Please check my work to the following.

Problem 1

J & J is considering replacing some of their older computers. Give the potential entries given the following scenarios. Assume all scenarios are independent and have no commercial substance.

a.Fourteen new computers - $140,000, additional $2,000 for freight and 6% tax on $140,000. Estimated useful life is 5 years with 5% salvage value. They are treated as a single unit for financial reporting purposes. No trade-ins.

b.Ten existing computers will be traded in (total trade-in value $10,000) for the new computers. The computers are treated as a single unit with an original cost of $80,000 and book value of $8,000. The remainder was paid in cash. They are treated as a single unit for financial reporting purposes

c.Ten existing computers will be traded in (total trade-in value $20,000) for the new computers. The computers are treated as a single unit with an original cost of $80,000 and book value of $20,000. The remainder was paid in cash. They are treated as a single unit for financial reporting purposes

Required: Prepare the potential journal entries for the above events.

Solution

a.

Computers (140,000 + 2,000 + 140,000*6%) 150,400

Cash 150,400

b.

Computers (new) [8,000 + (150,400 - 10,000)] 148,400

Computers (old) 8,000

Cash* (150,400 - 10,000) 140,400

c.

Computers (new) [20,000 + (150,400 - 20,000)] 150,400

Computers (old) 20,000

Cash* (150,400 - 20,000) 130,400

Problem 2

Repeat each of the above requirements assuming commercial substance.

Solution

a.

Computers (140000 + 2000 + 140000*6%) 150,400

Cash 150,400

b.

Computers (new) 150,400

Gain (10000 - 8000) 2,000

Computers (old) 8,000

Cash (150,400 - 10,000) 140,400

c.

Computers (new) 150,400

Computers (old) 20,000

Cash 130,400

Problem 4

Acme, Inc., a subsidiary of J & J, during 2015, began and completed a small warehouse. Construction on the warehouse began January 2, of 2015.

Expenditures were made as follows: January 2, $1,000,000, March 1, $900,000, July 1, $400,000 and Oct. 1, $800,000.

J & J financed the project by issuing $1,000,000 in stock at the beginning of 2015 and borrowed $1,200,000 from The Last National Bank at an interest rate of 8%. In addition, Acme had the following debt: $1,000,000, interest rate of 9% borrowed in 2010, $2,000,000, 10% note borrowed in 2012.

Requirements:

a.Calculate the 2015 weighted average accumulated expenditures

b.How much is avoidable interest

c.How much is actual interest

d.Make the entry capitalizing the interest.

Solution

a.

Jan. 2 $1,000,000 12/12 $1,000,000

Mar. 1 $900,000 10/12 $750,000

July 1 $400,000 6/12 $200,000

Oct. 1 $800,000 3/12 $200,000

Total $2,150,000

b.

Construction Loan $1,200,000 8% $96,000

Other Loan $950,000 9.67% $91,865

Total $2,150,000 $187,865

c.

Construction Loan $1,200,000 8% $96,000

Other Loan $1,000,000 9% $90,000

Note Payable $2,000,000 10% $200,000

Total $386,000

d.

Debit: Warehouse$187,865

Credit: Cash$187,865