Exercise 10-16 Novak Industries purchased the tollowing assets and censtructed a
ID: 2432073 • Letter: E
Question
Exercise 10-16 Novak Industries purchased the tollowing assets and censtructed a building as wel. All this was done during the current year Assets 1 and 2: These assats were purchased as a lump sum for $240,000 cash. The following infarmation was gathred Initial Cost on Seller's Books $240,000 144,000 Depreciation to Description Machinery Book Value on Date on Seller's BooksSeller's Books $120,000 120,000 Appraised Valuc $120,000 24,000 $216,000 72,000 Asset 3: This machine was acquired by making a $24,000 down payment and issuing a $72,000, 2-year, zero-interest-bearing note. The note is to be paid ff in two $36,000 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $85,160. Asset 4: This machinery was acquired by trading i used machinery. The exchange lacks commercial substance. Fatts concerning the trade-in are as follows. Cost of machinery traded Accumulated depreclation to date of sale Fair value of machinery traded Cash received Fair value of machinery acquired $240,000 95,000 192,000 21,DOD 169,000 Asset 5: Equipment was acquired by issuing 100 shares of $19 par value common stock. The stock had a market price of $26 per share. Construction of Building:A building was constructed on lad purthased last year at a cost ul $350,000. Corstruction bean n February 1 and was completed un Novenber 1. The payments to the contractor were as follows 2/1 203,000 9/1 1,152,000 111 210,000 To tinance construction of the building a $1,440,000 12% construction loan was taken out on?ebruary 1. The loan was repaid on November 1. The firm had 400,000 of other outstanding debt during the year at a bomo ing rate of 6% Record the acquisition of nach o these assets. Round rntermediate ca cu ations o 5 decimal lace e.g. 1.251 24 and final answer o o decimal places e.g. 5 71 credit account titles are antomatically indented when anount s entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)Explanation / Answer
Solution:
Working - Asset 5:
Interest to be captialized = $1,038,000 * 12% = $124,560
The weighted expenditure are less than the amount of specific borrowing: The specific borrowing rate is used.
Land cost = $360,000
Building Cost = $2,544,000 + $124,560 = $2,668,560
Construction of Building Schedule of Weighted-Average accumulated expenditure Date Amount Current year capitalization period Weighted Average Accumulated Expenditures 1-Feb $360,000.00 9/12 $270,000.00 1-Feb $288,000.00 9/12 $216,000.00 1-Jun $864,000.00 5/12 $360,000.00 1-Sep $1,152,000.00 2/12 $192,000.00 1-Nov $240,000.00 0/12 $0.00 $2,904,000.00 $1,038,000.00Related Questions
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