Problem 2

In addition to the costs outlined in Problem 1, Jane asked the IT department to give her a price list for new computer equipment. The following information was provided:

Fourteen new computers with a cost of $140,000, plus an additional $4,000 for freight and 7 percent tax on $140,000. The estimated useful life is 5 years, and the salvage value is 5 percent. The computers are treated as a single unit for financial reporting purposes.

Ten existing computers, with a total trade-in value of $10,000, will be traded for the new computers. The computers are treated as a single unit. They have an original cost of $80,000 and a current book value of $8,000. The remaining balance of the new computers will be paid in cash.

Additional IT personnel to support the increased workload created by the HR department will cost $200,000 annually. This amount includes fringe benefits and taxes.

Required:

Prepare the potential journal entries for the above items. Assume that the exchange is considered to lack commercial substance.

Prepare the potential journal entries for the above items. Assume that the exchange is considered to have commercial substance.

Problem 4

During 2014, P & P Products finished the construction of a new warehouse in North Carolina. Construction began on January 1, 2013. The cost of the new warehouse was $3,000,000 with the costs incurred evenly throughout the construction project. The following information is provided:

P & P Products incremental interest rate is 10 percent. Actual interest incurred during 2014 was $135,000. The average accumulated expenditures was $1,500,000.

Required:

Prepare the entry to record the capitalized interest for 2014

Problem 5

P & P Products began construction on a warehouse with a total estimated cost of $4,000,000. Construction began on January 2, 2014. Expenditures for 2014 were made as follows: January 2, $1,000,000, March 1, $900,000, July 1, $400,000 and Oct. 1, $800,000.

P & P Products financed the project by obtaining a $1,200,000, 8-percent construction loan in 2013 and issuing $1,000,000 in stock at the beginning of 2014. Additionally, the company had the following debt: $1,000,000, 9 percent long-term note, borrowed in 2012 and a $2,000,000, 11 percent long-term note borrowed in 2011. Both notes come due in 2018. The warehouse was completed in 2015.

Required:

a. Calculate the weighted average accumulated expenditures for 2014. b. How much is the avoidable interest for 2014? c. How much is the actual interest for 2014? d. Make the entry to capitalize the interest in 2014.

Problem 1

P & P Products completed a contract to build a storage facility for Beta Company. The construction began on January 1, 2012. The President of P & P Products has consulted with the controller regarding estimated costs and the resulting profit. During her discussions with the controller, she was informed that P & P Products used the completed contract method to account for the construction project. The president asked the controller about the percentage-of- completion method she had heard about from her college accounting courses. She is concerned about recognizing all of the profit in a single year. She asked that the controller prepare a schedule showing the effects on the income statement and balance sheet of the percentage-of- completion versus the completed contract method. The controller has, subsequently, delegated this task to you.

The following information is available regarding the construction contracts:

Cost for 2012 = $3.2 million, cost for 2013 = $5,760,000, cost for 2014 = $3,840,000.

Estimated costs to complete as of the end of 2012 = $10,800,000, estimated cost to complete as of the end of 2013 = $4,000,000.

Billings to Beta Company in 2012 = $3,000,000, in 2013 = $5,000,000 and the remaining billings will occur in 2014.

The contract price was $18,000,000.

Required:

Prepare a schedule showing how much profit is recognized for years 2012, 2013 and 2014 under the percentage of completion and completed contract methods