Chapter 10 PPE soll Revised

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

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Unformatted text preview: EXERCISE 10-6 1. Land ................................................................................. 131,250 Buildings........................................................................... 306,250 Equipment......................................................................... 262,500 Cash........................................................................ 700,000 $700,000 X $150,000 = $131,250 Land $800,000 $700,000 X $350,000 = $306,250 Buildings $800,000 $700,000 X $300,000 = $262,500 Equipment $800,000 EXERCISE 10-6 (Continued) 3. Office Equipment.............................................................. 19,600 Accounts Payable ($20,000 X .98)....................... 19,600 EXERCISE 10-7 (a) Avoidable Interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest $2,000,000 12% $240,000 1,600,000 10.42% 166,720 $3,600,000 $406,720 Weighted-average interest rate computation Principal Interest 10% short-term loan $1,400,000 $140,000 11% long-term loan 1,000,000 110,000 $2,400,000 $250,000 Total Interest = $250,000 = 10.42% Total Principal $2,400,000 (b) Actual Interest Construction loan $2,000,000 X 12% = $240,000 Short-term loan $1,400,000 X 10% = 140,000 Long-term loan $1,000,000 X 11% = 110,000 Total $490,000 Because avoidable interest is lower than actual interest, use avoidable interest. Cost $5,200,000 Interest capitalized 406,720 Total cost $5,606,720 Depreciation Expense = $5,606,720 $300,000 = $176,891 30 years EXERCISE 10-8 (a) Computation of Weighted-Average Accumulated Expenditures Expenditures Date Amount X Capitalization Period = Weighted-Average Accumulated Expenditures March 1 $ 360,000 10/12 $ 300,000 June 1 600,000 7/12 350,000 July 1 1,500,000 6/12 750,000 December 1 1,500,000 1/12 125,000 $3,960,000 $1,525,000 Computation of Avoidable Interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest $1,525,000 .12 (Construction loan) $183,000 Computation of Actual Interest Actual 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............................................................................. 183,000 Interest Expense*............................................................. 857,000 Cash ($360,000 + $520,000 + $160,000)............... 1,040,000 *Actual interest for year $1,040,000 Less: Amount capitalized (183,000 ) Interest expense debit $ 857,000 EXERCISE 10-11 (1015 minutes) (a) Equipment......................................................................... 10,000 Accounts Payable................................................. 10,000 Accounts Payable............................................................Accounts Payable....
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Chapter 10 PPE soll Revised - EXERCISE 10-6 1. Land

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