Project Description:

1. (6 points) price systems manufactures ski lifts. early in august 2014, price constructed its own building with materials, labor and overhead costs of $1,250,000. price paid cash for the construction costs. price also paid for architect fees and building permits costing $82,000.

a – how much should price record as the cost of the building in 2014?
b – record the transactions related to the construction of the building.

2. (12 points) wmc bought equipment on january 2, 2014 for $24,000. the equipment is expected to stay in service for four years and to perform 700 retreads. at the end of the equipment’s useful life, wmc estimates the residual value will be $3,000. the equipment performed 70 retreads in year 1, 210 retreads in year 2, 280 retreads in year 3 and 140 retreads in year 4.

a – prepare a schedule of depreciation expense per year for the equipment under the three depreciation methods (straight-line, units of production and double-declining balance). show depreciation expense for each year (1 through 4).

3. (6 points) on january 2, 2014 mills purchased fixtures for $20,000 cash, expecting the fixtures to remain in service for 10 years. mills has depreciated the fixtures on a straight-line basis, with zero residual value. on june 30, 2015, mills sold the fixtures for $14,500 cash. record both the depreciation expense for 2015 and the sale of the fixtures on june 30, 2015. round to nearest dollar.

4. (6 points) on january 1, doherty issues 5%, 10-year bonds payable with a maturity value of $90,000. the bonds sell at 95 and pay interest on january 1 and july 1. doherty amortizes any bond discount or premium using the straight-line method.

a – record the issuance of the bonds on january 1
b – record the semi-annual interest payment and any amortization on july 1

5. (10 points) peterson issued $475,000 of 10-year, 7% bonds payable on january 1. peterson pays interest january 1 and july 1 and amortizes any discount or premium using the straight-line method. peterson can issue bonds under various conditions:
a – issuance at par
b – issuance at a price of $460,000 when the market rate was above 7%
c – issuance at a price of $493,000 when the market rate was below 7%

a – journalize peterson’s issuance of the bonds and first semiannual interest payment for each situation. explanations are not required.
b – which condition results in the most interest expense for peterson? explain.
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