E10-1

a Money borrowe to pay building contractor (signed a note)

b Payment for construction from note proceeds
c Cost of land fill and clearing
d Delinquent real estate taxes on property assumed by purchaser
e Premium on 6-month insurance policy during construction
f Refund of 1-month insurance premium because construction completed early
g Architect's fee on building
h Cost of real estate purchased as a plant site (land €200,000 and building €50,000)
i Commission fee paid to real estate agency
j Installation of fences around property
k Cost of razing and removing building
l Proceeds from residual value of demolished building
m Interest paid during construction on money borrowed for construction
n Cost of parking lots and driveways
o Cost of trees and shrubbery planted (permanent in nature)
p Excavation costs for new building

Instructions

Identify each item by letter and list the items in columnar form, using the headings shown below. All receipt amounts should b
parentheses. For any amounts entered in the Other Accounts column, also indicate the account title.

Land
Item Land Buildings Other Accounts
Improvements
a -€ 275,000.00
b € 275,000.00
c € 10,000.00
d € 7,000.00
e € 6,000.00
f -€ 1,000.00
g € 25,000.00
h € 250,000.00
i € 9,000.00
j € 4,000.00
k € 11,000.00
l -€ 5,000.00
m € 13,000.00
n € 19,000.00
o € 14,000.00
p € 3,000.00
 -€ 275,000.00
€ 275,000.00
€ 10,000.00
€ 7,000.00
€ 6,000.00
-€ 1,000.00
€ 25,000.00
€ 250,000.00
€ 9,000.00
€ 4,000.00
€ 11,000.00
-€ 5,000.00
€ 13,000.00
€ 19,000.00
€ 14,000.00
€ 3,000.00

ow. All receipt amounts should be reported in

t title.
 E10-7

McPherson Furniture started construction of a combination office and warehouse building for its own use at an estimated cost of €5,000,000 on January 1
December 31, 2019. McPherson has the following debt obligations outstanding during the construction period.

Construction loan—12% interest, payable semiannually, issued December 31, 2018

Short-term loan—10% interest, payable monthly, and principal payable at maturity on May 30, 2020

Long-term loan—11% interest, payable on January 1 of each year. Principal payable on January 1, 2023

a)

Assume that McPherson completed the office and warehouse building on December 31, 2019, as planned at a total cost of €5,200,000, and the weighted-a
€3,800,000. Compute the avoidable interest on this project.

Weighted average accumulated expendictures € 3,800,000.00

Total cost € 5,200,000.00

Capitalization rate computation :

Short-term loan—10% interest, payable monthly, and principal payable at maturity on May 30, 2020

Long-term loan—11% interest, payable on January 1 of each year. Principal payable on January 1, 2023
TOTAL

Total Interest
Capitalization Rate = ×100% = 10.38%
Total Principal

Weighted Average Accumulated Expenditures Interesy Rate Avoidable Interest

(a) (b) (a×b)

€ 2,000,000.00 12% € 240,000.00
€ 1,800,000.00 10.38% € 186,923.08
€ 3,800,000.00 € 426,923.08

Avoidable Interest in this period is €426.923,08

b)

Compute the depreciation expense for the year ended December 31, 2020. McPherson elected to depreciate the building on a straight-line basis and de
30 years and a residual value of €300,000.
Construction loan—12% interest, payable semiannually, issued December 31, 2018

Short-term loan—10% interest, payable monthly, and principal payable at maturity on May 30, 2020

Long-term loan—11% interest, payable on January 1 of each year. Principal payable on January 1, 2023

Total Actual Interest € 510,000.00

→
Avoidable Interest € 426,923.08 Karena Avoidable Interest memiliki nilai yang lebih rendah dibanding Total

Cost € 5,200,000.00
Interest Capitalization € 426,923.08
Total Cost € 5,626,923.08

Total Cost - Residual Value €5.626.923,08 - €426.923,08

Depreciation Expense = =
Year 30

Depreciation Expense is € 173.333,33

ost of €5,000,000 on January 1, 2019. McPherson expected to complete the building by

€ 2,000,000.00
€ 1,600,000.00

€ 1,000,000.00

€5,200,000, and the weighted-average accumulated expenditures was

Principal Interest
€ 1,600,000.00 € 160,000.00

€ 1,000,000.00 € 110,000.00

€ 2,600,000.00 € 270,000.00

(Weighted Average Accumulated Expenditures - Construction Loan)

