Question
A. On March 1, Faye Co. began construction of a small building. The following expenditures were incurred for construction: March 1 $ 75,000 April 1
A. On March 1, Faye Co. began construction of a small building. The following expenditures were incurred for construction:
March 1 $ 75,000 April 1 $ 74,000
May 1 180,000 June 1 270,000
July 1 100,000
The building was completed and occupied on July 1. To help pay for construction $50,000 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a $500,000, 10% note issued two years ago.
REQUIRED:
- Calculate the weighted-average accumulated expenditures.
- Calculate the actual interest cost.
- Calculate the amount of interest to be capitalized.
B. Kennedy Company exchanged a warehouse with an appraised value of $1,260,000, a recorded cost of $1,800,000, and Accumulated Depreciation of $900,000 with Stark Corporation for an office building Stark owns. The office building has an appraised value of $1,224,000, a recorded cost of $2,160,000, and Accumulated Depreciation of $1,080,000. Stark also gave Kennedy $36,000 in the exchange.
REQUIRED:
- Prepare the entries on both companies' books assuming that the transaction is considered to have commercial substance.
- Prepare the entries on both companies' books assuming that the transaction is considered not to have commercial substance.
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