Chapter 10 PPE soll Revised - EXERCISE 10-6 1 Land Buildings Equipment Cash \$700,000 X \$150,000 \$800,000 \$350,000 \$800,000 \$300,000 \$800,000 = \$131,250

# Chapter 10 PPE soll Revised - EXERCISE 10-6 1 Land...

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EXERCISE 10-6 1.Land.................................................................................131,250Buildings...........................................................................306,250Equipment.........................................................................262,500Cash........................................................................700,000\$700,000 X\$150,000= \$131,250Land\$800,000\$700,000 X\$350,000= \$306,250Buildings\$800,000\$700,000 X\$300,000= \$262,500Equipment\$800,000EXERCISE 10-6 (Continued)3.Office Equipment..............................................................19,600Accounts Payable (\$20,000 X .98).......................19,600EXERCISE 10-7 (a)Avoidable InterestWeighted-AverageAccumulated ExpendituresXInterest Rate=Avoidable Interest\$2,000,00012%\$240,0001,600,00010.42%166,720\$3,600,000\$406,720Weighted-average interest rate computationPrincipalInterest10% short-term loan\$1,400,000\$140,00011% long-term loan1,000,000110,000\$2,400,000\$250,000
Total Interest=\$250,000= 10.42%Total Principal\$2,400,000(b)Actual InterestConstruction loan\$2,000,000 X 12% =\$240,000Short-term loan\$1,400,000 X 10% =140,000Long-term loan\$1,000,000 X 11% =110,000Total\$490,000Because avoidable interest is lower than actual interest, use avoidable interest.Cost\$5,200,000Interest capitalized406,720Total cost\$5,606,720Depreciation Expense=\$5,606,720 – \$300,000= \$176,89130 yearsEXERCISE 10-8(a)Computation of Weighted-Average Accumulated ExpendituresExpendituresDateAmountXCapitalization Period=Weighted-Average Accumulated ExpendituresMarch 1\$ 360,00010/12\$ 300,000June 1600,0007/12350,000July 11,500,0006/12750,000December 11,500,0001/12125,000\$3,960,000\$1,525,000Computation of Avoidable InterestWeighted-AverageAccumulated ExpendituresXInterest Rate=Avoidable Interest\$1,525,000.12 (Construction loan)\$183,000Computation of Actual InterestActual interest\$3,000,000 X 12%\$ 360,000\$4,000,000 X 13%520,000\$1,600,000 X 10%160,000\$1,040,000
Note: Use avoidable interest for capitalization purposes because it is lower than actual.(b)Building.............................................................................183,000Interest Expense*.............................................................857,000Cash (\$360,000 + \$520,000 + \$160,000)...............1,040,000*Actual interest for year\$1,040,000Less: Amount capitalized(183,000)Interest expense debit\$ 857,000EXERCISE 10-11 (10–15 minutes)(a)Equipment.........................................................................10,000Accounts Payable.................................................