During 2015 J & J completed the construction of a new warehouse in the North Carolina. Construction began on January 1, 2014. The cost of the new warehouse was $3M with the cost incurred evenly throughout the construction. The following information is provided: J & J incremental interest rate is 8% Actual interest incurred during 2015 was $135,000. The average accumulated expenditures was $1,5M Requirement:
a. How much interest should be calculated?
b. What is the entry to capitalize the interest?
During 2015 J & J completed the construction of a new warehouse in the North Carolina. Construction began on January 1, 2014. The cost of the new warehouse was $3M with the cost incurred evenly throughout the construction. The following information is provided: J & J incremental interest rate is 8% Actual interest incurred during 2015 was $135,000. The average accumulated expenditures was $1,5M Requirement:
a. How much interest should be calculated?
b. What is the entry to capitalize the interest?
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7. A company receiving a donated asset will record:
a. an increase in revenue
b. an increase in liabilities
c. a decrease in liabilities
d. an increase in revenue and a decrease in liabilities
8. Alamos Co. exchanged equipment and $17,500 cash for similar equipment. The book value and the fair value of the old equipment were $81,800 and $90,300, respectively.
Assuming that the exchange has commercial substance, Alamos would record a gain/(loss) of:
a.$0
b. $8,500
c. $26,000
d. $(8,500)
9. On January 1, 2018, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:
| January 1, 2018 | $ | 200,000 | |
| September 1, 2018 | $ | 300,000 | |
| December 31, 2018 | $ | 300,000 | |
| March 31, 2019 | $ | 300,000 | |
| September 30, 2019 | $ | 200,000 | |
Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2018. This loan was outstanding throughout the construction period. The company had $4,500,000 in 9% bonds payable outstanding in 2018 and 2019.
Average accumulated expenditures for 2018 was:
a. $300,000
b. $350,000
c. $500,000
d. $400,000
10. On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:
| January 1, 2018 | $ | 323,000 | |
| September 1, 2018 | $ | 483,000 | |
| December 31, 2018 | $ | 483,000 | |
| March 31, 2019 | $ | 483,000 | |
| September 30, 2019 | $ | 323,000 | |
Dreamworld had $6,100,000 in 15% bonds outstanding through both years.
Dreamworld's capitalized interest in 2018 was:
a. $84,712
b. $48,450
c. $72,600
d. $96,900
11. Software development costs are capitalized if they are incurred:
a. Prior to the point at which technological feasibility has been established.
b. after commercial production has begun
c.After technological feasibility has been established but prior to the product availability date.
d. none of these answers
12.Cebrex Software began a new development project in 2017. The project reached technological feasibility on June 30, 2018, and was available for release to customers at the beginning of 2019. Development costs incurred prior to June 30, 2018, were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. The economic life of the software is estimated at four years. For what amount will software be capitalized in 2018?
a. $0
b. $5,600,000
c. $1,400,000
d. $3,200,000
| Prepare the journal entries needed on the books of Carla Companyat each of the following dates. (Credit account titlesare automatically indented when amount is entered. Do not indentmanually. If no entry is required, select "No Entry" for theaccount titles and enter 0 for the amounts.)
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| On July 31, 2017, Carla Company engaged Minsk Tooling Company toconstruct a special-purpose piece of factory machinery.Construction was begun immediately and was completed on November 1,2017. To help finance construction, on July 31 Carla issued a$270,000, 3-year, 12% note payable at Netherlands National Bank, onwhich interest is payable each July 31. $169,000 of the proceeds ofthe note was paid to Minsk on July 31. The remainder of theproceeds was temporarily invested in short-term marketablesecurities (trading securities) at 10% until November 1. OnNovember 1, Carla made a final $101,000 payment to Minsk. Otherthan the note to Netherlands, Amsterdamâs only outstandingliability at December 31, 2017, is a $30,100, 8%, 6-year notepayable, dated January 1, 2014, on which interest is payable eachDecember 31.
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