Problem -
A. On March 1, Faye Co. began construction of a small building. The following expenditures were incurred for construction:
|
March
|
$75,000
|
April
|
$74,000
|
|
May
|
180,000
|
June
|
270,000
|
|
July
|
100,000
|
|
|
The building was completed and occupied on July 1. To help pay for construction $50,000 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a $500,000, 10% note issued two years ago.
REQUIRED:
a) Calculate the weighted-average accumulated expenditures.
b) Calculate the actual interest cost.
c) Calculate the amount of interest to be capitalized.
B. Kennedy Company exchanged a warehouse with an appraised value of $1,260,000, a recorded cost of $1,800,000, and Accumulated Depreciation of $900,000 with Stark Corporation for an office building Stark owns. The office building has an appraised value of $1,224,000, a recorded cost of $2,160,000, and Accumulated Depreciation of $1,080,000. Stark also gave Kennedy $36,000 in the exchange.
REQUIRED:
a) Prepare the entries on both companies' books assuming that the transaction is considered to have commercial substance.
b) Prepare the entries on both companies' books assuming that the transaction is considered not to have commercial substance.