Mid-Term_Review_Key

# Mid-Term_Review_Key - Exercise 1 On January 31, 2009,...

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Exercise 1 On January 31, 2009, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. At that time, they made a \$200,000 payment to Minsk. Construction was begun immediately and was completed on November 1, 2009. To help finance construction, on January 31 Amsterdam issued a \$100,000, 3-year, 12% note payable at Netherlands National Bank. On November 1, Amsterdam made a final \$100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam has an outstanding liability at December 31, 2009, of \$30,000, 8%, 6-year note payable, dated January 1, 2001, on which interest is payable each December 31, and a 6% 20-year bond payable for \$100,000 which has been outstanding since January 1, 2005. Instructions (a) Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2009. Round all computations to the nearest dollar. (b) Prepare the journal entries needed on the books of Amsterdam Company at each of the following dates. (1) January 31, 2009. (2) November 1, 2009. (3) December 31, 2009. (a) Computation of Weighted-Average Accumulated Expenditures Expenditures Date Amount X Capitalization Period = Weighted-Average Accumulated Expenditures January 31 \$200,000 9/12 \$150,000 November 1 100,000 0 0 \$150,000 Weighted average interest 30,000 x .08 = 2,400 100,000 x .06 6,000 130,000 8,400 8,400 / 130,000 = 6.46% Avoidable interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest \$100,000 12% \$12,000 50,000 6.46% 3,230 15,230 Total interest cost \$100,000 X 12% X 11/12 = \$11,000 \$30,000 X 8% = 2,400 100,000 X 6% = 6,000 \$19,400 Interest capitalized \$15,230 (b) (1) 1/31 Cash ........................................................................................... 100,000 Note Payable. .................................................................... 100,000 Machine 200,000 Cash. .................................................................................. 200,000 (2) Machine 100,000 Cash. .................................................................................. 100,000 (3) 12/31 Machine 15,230 Interest Expense

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(\$19,400 – \$15,230). ......................................................................... 4,170 Cash (\$30,000 X 8%). ....................................................... 2,400 Interest Payable 17,000 Exercise 2 Carlos Arruza Company exchanged equipment used in its manufacturing operations plus \$3,000 in cash for similar equipment used in the operations of Tony LoBianco Company. The following information pertains to the exchange. Carlos Arruza Co. Tony LoBianco Co. Equipment (cost) \$28,000 \$28,000 Accumulated depreciation 19,000 10,000 Fair value of equipment 12,500 15,500 Cash given up 3,000 Instructions (a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (b)
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## This note was uploaded on 02/12/2012 for the course ECON 101 taught by Professor Carlos during the Spring '08 term at Oregon State.

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Mid-Term_Review_Key - Exercise 1 On January 31, 2009,...

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