2. On January 1, 2018, Kendall

2. On January 1, 2018, Kendall Inc. began construction of anautomated cattle feeder system. The system was finished and readyfor use on September 30, 2019. Expenditures on the project were asfollows:

January 1, 2018

$

200,000

July 1, 2018

$

300,000

December 1, 2018

$

600,000

March 31, 2019

$

300,000

September 30, 2019

$

200,000

Kendall borrowed $600,000 on a construction loan at 8% intereston January 1, 2018. This loan was outstanding throughout theconstruction period. The company had $2,000,000 in 5% bonds payableoutstanding in 2018 and 2019. Kendall used the specific interestmethod.

Interest capitalized for 2018 was:

a. 48,000

b. 40,000

c. 32,000

d. 30,000

3. Pam & Co. exchanged land and $9,000 cash for equipment.The book value and the fair value of the land were $90,000 and$106,000, respectively.

Assuming that the exchange has commercial substance, Lowellwould record equipment and a gain/(loss) of:

a. Equipment: 90,000

Gain/loss: (25,000)

b. Equipment: 99,000

Gain/loss: (16,000)

c. Equipment: 106,000

gain/loss: 25,000

d. Equipment: 115,000

gain/loss: 16,000

Answer:

2)
Date Amount Capitalizationperiod Weighted Average AccumulatedExpenditures
January 1, 2018 $ 200,000 12 /12 $ 200,000
July 1, 2018 $ 300,000 6 /12 $ 150,000
December 1, 2018 $ 600,000 1 /12 $ 50,000
Total $1,100,000 $ 400,000
Interest capitalized in2018   = Weighted Avg. Exp. X InterestRate $ 400,000 x 8%= $ 32,000 Option ( C ) is Correct
3)
Accounts titles andExplanation Debit ( In $) Credit ( In $)
Equipment    – Bal.Fig.( $ 106,000 + $ 9,000) $ 115,000
       Gain $ 16,000
       Cash $ 9,000
        Land $ 90,000
Option (d) isCorrect
Gain   = Fair Value (-) Book value   = $ 106,000 (-) $ 90,000    = $ 16,000 (Gain)

 
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