E10-7 (Capitalization of Interest) McPherson Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of 5,000,000 on January 1, 2015. McPherson expected to complete the building by December 31, 2015. McPherson has the following debt obligations outstanding during the construction period.

Construction loan12% interest, payable semiannually, issued December 31, 2014 2,000,000

Short-term loan10% interest, payable monthly, and principal payable at maturity on May 30, 2016 1,600,000

Long-term loan11% interest, payable on January 1 of each year. Principal payable on January 1, 2019 1,000,000 Instructions

(Carry all computations to two decimal places.)

(a) Assume that McPherson completed the office and warehouse building on December 31, 2015, as planned at a total cost of 5,200,000, and the weighted-average accumulated expenditures was 3,800,000. Compute the avoidable interest on this project.

(b) Compute the depreciation expense for the year ended December 31, 2016. McPherson elected to depreciate the building on a straight-line basis and determined that the asset has a useful life of 30 years and a residual value of 300,000.

E10-18 (Non-Monetary Exchange) Montgomery Company purchased an electric wax melter on April 30, 2016, 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 15,800

Cash paid 10,000

Cost of old melter (5-year life, 700 residual value) 12,700

Accumulated depreciation (old melterstraight-line) 7,200

Fair value of old melter 5,200

Prepare the journal entry(ies) necessary to record this exchange, assuming that the exchange

(a) has commercial substance, and (b) lacks commercial substance. Montgomery's year ends on December 31, and depreciation has been recorded through December 31, 2015.

13-9 (Adjusting Entry for Sales Tax and VAT) Eastwood Ranchers sells a herd of cattle to Rozo Meat Packers for 30,000 and the related VAT. Rozo Meat Packers sells the beef to Wrangler Supermarkets for 40,000 and the related VAT. Wrangler Supermarkets sells this beef to customers for 50,000 plus related VAT.

(a) Assuming the VAT is 15% on all sales, prepare the journal entry to record the sale by Rozo Meat Packers to Wrangler Supermarkets.

(b) What is the net cash outlay that Eastwood Ranchers incurs related to the VAT?

E13-12 (Warranties) Winslow Company sold 150 color laser copiers in 2015 for 4,000 apiece, together with a one-year assurance-type warranty. Maintenance on each copier during the warranty period averages 300. Prepare entries to record the sale of the copiers and the related warranty costs. Actual warranty costs incurred in 2015 were 17,000.

E14-4 (Entries for Bond Transactions) Foreman Company issued 800,000 of 10%, 20-year bonds on January 1, 2015, at 119.792 to yield 8%. Interest is payable semiannually on July 1 and January 1. Instructions Prepare the journal entries to record the following.

(a) The issuance of the bonds.

(b) The payment of interest and the related amortization on July 1, 2015.

(c) The accrual of interest and the related amortization on December 31, 2015