1. Harrisburg 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, 2014. Harrisburg expected to complete the building by December 31, 2014. Harrisburg has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2013
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2015
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2018
$2,000,000 1,400,000 1,000,000
(a) Assume that Harrisburg completed the office and warehouse building on December 31, 2014, as planned at a total cost of $5,200,000, and the weighted-average amount of accumulated expendi- tures was $3,600,000. Compute the avoidable interest on this project.
(b) Compute the depreciation expense for the year ended December 31, 2015. Harrisburg elected to depreciate the building on a straight-line basis and determined that the asset has a useful life of 30 years and a salvage value of $300,000.
2. Holyfield Corporation wishes to exchange a machine used in its operations. Holyfield has received the following offers from other companies in the industry.
- 1.Dorsett Company offered to exchange a similar machine plus $23,000. (The exchange has commercial substance for both parties.)
- 2.Winston Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
- 3.Liston Company offered to exchange a similar machine, but wanted $3,000 in addition to Holyfield's machine. (The exchange has commercial substance for both parties.)
- In addition, Holyfield contacted Greeley Corporation, a dealer in machines. To obtain a new machine, Holyfield must pay $93,000 in addition to trading in its old machine.
|
Holyfield
|
Dorsett
|
Winston
|
Liston
|
Greeley
|
|
Machine cost
|
$160,000
|
$120,000
|
$152,000
|
$160,000
|
$130,000
|
|
Accumulated depreciation
|
60,000
|
45,000
|
71,000
|
75,000
|
-0-
|
|
Fair value
|
92,000
|
69,000
|
92,000
|
95,000
|
185,000
|
- Instructions
- For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company.