 is a. \$52,200. b. \$55,200. c. \$60,000. d. \$67,200. (480,000 x 9%) + (100,000 x 12%) 4. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to a. the total interest cost actually incurred. b. a cost of capital charge for stockholders' equity. c. that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made . d. that portion of average accumulated expenditures on which no interest cost was incurred. 5. The period of time during which interest must be capitalized ends when a . the asset is substantially complete and ready for its intended use. b. no further interest cost is being incurred. c. the asset is abandoned, sold, or fully depreciated. d. the activities that are necessary to get the asset ready for its intended use have begun. 6. Truman, Inc. purchased equipment in 2002 at a cost of \$1,400,000. Two years later it became apparent to Truman, Inc. that this equipment had suffered an impairment of value. In early 2004, the book value of the asset is \$840,000 and it is estimated that the fair value is now only \$560,000. The entry to record the impairment is a. No entry is necessary as a write-off violates the historical cost principle. b.

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