Exercise 10-9 On July 31, 2017, Oriole Company engaged Minsk Tooling Company to
ID: 2556702 • Letter: E
Question
Exercise 10-9
On July 31, 2017, Oriole Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Oriole issued a $306,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $204,000 of the proceeds of the note was paid to Minsk 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, Oriole made a final $102,000 payment to Minsk. Other than the note to Netherlands, Oriole’s only outstanding liability at December 31, 2017, is a $31,000, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31.
Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017.
Prepare the journal entries needed on the books of Oriole Company at each of the following dates.
December 31, 2017.
(1) July 31, 2017. (2) November 1, 2017. (3)December 31, 2017.
7/31 Cash Notes Payable (To record the note.) (To record the payment to Minsk.) 11/1 Machinery Interest Expense (To record the proceeds from the investment.)Explanation / Answer
Date Accounts title and Explanation Debit Credit 2017 1-Jul cash 306000 12% Notes payable 306000 ( To record the issue of the note) 1-Jul factory machinery 204000 Short term investment 102000 cash 306000 ( To record the payment) 1-Nov Cash 104550 Short term investment 102000 Interest revenue (306000-204000)*10%*3/12) 2550 ( To record the sale of investment) 1-Nov factory machinery 102000 cash 102000 ( To record the payment ) 1-Nov factory machinery 102000 cash 102000 ( To record the payment) 31-Dec factory machinery 6120 interest expenses 11660 cash 2480 Interest payable 15300 ( To record the interest expenses and capitalisation) Date Amount Months weighted average account expenditures 31-Jul 204000 12-Mar 51000 1-Nov 102000 0/12 306000 51000 (51000*12%) 6120 Interest Expense ((306000*12%)*5/12)+(31000*8%) 17780 Actual Interest Expense (17780-6120) 11660
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