Avoidable Interest
Capitalization Rate
(a×b)
240,000.00
186,923.08
426,923.08

on a straight-line basis and determined that the asset has a useful life of

Actual Interest Interest Total Actual Interest

 € 2,000,000.00 12% € 240,000.00
€ 1,600,000.00 10% € 160,000.00

€ 1,000,000.00 11% € 110,000.00

TOTAL € 510,000.00

g lebih rendah dibanding Total Actual Interest, maka yang digunakan adalah Avoidable Interest

= € 173,333.33
 E10-18

Montgomery Ltd. purchased an electric wax melter on April 30, 2020, by trading in its old gas model and paying the balance in
following data relate to the purchase.

List price of new melter £ 15,800.00

Cash paid £ 10,000.00
Cost of old melter (5-year life, £700 residual value) £ 12,700.00
Accumulated depreciation (old melter—straight-line) £ 7,200.00
Fair value of old melter £ 5,200.00

Instructions
Prepare the journal entry(ies) necessary to record this exchange, assuming that the exchange (a) has commercial substance, a
lacks commercial substance. Montgomery's year ends on December 31, and depreciation has been recorded through Decemb
2019.

a) has Commercial Substance

Accumulation Depreciation (Melter)

Accumulation Depreciation (Per Year (5 years)) Cost of Old Melter - Residual Value
=
(Straight Line Basis ) Total Years

£12.700 - £700
= =
5

Accumulation Depreciation ( For 4 Months) = 4

× £ 2.400 =
12

Journal
Depreciation Expense £ 800.00
Accumulation Depreciation (Melter) £ 800.00

Cost of old melter (5-year life, £700 residual value) £ 12,700.00

Less Accumulation Depreciation £ 8,000.00
(£7.200 + £800)
Book Value £ 4,700.00
Fair Value of Old Melter £ 5,200.00
Gain on Disposal of Melter £ 500.00
 (Difference Fair Vlue and Book Value)

Journal
Melter £ 15,200.00
Accumulation Depreciation (Melter) £ 8,000.00
Gain on Disposal of Melter £ 500.00
Melter £ 12,700.00
Cash £ 10,000.00

b) Lack Commercial Substance

Journal
Depreciation Expense £ 800.00
Accumulation Depreciation (Melter) £ 800.00

Cash paid £ 10,000.00

Fair value of old melter £ 5,200.00
Less Gain Defferd £ 500.00
(Different Fair Value and Book Value)
Cost of New Melter £ 14,700.00

Journal
Melter £ 14,700.00
Accumulation Depreciation £ 8,000.00
Melter £ 12,700.00
Cash £ 10,000.00
and paying the balance in cash. The

commercial substance, and (b)

ecorded through December 31,

esidual Value
s

£ 2,400.00

£ 800.00

Cash paid £ 10,000.00

Fair value of old melter £ 5,200.00
Cost of New Melter £ 15,200.00
 E10-27

On April 1, 2019, Pavlova Company received a condemnation award of $410,000 cash as compensation for the forced sale of t
company's land and building, which stood in the path of a new highway. The land and building cost $60,000 and $280,000,
respectively, when they were acquired. At April 1, 2019, the accumulated depreciation relating to the building amounted to $1
On August 1, 2019, Pavlova purchased a piece of replacement property for cash. The new land cost $90,000, and the new buil
cost $380,000.

Instructions
Prepare the journal entries to record the transactions on April 1 and August 1, 2019.

1-Apr
Computation of Gain on Disposal

Book Value (Land) $ 60,000.00

Book Value (Building) $ 120,000.00
(Building Cost - Accumulated Depreciation)
Book Value (Land and Building) $ 180,000.00
Cash Received (Condemnation award) $ 410,000.00
Gain on Disposal $ 230,000.00
(Different of Cash Received and Book Value)

Jorunal April 1, 2019

Cash $ 410,000.00
Accumulated Depreciation (Building) $ 160,000.00
Land $ 60,000.00
Building $ 280,000.00
Gain on Disposal $ 230,000.00

Journal August 1, 2019

Land $ 90,000.00
Building $ 380,000.00
Cash $ 470,000.00
n for the forced sale of the
0,000 and $280,000,
building amounted to $160,000.
0,000, and the new building