A311 Final Exam Review Problem Set Solutions

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A311: Final Exam Review
Chapter 10

1. Interest Capitalization

Delmar Corporation borrowed $200,000 at 12% interest from state Bank on January 1, 2013, for the specific purpose of constructing special-purpose equipment to be used in its operations. Construction on the equipment began on 1/1/13, and the following expenditures were made prior to the project’s completion on 12/31/13:

Expenditures Made in 2013
January 1
$100,000
April 30
150,000
November 1
300,000
December 31
100,000
Total Expenditures
$650,000

Other general debt existing on 1/1/13, and issued in 2012 at par was: $500,000, 14%, 10-year bonds payable $300,000, 10%, 5-year note payable

Instructions: Determine the amount of interest to be capitalized, and provide all of
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The exchange lacks commercial substance. Provide the journal entry for Peg Company.
Computation of Gain:
FV of vans exchanged $ 66,000
BV of vans exchanged 52,000
Total Gain $ 14,000

15000 x $14,000 =
$3,182 gain recognized
(15,000 + 51,000)

Cash 15,000 (given)
Caravan Vans 40,182 (plug!)
AD 23,000 (given) Freestar Vans 75,000 (given) Gain on Disposal of Vans 3,182

Note that if the ratio applied to the $14,000 above were to exceed 25%, then Peg would have recognized the entire gain.

Chapter 11

3. Depreciation Methods

The Grant-Horace Company purchased a new machine on April 1, 2013, for $48,000. The machine is expected to have a life of five years and a residual value of $3,000. The company's fiscal year ends on December 31.
Required:
1. Determine the appropriate amount of depreciation for 2013 and 2014 applying each of the following methods:

Year Straight-line SYD DDB 2013 2014

Computations:

Year Straight-line SYD DDB 2013 $6,750 $11,250 $14,400 2014 9,000 12,750 13,440

Computations:
Straight line:

($48,000 - 3,000) -------------------------- = $9,000 per year x 9/12 for 2011 = $6,750 5 years

SYD:
2013: $45,000 x 5/15 = $15,000 x 9/12 = $11,250

2014: $45,000 x 5/15 = $15,000 x 3/12 = $ 3,750 + 45,000 x 4/15 = $12,000 x 9/12 = 9,000 Total 2014 depreciation $12,750

DDB:
2013: $48,000 x 40%* = $19,200 x 9/12 = $14,400

2014: ($48,000 - 14,400) x

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