Accounting 2511-exam_2 Answers -Spring 2008 - Temple...

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Temple University Fox School of Business and Management Dr. Steven Balsam Accounting 3511 Final Exam-Answer Key December 2008 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 1. 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. 2. The period of time during which interest must be capitalized ends when Use the following information for questions 3 and 4. Seiler Co. purchased land as a factory site for \$600,000. Seiler paid \$60,000 to tear down two buildings on the land. Salvage was sold for \$5,400. Legal fees of \$3,480 were paid for title investigation and making the purchase. Architect's fees were \$31,200. Title insurance cost \$2,400, and liability insurance during construction cost \$2,600. Excavation cost \$10,440. The contractor was paid \$2,200,000. An assessment made by the city for pavement was \$6,400. Interest costs during construction were \$170,000. 3. The cost of the land that should be recorded by Seiler Co. is 600,000 + 60,000 – 5,400 +3,480 +2,400 +6,400 = 666,880. 4. The cost of the building that should be recorded by Seiler Co. is 31,200+2,600+10,440+2,200,000+170,000=2,414,240 2
Name ________________________________ 5. On August 1, 2007, Limon Corporation purchased a new machine on a deferred payment basis. A down payment of \$3,000 was made and 4 monthly installments of \$2,500 each are to be made beginning on September 1, 2007. The cash equivalent price of the machine was \$12,000. Limon incurred and paid installation costs amounting to \$500. The amount to be capitalized as the cost of the machine is a. \$12,000. b. \$12,500. c. \$13,000. d. \$13,500. Assume present value of cash flows is equal to the cash purchase price of \$12,000. Then add \$500 for installation costs

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