Assignment File 18 2 1 March 2018: A new piece of machinery was acquired by trading in a used piece of machinery. (The exchange was without commercial substance.) Facts concerning the trade-in are as follows Cost of used machinery traded $200,000 Accumulated depreciation to date of sale 36,000 Fair value of the machinery traded 150,000 Cash payment 10,000 Fair value of new machinery acquired 180,000 3 1 January 2018: A building was constructed as the new head office of the company. Construction began on 1 January 2018 and would be completed in 15 months. The payments to the contractor in the first year (2018) were as follows. Date Payment 1 January $350,000 1 February 120.000 1 June 360.000 1 September 480,000 1 December 300,000 On 1 January 2018, Jenny Company secured a specific construction loan ($500,000) with an 8% interest rate to finance the construction of the new building. The building expenditures are qualifying assets of the construction in capitalization of interest costs and the capitalized interest costs should be included in the building. Jenny drew down on the construction loan and other outstanding debt (if required) to meet the payment schedule shown above. The other outstanding debt in the company during 2018: $1,000,000 bonds (due in year 2026), with 7% effective annual interest rate $500,000 long term note (due in 2031), with 8.5% interest rate per annum. According to the accounting standards in Hong Kong, the company will capitalize the maximum allowable interest costs for this construction The CFO of Jenny estimated that the truck and the new machinery would be used for ten years, with an estimated residual value of $20,000 and $40,000 respectively. He also estimated that the equipment would have a useful life of eight years and a residual value of $5,000. Jenny's depreciation policy specifies the 200% declining-balance method for equipment and the straight-line method for the truck and machinery. (The building was not yet ready for use in 2018.)