Reference no: EM132007298
Question 1 - Nonmonetary Exchange
Mathews Company exchanged equipment used in its manufacturing operations plus $6,000 in cash for similar equipment used in the operations of Biggio Company. The following information pertains to the exchange.
Mathews Co. Biggio Co.
Equipment (cost) $54,000 $54,000
Accumulated depreciation 36,000 18,000
Fair value of equipment 25,000 31,000
Cash given up 6,000
Instructions -
(a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.
(b) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.
Question 2 - Capitalization of Interest
On December 31, 2013, Jumble Inc. borrowed $1,000,000 at 10% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: June 1, $400,000; July 1, $600,000; September 1, $1,200,000; December 1, $600,000. The building was completed in April 2015. Additional information is provided as follows. Other Debt Outstanding:
10-year, 8% bond, dated December 31, 2012, interest payable annually $10,000,000
15-year, 10% note, dated December 31, 2009, interest payable annually $2,500,000
Instructions -
(a) Determine the amount of interest to be capitalized in 2014 in relation to the construction of the building.
(b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2014.
(c) Prepare the journal entry to record the capitalization of interest for 2015?