Question Details

Weighted-average accumulated expenditures qualifying for capitalization of interest cost.



Pr. 1—Capitalization of interest.
Early in 2010, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on June 1, 2010 and was completed on December 31, 2010. Dobbs made the following payments to Kiner, Inc. during 2010:
Date		  Payment	
June 1, 2010	$3,600,000
August 31, 2010	5,400,000
December 31, 2010	4,500,000
In order to help finance the construction, Dobbs issued the following during 2010:
1.	$3,000,000 of 10-year, 9% bonds payable, issued at par on May 31, 2010, with interest payable annually on May 31.
2.	1,000,000 shares of no-par ordinary shares, issued at $10 per share on October 1, 2010.
In addition to the 9% bonds payable, the only debt outstanding during 2010 was a $750,000, 12% note payable dated January 1, 2006 and due January 1, 2016, with interest payable annually on January 1.

Instructions
Compute the amounts of each of the following (show computations):
1.	Weighted-average accumulated expenditures qualifying for capitalization of interest cost.
2.	Avoidable interest incurred during 2010.
3.	Total amount of interest cost to be capitalized during 2010.
Pr. 2—Asset acquisition.
Ford Inc. plans to acquire an additional machine on January 1, 2010 to meet the growing demand for its product. Stever Company offers to provide the machine to Ford using either of the options listed below (each option gives Ford exactly the same machine and gives Stever Company approximately the same net present value cash equivalent at 10%).
	Option 1 —	Cash purchase $800,000.
	Option 2 —	Installment purchase requiring 15 annual payments of $105,179 due December 31 each year.

The expected economic life of this machine to Ford is 15 years. Salvage value at that time is estimated to be $50,000. Straight-line depreciation is used. Interest expense under Option 2 is computed using the effective interest method.

Instructions
Based upon IFRS, state how, if at all, the book value of the machine and the obligation should appear on the December 31, 2010 statement of financial position of Ford Inc., for each option. Present your answer on an answer sheet in the following format. If an item should not appear in the statement of financial position, write "not shown" opposite the option.
	                   Assets		                 Liabilities	
	Account Name	Amount 	Account Name	Amount
Option 1


Option 2



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