Scribd
Upload
17 views2 pages

Answers For Exercises in Chapter 10

Uploaded by

jung011128
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
17 views2 pages

Answers For Exercises in Chapter 10

Uploaded by

jung011128
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

EXERCISE 10-7

(a) Avoidable Interest

Weighted-Average
Accumulated Expenditures X Interest Rate = Avoidable Interest
€2,000,000 12% €240,000
1,800,000 10.38% 186,840
€3,800,000 €426,840

Capitalization rate computation Principal Interest


10% short-term loan €1,600,000 €160,000
11% long-term loan 110,000
1,000,000
€2,600,000 €270,000

Total Interest €270,000


= = 10.38%
Total Principal €2,600,000

(b) Actual Interest


Construction loan €2,000,000 X 12% = €240,000
Short-term loan €1,600,000 X 10% = 160,000
Long-term loan €1,000,000 X 11% = 110,000
Total €510,000
Because avoidable interest is lower than actual interest, use avoidable
interest.
Cost €5,200,000
Interest capitalized 426,840
Total cost €5,626,840

Depreciation Expense = €5,626,840 – €300,000 = €177,561


30 years

EXERCISE 10-8

(a) Computation of Weighted-Average Accumulated Expenditures


Expenditures
Capitalization Weighted-Average
Date Amount X Period = Accumulated Expenditures
March 1 HK$ 10/12 HK$ 300,000
360,000
June 1 7/12 350,000
600,000
July 1 6/12 750,000
1,500,000
December 1 1/12 100,000
1,200,000
HK$3,660,000 HK$1,500,000

Computation of Avoidable Interest


Weighted-Average
Accumulated Expenditures X Interest Rate = Avoidable Interest
HK$1,500,000 12% (Construction loan) HK$180,000
Computation of Actual Interest
Actual interest
HK$3,000,000 X 12% HK$360,000
HK$4,000,000 X 11% 440,000
HK$1,600,000 X 10%
160,000
HK$960,000

Note: Use avoidable interest for capitalization purposes because it is lower than
actual interest. The HK$180,000 of avoidable interest is reduced by the HK$49,000
of interest revenue earned on specific borrowing.

(b) Buildings ............................................................... 131,000


Interest Expense*.................................................. 829,000
Cash (HK$360,000 + HK$440,000 +
HK$160,000) .............................................. 960,000

*Actual interest for year HK$ 960,000


Less: Amount capitalized (HK$180,000 –
HK$49,000) 131,000
Interest expense debit HK$ 829,000

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy