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# ch10 - SOLUTIONS TO B EXERCISES E10-1B(1520 minutes Land...

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SOLUTIONS TO B EXERCISES E10-1B (15–20 minutes) Item Land Land Improvements Building Other Accounts (a) (\$357,500) Notes Payable (b) \$357,500 (c) \$ 10,400 (d) 9,100 (e) 7,800 (f) (1,300) (g) 28,600 (h) 325,000 (i) 11,700 (j) \$ 5,200 (k) 14,300 (l) (6,500) (m) 16,900 (n) 24,700 (o) 18,200 (p) 3,900 E10-2B (10–15 minutes) The allocation of costs would be as follows: Land Building Land \$80,000 Razing costs 8,400 Salvage (1,260) Legal fees 370 Survey \$ 440 Plans 13,600 Title insurance 300 Liability insurance 180 Construction 548,000 Interest 34,000 \$87,810 \$596,220 10-1

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E10-3B (10–15 minutes) 1. Truck #1 .............................................................. 34,750.00 Cash ........................................................... 34,750.00 2. Truck #2 .............................................................. 37,407.55* Discount on Notes Payable .............................. 2,592.45 Cash ........................................................... 5,000.00 Notes Payable ........................................... 35,000.00 *PV of \$35,000 @ 8% for 1 year = \$35,000 X .92593= \$32,407.55 \$32,407.55 + \$5,000.00 = \$37,407.55 3. Truck #3 .............................................................. 38,000.00 Cost of Goods Sold ........................................... 30,000.00 Inventory .................................................... 30,000.00 Sales .......................................................... 38,000.00 [Note: The selling (retail) price of the computer system appears to be a better gauge of the fair value of the consideration given than is the list price of the truck as a gauge of the fair value of the consideration received (truck). Vehicles are very often sold at a price below the list price.] 4. Truck #4 .............................................................. 26,000.00 Common Stock ......................................... 10,000.00 Paid-in Capital in Excess of Par .............. 16,000.00 (1,000 shares X \$26 = \$26,000) 10-2
E10-4B (20–25 minutes) (a) Avoidable Interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest \$1,000,000 15% \$150,000 800,000 10.42% 83,360 \$233,360 Weighted-average interest rate computation Principal Interest 10% short-term loan \$ 700,000 \$ 70,000 11% long-term loan 500,000 55,000 \$1,200,000 \$125,000 Total interest = \$125,000 = 10.42% Total principal \$1,200,000 (b) Actual Interest Construction loan \$1,000,000 X 15% = \$150,000 Short-term loan \$700,000 X 10% = 70,000 Long-term loan \$500,000 X 11% = 55,000 Total \$275,000 Because avoidable interest in lower than actual interest, use avoidable interest. Cost \$2,600,000 Interest capitalized 233,360 Total cost \$2,833,360 Depreciation expense= \$2,833,360 – \$150,000 = \$89,445 30 years 10-3

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E10-5B (20–25 minutes) (a) Computation of Weighted-Average Accumulated Expenditures Expenditures Date Amount X Capitalization Period = Weighted-Average Accumulated Expenditures July 31 \$300,000 3/12 \$75,000 November 1 150,000 0 0 \$75,000 Interest revenue \$150,000 X 8% X 3/12 = \$3,000 Avoidable interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest \$75,000 10% \$7,500 Total interest cost \$450,000 X 10% X 5/12 = \$18,750 \$45,000 X 6% = 2,700 \$21,450 Interest capitalized \$ 7,500 10-4
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