UMUC ACC310 Chapter 10 Homework – Graded

UMUC ACC310 Chapter 10 Homework – Graded

Question

Exercise 10-8 (Part Level Submission)

On December 31, 2013, Main Inc. borrowed $6,360,000 at 13% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: March 1, $763,200; June 1, $1,272,000; July 1, $3,180,000; December 1, $3,180,000. The building was completed in February 2015. Additional information is provided as follows.

1. Other debt outstanding
10-year, 12% bond, December 31, 2007, interest payable annually $8,480,000
6-year, 11% note, dated December 31, 2011, interest payable annually $3,392,000
2. March 1, 2014, expenditure included land costs of $318,000
3. Interest revenue earned in 2014 $103,880
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(a)

Correct answer. Your answer is correct.

Determine the amount of interest to be capitalized in 2014 in relation to the construction of the building. (Round answer to 0 decimal places, e.g. 5,275.)

Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2014.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Exercise 10-18

Correct answer. Your answer is correct.

Cannondale Company purchased an electric wax melter on April 30, 2014, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase.

List price of new melter $27,966
Cash paid 17,700
Cost of old melter (5-year life, $1,239 salvage value) 19,824
Accumulated Depreciation-old melter (straight-line) 11,151
Secondhand fair value of old melter 9,204

Prepare the journal entries necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Cannondale’s year ends on December 31, and depreciation has been recorded through December 31, 2013. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Exercise 10-24 (Part Level Submission)

On December 31, 2014, Travis Tritt Inc. has a machine with a book value of $996,400. The original cost and related accumulated depreciation at this date are as follows.

Machine $1,378,000
Less: Accumulated depreciation 381,600
Book value $996,400

Depreciation is computed at $63,600 per year on a straight-line basis.

Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.

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(a)

Correct answer. Your answer is correct.

A fire completely destroys the machine on August 31, 2015. An insurance settlement of $455,800 was received for this casualty. Assume the settlement was received immediately. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

On April 1, 2015, Tritt sold the machine for $1,102,400 to Dwight Yoakam Company.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Problem 10-3 (Part Level Submission)

Spitfire Company was incorporated on January 2, 2015, but was unable to begin manufacturing activities until July 1, 2015, because new factory facilities were not completed until that date.

The Land and Building account reported the following items during 2015.

January 31 Land and building $165,700
February 28 Cost of removal of building 9,870
May 1 Partial payment of new construction 63,600
May 1 Legal fees paid 4,510
June 1 Second payment on new construction 40,500
June 1 Insurance premium 2,304
June 1 Special tax assessment 5,000
June 30 General expenses 38,400
July 1 Final payment on new construction 32,500
December 31 Asset write-up 56,600
418,984
December 31 Depreciation-2015 at 1% 4,099
December 31, 2015 Account balance $414,885

The following additional information is to be considered.

1. To acquire land and building, the company paid $85,700 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair value of the stock is $123 per share.
2. Cost of removal of old buildings amounted to $9,870, and the demolition company retained all materials of the building.
3. Legal fees covered the following.
Cost of organization $670
Examination of title covering purchase of land 1,730
Legal work in connection with construction contract 2,110
$4,510
4. Insurance premium covered the building for a 2-year term beginning May 1, 2015.
5. The special tax assessment covered street improvements that are permanent in nature.
6. General expenses covered the following for the period from January 2, 2015, to June 30, 2015.
President’s salary $33,700
Plant superintendent’s salary-supervision of new building 4,700
$38,400
7. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $56,600, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount.
8. Estimated life of building-50 years.
Depreciation for 2015-1% of asset value (1% of $409,900, or $4,099).