On July 31, 2010, Bismarck Company engaged Duval Tooling Company to construct a
ID: 2383407 • Letter: O
Question
On July 31, 2010, Bismarck Company engaged Duval Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2010. To help finance construction, on July 31 Bismarck issued a $400,000, 3-year, 12% note payable at Wellington National Bank, on which interest is payable each July 31. $300,000 of the proceeds of the note was paid to Duval on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Bismarck made a final $100,000 payment to Duval. Other than the note to Wellington, Bismarck's only outstanding liability at December 31, 2010, is a $30,000, 8%, 6-year note payable, dated January 1, 2007, on which interest is payable each December 31.
(a) Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2010.
Interest revenue $ ??
Weighted-average accumulated expenditures $ ??
Avoidable interest $ ??
Interest capitalized $ ??
(b) Prepare the journal entries needed on the books of Bismarck Company at each of the following dates. (1) July 31, 2010. (2) November 1, 2010. (3) December 31, 2010.
Explanation / Answer
On July 31, 2010, Bismarck Company engaged Duval Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2010. To help finance construction, on July 31 Bismarck issued a $400,000, 3-year, 12% note payable at Wellington National Bank, on which interest is payable each July 31. $300,000 of the proceeds of the note was paid to Duval on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Bismarck made a final $100,000 payment to Duval. Other than the note to Wellington, Bismarck's only outstanding liability at December 31, 2010, is a $30,000, 8%, 6-year note payable, dated January 1, 2007, on which interest is payable each December 31.
(a) Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2010.
Interest revenue $ 2,500
Weighted-average accumulated expenditures $ 75,000
Avoidable interest $9,000
Interest capitalized $9,000
(b) Prepare the journal entries needed on the books of Bismarck Company at each of the following dates. (1) July 31, 2010. (2) November 1, 2010. (3) December 31, 2010.
7/31
cash
400,000
payable
400,000
machine
300,000
trading
100,000
cash
400,000
7/31
cash
400,000
payable
400,000
machine
300,000
trading
100,000
cash
400,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.