ACTP 5007_Worksheet 1 (Summer 2017)(1) - Dimple Patel ACTP 5007 Intermediate Accounting II Worksheet I Acquisition of long-lived Assets Summer 2017

# ACTP 5007_Worksheet 1 (Summer 2017)(1) - Dimple Patel ACTP...

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Dimple Patel 06/04/2017 ACTP 5007 – Intermediate Accounting II Worksheet I – Acquisition of long-lived Assets Summer 2017 Problem 1 – Capitalized Interest On January 1, 2016, Stinson Company borrowed \$6,000,000 at 9% payable annually to finance the construction of a new building. In 2016, the company made the following expenditures to Berman Construction Company: January 1 \$3,000,000 March 31 \$2,500,000 June 30 \$2,250,000 July 31 \$2,100,000 August 30 \$1,500,000 November 30 \$1,500,000 December 31 \$1,000,000 The building was completed and ready for occupancy on December 27, 2016. Stinson had the following debt outstanding as of December 31, 2016: 12%, 20-year bonds issued December 31, 2013, with interest payable annually on December 31. \$6,000,000 11%, 5-year note payable issued December 31, 2015, with interest payable annually on December 31. \$3,000,000 Stinson also held 5,000 shares of Jenkins Company common stock that had a par value of \$10 per share and a closing price of \$55 per share on December 31, 2016. Required: 1. Compute the weighted-average accumulated expenditures for Stinson Company for the year 2016. 2.What is the avoidable interest for 2016? 3.How much interest will be expensed for 2016? 4. Assume that the building will have a \$500,000 salvage value and 30-year useful life. Stinson, however, only intends to use the building for 20 years. Compute the depreciation expense for the year 2017, assuming that Stinson uses the straight- line method to depreciate all assets.
Answers: 1. January 1 \$3,000,000 x 12/12 = \$3,000,000 March 31 \$2,500,000 x 9/12 = \$1, 875,000 June 30 \$2,250,000 x 6/12 = \$1,125,000 July 31 \$2,100,000 x 5/12 = \$875,000 August 30 \$1,500,000 x 4/12 = \$500,000 November 30 \$1,500,000 x 1/12 = \$125,000 December 31 \$1,000,000 x 0/12 = \$0 Total \$13,850,000 = \$7,500,000 The weighted-average accumulated expenditures were calculated by multiplying the expenditure amount by the amount of time left in the fiscal year. Therefore, the amount spent on December 31 yielded \$0 as it clashed with the new fiscal year. In contrast, the expenditure incurred on August 30 was 4 months away from the year’s end, so August’s expenditure of \$1.5 million was multiplied by the ratio of months left to the total amount of months in a year (4/12) to yield the weighted-average accumulated expenditure of \$500,000. Stinson Company’s weighted-average accumulated expenditures for 2016 was \$7,500,000 . 2. The following is the calculation of the weight-averaged interest rate for the bonds. The principals of the bonds were added together. Then the annual interest for each bond was calculated by multiplying the rate by its principal (e.g. 12% * \$6,000,000 yields \$720,000 in annual interest). Then the annual interests were added together for both bond sources. Then the actual weight- average interest rate was calculated by dividing the total annual interest by the total principal to yield a rate of 11.67%.

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• Summer '09
• BAKER
• Accounting, Depreciation, Expense, Generally Accepted Accounting Principles, Stinson Company, Abreau