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Temple University Fox School of Business and Management Dr. Steven Balsam Accounting 011 Final Exam-Answers May 5, 2005 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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1. On May 1, 2004, Royster Company began construction of a building. Expenditures of \$90,000 were incurred monthly for 5 months beginning on May 1. The building was completed and ready for occupancy on September 1, 2004. For the purpose of determining the amount of interest cost to be capitalized, the average accumulated expenditures on the building during 2004 were a. \$75,000 . b. \$90,000. c. \$360,000. d. \$450,000. Date of expenditure Amount Fraction of year outstanding Weighted Average Accumulated Expenditure May 1, 2004 90,000 4/12 30,000 June 1, 2004 90,000 3/12 22,500 July 1, 2005 90,000 2/12 15,000 August 1, 2005 90,000 1/12 7,500 75,000 2. During 2004, Foster Co. incurred average accumulated expenditures of \$450,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2004 was a \$600,000, 10%, 5-year note payable dated January 1, 2002. What is the amount of interest that should be capitalized by Foster during 2004? a. \$0. b. \$15,000. c. \$45,000 . d. \$60,000. 450,000 * .1 = 45,000 3. Denny Corporation purchased a new machine on October 31, 2004. A \$1,400 down payment was made and three monthly installments of \$4,200 each are to be made beginning on November 30, 2004. The cash price would have been \$12,800. Denny paid no installation charges under the monthly payment plan but a \$200 installation charge would have been incurred with a cash purchase. The amount to be capitalized as the cost of the machine on October 31, 2004 would be a. \$14,200. b. \$14,000. c. \$13,000. d. \$12,800. 12,800 + 200 = 13,000 2
4. Taylor Company buys a lift truck with a list price of \$40,000. The dealer grants a 15% reduction in list price and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes amount to \$500 and the company paid an extra \$400 to have a special horn installed. What should be the recorded cost of the truck? a. \$33,320. b. \$34,160. c. \$34,220. d. \$33,820. 40,000 – 6,000 (15% discount) = 34,000 34,000 – 680 (2% discount for paying early) = 33,320 33,320 + 500 + 400 = 34,220 5. Garner Company exchanged 600 shares of Eller Company common stock, which Garner was holding as an investment, for equipment from West Company. The Eller Company common stock, which had been purchased by Garner for \$50 per share, had a quoted market value of \$58 per share at the date of exchange. The equipment had a recorded amount on West's books of \$32,000. What journal entry should Garner make to record this exchange? a.

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