ACCOUNTING QUESTIONS NEEDED ANSWERED

10-3 (Acquisition Costs of Trucks) Kelly Clarkson Corporation operates a retail computer store. To im- prove delivery services to customers, the company purchases four new trucks on April 1, 2014. The terms of acquisition for each truck are described below.

1.            Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900. 2.            Truck #2 has a list price of $16,000 and is acquired for a down payment of $2,000 cash and a zero- interest-bearing note with a face amount of $14,000. The note is due April 1, 2015. Clarkson would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incre-

mental borrowing rate of 8%. 3.            Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Clarkson

carries in inventory. The computer system cost $12,000 and is normally sold by Clarkson for $15,200.

Clarkson uses a perpetual inventory system. 4.            Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in

Clarkson Corporation. The stock has a par value per share of $10 and a market price of $13 per share.

Instructions

Prepare the appropriate journal entries for the above transactions for Clarkson Corporation. 

 

Instructions

Prepare the entry that should have been made at the date of each acquisition.

4            E10-7 (Capitalization of Interest) Harrisburg Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2014. Harrisburg expected to complete the building by December 31, 2014. Harrisburg has the following debt obligations outstanding during the construction period.

Construction loan—12% interest, payable semiannually, issued December 31, 2013

Short-term loan—10% interest, payable monthly, and principal payable at maturity on May 30, 2015

Long-term loan—11% interest, payable on January 1 of each year. Principal payable on January 1, 2018

$2,000,000 1,400,000 1,000,000

(a) Assume that Harrisburg completed the office and warehouse building on December 31, 2014, as planned at a total cost of $5,200,000, and the weighted-average amount of accumulated expendi- tures was $3,600,000. Compute the avoidable interest on this project.

(b) Compute the depreciation expense for the year ended December 31, 2015. Harrisburg elected to depreciate the building on a straight-line basis and determined that the asset has a useful life of 30 years and a salvage value of $300,000.

(Nonmonetary Exchanges) Holyfield Corporation wishes to exchange a machine used in its operations. Holyfield has received the following offers from other companies in the industry.

· 1.Dorsett Company offered to exchange a similar machine plus $23,000. (The exchange has commercial substance for both parties.)

· 2.Winston Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)

· 3.Liston Company offered to exchange a similar machine, but wanted $3,000 in addition to Holyfield’s machine. (The exchange has commercial substance for both parties.)

· In addition, Holyfield contacted Greeley Corporation, a dealer in machines. To obtain a new machine, Holyfield must pay $93,000 in addition to trading in its old machine.

	Holyfield	Dorsett	Winston	Liston	Greeley
Machine cost	$160,000	$120,000	$152,000	$160,000	$130,000
Accumulated depreciation	60,000	45,000	71,000	75,000	–0–
Fair value	92,000	69,000	92,000	95,000	185,000

· Instructions

· For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company.