Use the following information for questions 78 through 80.
On March 1, 2012, Newton Company purchased land for an office site by paying $900,000
cash. Newton began construction on the office building on March 1. The following expenditures
were incurred for construction:
Date Expenditures
March 1, 2012 $ 600,000
April 1, 2012 840,000
May 1, 2012 1,500,000
June 1, 2012 2,400,000
The office was completed and ready for occupancy on July 1. To help pay for construction,
$1,200,000 was borrowed on March 1, 2012 on a 9%, 3-year note payable. Other than the
construction note, the only debt outstanding during 2012 was a $500,000, 12%, 6-year note
payable dated January 1, 2012.
78. The weighted-average accumulated expenditures on the construction project during
2012 were
a. $640,000.
b. $4,890,000.
c. $520,000.
d. $1,160,000.
79. The actual interest cost incurred during 2012 was
a. $150,000.
b. $168,000.
c. $84,000.
d. $140,000.
80. Assume the weighted-average accumulated expenditures for the construction project are
$870,000. The amount of interest cost to be capitalized during 2012 is
a. $130,500.
b. $138,000.
c. $150,000.
d. $168,000.
81. During 2012, Bass Corporation constructed assets costing $2,000,000. The weighted-
average accumulated expenditures on these assets during 2012 was $600,000. To help
pay for construction, $880,000 was borrowed at 10% on January 1, 2012, and funds not
needed for construction were temporarily invested in short-term securities, yielding
$18,000 in interest revenue. Other than the construction funds borrowed, the only other
debt outstanding during the year was a $1,000,000, 10-year, 9% note payable dated
January 1, 2006. What is the amount of interest that should be capitalized by Bass
during 2012?
a. $120,000.
b. $60,000.
c. $116,800.
d. $188,800.
Use the following information for questions 82 through 85.
On January 2, 2012, Indian River Groves began construction of a new citrus processing plant.
The automated plant was finished and ready for use on September 30, 2013. Expenditures for
the construction were as follows:
January 2, 2012 $300,000
September 1, 2012 900,000
December 31, 2012 900,000
March 31, 2013 900,000
September 30, 2013 600,000
Indian River Groves borrowed $1,650,000 on a construction loan at 12% interest on January 2,
2012. This loan was outstanding during the construction period. The company also had
$6,000,000 in 9% bonds outstanding in 2012 and 2013.
82. What were the weighted-average accumulated expenditures for 2012?
a. $800,000
b. $750,000
c. $600,000
d. $1,500,000
83. The interest capitalized for 2012 was:
a. $270,000
b. $72,000
c. $228,000
d. $90,000
84. What were the weighted-average accumulated expenditures for 2013 by the end of the
construction period?
a. $585,000
b. $2,452,500
c. $2,979,000
d. $2,079,000
85. The interest capitalized for 2013 was:
a. $187,110
b. $177,458
c. $ 38,610
d. $ 148,500
Use the following information to answer questions 86 - 90.
Arlington Company is constructing a building. Construction began on January 1 and was
completed on December 31. Expenditures were $4,000,000 on March 1, $3,300,000 on June 1,
and $5,000,000 on December 31. Arlington Company borrowed $2,000,000 on January 1 on a
5-year, 12% note to help finance construction of the building. In addition, the company had
outstanding all year a 10%, 3-year, $4,000,000 note payable and an 11%, 4-year, $7,500,000
note payable.
86. What are the weighted-average accumulated expenditures?
a. $7,300,000
b. $5,258,333
c. $12,300,000
d. $6,150,000
87. What is the weighted-average interest rate used for interest capitalization purposes?
a. 11%
b. 10.85%
c. 10.5%
d. 10.65%
88. What is the avoidable interest for Arlington Company?
a. $240,000
b. $773,013
c. $273,802
d. $587,012
89. What is the actual interest for Arlington Company?
a. $1,465,000
b. $1,485,000
c. $1,225,000
d. $587,012
90. What amount of interest should be charged to expense?
a. $637,987
b. $1,225
c. $877,987
d. $691,987
91. Dodson Company traded in a manual pressing machine for an automated pressing
machine and gave $16,000 cash. The old machine cost $186,000 and had a net book
value of $142,000. The old machine had a fair value of $120,000.
Which of the following is the correct journal entry to record the exchange?
a. Equipment 136,000
Loss on Disposal 22,000
Accumulated Depreciation 44,000
Equipment 186,000
Cash 16,000
b. Equipment 136,000
Equipment 120,000
Cash 16,000
c. Cash 16,000
Equipment 120,000
Loss on Disposal 22,000
Accumulated Depreciation 44,000
Equipment 202,000
d. Equipment 246,000
Accumulated Depreciation 44,000
Equipment 186,000
Cash 16,000
