Chapter 10 Homework.doc-CHAPTER 10 Acqui...
Chapter_10_Homework.doc-CHAPTER 10 Acquisition and Disposition of
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Chapter 10 Homework.doc-CHAPTER 10 ...
Chapter_10_Homework.doc-CHAPTER 10 Acquisition and Disposition of
##### Page 4
EXERCISE 10-7 (20–25 minutes)
(a)
Avoidable Interest
Weighted-Average
Accumulated Expenditures
X
Interest Rate
=
Avoidable Interest
\$2,000,000
12%
\$240,000
1,600,000
10.42%
166,720
\$3,600,000
\$406,720
Weighted-average interest rate computation
Principal
Interest
10% short-term loan
\$1,400,000
\$140,000
11% long-term loan
1,000,000
110,000
\$2,400,000
\$250,000
Total Interest
=
\$250,000
= 10.42%
Total Principal
\$2,400,000
(b)
Actual Interest
Construction loan
\$2,000,000 X 12% =
\$240,000
Short-term loan
\$1,400,000 X 10% =
140,000
Long-term loan
\$1,000,000 X 11% =
110,000
Total
\$490,000
Because avoidable interest is lower than actual interest, use
avoidable interest.
Cost
\$5,200,000
Interest capitalized
406,720
Total cost
\$5,606,720
Depreciation Expense
=
\$5,606,720 – \$300,000
= \$176,891
30 years
10-4
Kieso,
Intermediate Accounting,
16/e, Solutions Manual
(For Instructor Use Only)

##### Page 5
EXERCISE 10-17 (10–15 minutes)
Busytown Corporation
Machinery (\$340 + \$85)
.....................................................
425
Accumulated Depreciation – Machinery
.........................
140
Loss on Disposal of Machinery
.......................................
65*
Machinery
.................................................................
290
Cash
..........................................................................
340
*Computation of loss:
Book value of old machine (\$290 – \$140)
\$150
Less: Fair value of old machine
85
Loss on disposal of machinery
\$
65
Cash
...................................................................................
340
Inventory
............................................................................
85
Cost of Goods Sold
..........................................................
270
Sales Revenue
.........................................................
425
Inventory
..................................................................
270
LO: 4, Bloom: AP, Difficulty: Simple, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Kieso,
Intermediate Accounting,
16/e, Solutions Manual
(For Instructor Use Only)
10-5

##### Page 6
EXERCISE 10-18 (20–25 minutes)
(a)
Exchange has commercial substance
:
Depreciation Expense
......................................................
700
Accumulated Depreciation—Equipment
...............
700
(\$11,200 – \$700 = \$10,500;
\$10,500 ÷ 5 = \$2,100;
\$2,100 X 4/12 = \$700)
Equipment
.........................................................................
15,200**
Accumulated Depreciation—Equipment
........................
7,000
Gain on Disposal of Equipment
.............................
1,000*
Equipment
................................................................
11,200
Cash
..........................................................................
10,000
*Cost of old asset
\$11,200
Less: Accumulated depreciation
(\$6,300 + \$700)
7,000
Book value of equipment (old)
4,200
Less: Fair value of old asset
(5,200
)
Gain on disposal of equipment
\$
1,000
**Cash paid
\$10,000
Fair value of old asset
5,200
Cost of new asset
\$15,200
10-6
Kieso,
Intermediate Accounting,
16/e, Solutions Manual
(For Instructor Use Only)

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