Question 1

On January 1, 2019, Company X started the construction of a building for $5,500,000. The payment occurred in this order:

January 1: $1,000,000

March 1: $1,500,000

June 1: $2,000,000

September 1: $1,000,000

Company X took out an 8%, 2-year loan on January 1, 2019 to use for the building construction for $3,000,000. The company also had other debt already on its books. The first is a 5%, 5-year note dated January 1, 2018 for $5,000,000 with annual interest payments. The second is a 6%, 6-year note dated January 1, 2017 for $10,000,000 with annual interest payments.

Compute 1) the weighted average accumulated expenditures, 2) avoidable interest, and 3) actual interest. Record the journal entries on the four payment dates.

Question 2

Company Y acquired Company Z on January 1, 2019. Company Z had the following items on its books: Cash $80,000; Accounts receivable $150,000; Prepaid expense $75,000; Building $800,000; Land $350,000; Liabilities $650,000; Common Stock $500,000; Retained earnings $305,000. The fair value of the asset items are: Cash $80,000; Accounts receivable $150,000; Prepaid expense $75,000; Building $1,400,000; Land $550,000. Record the journal entry of this acquisition if Company Y offered Company Z 1) $1.8 million and 2) $1.4 million.

Question 3

Company A purchased equipment for $450,000 on January 1, 2019. The estimated useful life of the equipment is 10 years, while the salvage value is expected to be $20,000. The productive life of the equipment in units is 900,000 units. In the first year, the equipment produced 120,000 units and in the second year, it produced 80,000 units. Record the journal entry for depreciation expense on December 31, 2019 and December 31, 2020 under 1) activity, 2) straight line, 3) sum-of-years' digits, and 4) declining balance depreciation methods.