Question Details

ACCT 550
WEEK 6
E10-1(Acquisition Costs of Realty)The expenditures and receipts below are related to land, land 
improvements, and buildings acquired for use in a business enterprise. The receipts are enclosed in 
parentheses.
a)	Payment for construction from note proceeds					275,000
b)	Cost of land fill and clearing								10,000
c)	Delinquent real estate taxes on property assumed by purchaser			7,000
d)	Premium on 6-month insurance policy during construction				6,000
e)	Refund of 1-month insurance premium because construction completed early	(1,000)
f)	Architect- fee on building								25,000
g)	Cost of real estate purchased as plant site (land $20,000 and building $50,000)	250,000
h)	Commission fee paid to real estate agency						9,000
i)	Installation of fences around property						4,000
j)	Cost of razing and removing building						11,000
k)	Proceeds from salvage of demolished building					(5,000)
l)	Interest paid during construction on money borrowed for construction		13,000
m)	Cost of parking lots and driveways							19,000
n)	Cost of trees and shrubbery planted (permanent in nature)				14,000
o)	Excavation costs for new building							3,000
p)	Money borrowed to pay building contractor (signed a note)				($275,000)
terms of acquisition for each truck are described below.
improve delivery services to customers, the company purchases four new trucks on April 1, 2012. The 
E10-3 (Acquisition Costs of Trucks)Shabbona Corporation operates a retail computer store. To 
1.	Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900.
zero-interest-bearing note with a face amount of $18,000. The note is due April 1, 2013. Shabbona 
Truck #2 has a list price of $20,000 and is acquired for a down payment of $2,000 cash and a 
would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has 

2.	an incremental borrowing rate of 8%.
Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that 
Shabbona carries in inventory. The computer system cost $12,000 and is normally sold by 

3.	Shabbona for $15,200. Shabbona uses a perpetual inventory system.
Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock 
in Shabbona Corporation. The stock has a par value per share of $10 and a market price of $13 per 
4.	share.
computations to the nearest dollar.)
Prepare the appropriate journal entries for the foregoing transactions for Shabbona Corporation. (Round 
Instructions
E10-7 (Capitalization of Interest) McPherson 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, 2012. McPherson expected to complete the building by December 31, 2012. McPherson has 
the following debt obligations outstanding during the construction period.
Construction loan—12% interest, payable semiannually, issued December 31, 2011	$2,000,000
Short-term loan—10% interest, payable monthly, 
and principal payable at maturity on May 30, 2013						$1,600,000

principal payable on January 1, 2016								$1,000,000
Long-term loan—11% interest, payable on January 1 of each year; 
Instructions
(Carry all computations to two decimal places.)
Assume that McPherson completed the office and warehouse building on December 31, 2012, as 
(a)	$3,800,000. Compute the avoidable interest on this project.
planned at a total cost of $5,200,000, and the weighted average of accumulated expenditures was 
 Compute the depreciation expense for the year ended December 31, 2013. McPherson elected to 
depreciate the building on a straight-line basis and determined that the asset has a useful life of 30 
(b)	years and a salvage value of $300,000.
P10-8 (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.
Instructions
For each of the four independent situations, prepare the journal entries to record the exchange on the 
books of each company.
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- 
machine. (The exchange has commercial substance for both parties.)
4. 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.