Question
Please check my work to the following. Problem 1 J & J is considering replacing some of their older computers. Give the potential entries given
Please check my work to the following.
Problem 1
J & J is considering replacing some of their older computers. Give the potential entries given the following scenarios. Assume all scenarios are independent and have no commercial substance.
a.Fourteen new computers - $140,000, additional $2,000 for freight and 6% tax on $140,000. Estimated useful life is 5 years with 5% salvage value. They are treated as a single unit for financial reporting purposes. No trade-ins.
b.Ten existing computers will be traded in (total trade-in value $10,000) for the new computers. The computers are treated as a single unit with an original cost of $80,000 and book value of $8,000. The remainder was paid in cash. They are treated as a single unit for financial reporting purposes
c.Ten existing computers will be traded in (total trade-in value $20,000) for the new computers. The computers are treated as a single unit with an original cost of $80,000 and book value of $20,000. The remainder was paid in cash. They are treated as a single unit for financial reporting purposes
Required: Prepare the potential journal entries for the above events.
Solution
a.
Computers (140,000 + 2,000 + 140,000*6%) 150,400
Cash 150,400
b.
Computers (new) [8,000 + (150,400 - 10,000)] 148,400
Computers (old) 8,000
Cash* (150,400 - 10,000) 140,400
c.
Computers (new) [20,000 + (150,400 - 20,000)] 150,400
Computers (old) 20,000
Cash* (150,400 - 20,000) 130,400
Problem 2
Repeat each of the above requirements assuming commercial substance.
Solution
a.
Computers (140000 + 2000 + 140000*6%) 150,400
Cash 150,400
b.
Computers (new) 150,400
Gain (10000 - 8000) 2,000
Computers (old) 8,000
Cash (150,400 - 10,000) 140,400
c.
Computers (new) 150,400
Computers (old) 20,000
Cash 130,400
Problem 4
Acme, Inc., a subsidiary of J & J, during 2015, began and completed a small warehouse. Construction on the warehouse began January 2, of 2015.
Expenditures were made as follows: January 2, $1,000,000, March 1, $900,000, July 1, $400,000 and Oct. 1, $800,000.
J & J financed the project by issuing $1,000,000 in stock at the beginning of 2015 and borrowed $1,200,000 from The Last National Bank at an interest rate of 8%. In addition, Acme had the following debt: $1,000,000, interest rate of 9% borrowed in 2010, $2,000,000, 10% note borrowed in 2012.
Requirements:
a.Calculate the 2015 weighted average accumulated expenditures
b.How much is avoidable interest
c.How much is actual interest
d.Make the entry capitalizing the interest.
Solution
a.
Jan. 2 $1,000,000 12/12 $1,000,000
Mar. 1 $900,000 10/12 $750,000
July 1 $400,000 6/12 $200,000
Oct. 1 $800,000 3/12 $200,000
Total $2,150,000
b.
Construction Loan $1,200,000 8% $96,000
Other Loan $950,000 9.67% $91,865
Total $2,150,000 $187,865
c.
Construction Loan $1,200,000 8% $96,000
Other Loan $1,000,000 9% $90,000
Note Payable $2,000,000 10% $200,000
Total $386,000
d.
Debit: Warehouse$187,865
Credit: Cash$187,865
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