Question 1
The following expenditures and receipts are related to land, land improvements, and buildings acquired for use in a business enterprise. The receipts are enclosed in parentheses.
| a. | Money borrowed to pay building contractor (signed a note) | $(290,100) | ||
| b. | Payment for construction from note proceeds | 290,100 | ||
| c. | Cost of land fill and clearing | 10,580 | ||
| d. | Delinquent real estate taxes on property assumed by purchaser | 7,410 | ||
| e. | Premium on 6-month insurance policy during construction | 12,240 | ||
| f. | Refund of 1-month insurance premium because construction completed early | (2,040) | ||
| g. | Architect’s fee on building | 25,670 | ||
| h. | Cost of real estate purchased as a plant site (land $207,400 and building $55,600) | 263,000 | ||
| i. | Commission fee paid to real estate agency | 8,750 | ||
| j. | Installation of fences around property | 3,880 | ||
| k. | Cost of razing and removing building | 11,570 | ||
| l. | Proceeds from salvage of demolished building | (5,250) | ||
| m. | Interest paid during construction on money borrowed for construction | 13,020 | ||
| n. | Cost of parking lots and driveways | 18,020 | ||
| o. | Cost of trees and shrubbery planted (permanent in nature) | 14,750 | ||
| p. | Excavation costs for new building | 2,820 |
Identify each item by letter and list the items in columnar form, using the headings shown below. All receipt amounts should be reported in parentheses. For any amounts entered in the Other Accounts column, also indicate the account title. (Enter receipt amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). If no entry is required in other accounts, select “No Entry” for the account titles.)
| Item | Land | Land Improvements | Building | Other Accounts | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| a. | $enter a dollar amount | $enter a dollar amount | $enter a dollar amount | $enter a dollar amount | enter an account title | |||||
| b. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| c. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| d. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| e. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| f. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| g. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| h. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| i. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| j. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| k. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| l. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| m. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| n. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| o. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
| p. | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter an account title | |||||
Question 2
Kingbird Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $13,000,000 on January 1, 2025. Kingbird expected to complete the building by December 31, 2025. Kingbird has the following debt obligations outstanding during the construction period.
| Construction loan—12% interest, payable semiannually, issued December 31, 2024 | $5,200,000 | |
| Short-term loan—10% interest, payable monthly, and principal payable at maturity on May 30, 2026 | 3,900,000 | |
| Long-term loan—11% interest, payable on January 1 of each year; principal payable on January 1, 2029 | 2,600,000 |
(a)
Assume that Kingbird completed the office and warehouse building on December 31, 2025, as planned, at a total cost of $13,520,000, and the weighted-average amount of accumulated expenditures was $9,360,000. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% for computational purposes and round final answers to 0 decimal places, e.g. 5,275.)
| Avoidable interest | $enter the amount of avoidable interest in dollars rounded to 0 decimal places |
Question 3
Whispering Company purchased an electric press on June 30, 2025, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase:
| List price of new press | $24,600 | |
| Cash paid | 12,900 | |
| Cost of old press (10-year life, $1,000 residual value) | 34,800 | |
| Accumulated depreciation—old press (straight-line) | 27,200 | |
| Second-hand market value of old press | 7,100 |
Prepare the journal entries necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Whispering’s fiscal year ends on December 31, and depreciation has been recorded through December 31, 2024. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. List all debit entries before credit entries.)
| No. | Account Titles and Explanation | Debit | Credit |
|---|---|---|---|
| (a) | Exchange has commercial substance: | ||
| enter an account title to record current depreciation | enter a debit amount | enter a credit amount | |
| enter an account title to record current depreciation | enter a debit amount | enter a credit amount | |
| (To record current depreciation.) | |||
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| (To record exchange of the equipment.) | |||
| (b) | Exchange lacks commercial substance: | ||
| enter an account title to record current depreciation | enter a debit amount | enter a credit amount | |
| enter an account title to record current depreciation | enter a debit amount | enter a credit amount | |
| (To record current depreciation.) | |||
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount | |
| enter an account title to record exchange of the equipment | enter a debit amount | enter a credit amount |
Question 4
Bonita Company was incorporated on January 2, 2025, but was unable to begin manufacturing activities until July 1, 2025, because new factory facilities were not completed until that date.
The Land and Buildings account reported the following items during 2025.
| January 31 | Land and buildings | $168,500 | ||
| February 28 | Cost of removal of building | 9,970 | ||
| May 1 | Partial payment of new construction | 64,800 | ||
| May 1 | Legal fees paid | 4,540 | ||
| June 1 | Second payment on new construction | 49,100 | ||
| June 1 | Insurance premium | 2,280 | ||
| June 1 | Special tax assessment | 4,150 | ||
| June 30 | General expenses | 36,682 | ||
| July 1 | Final payment on new construction | 27,950 | ||
| December 31 | Asset write-up | 56,495 | ||
| 424,467 | ||||
| December 31 | Depreciation—2025 at 1% | (4,245) | ||
| December 31, 2025 | Account balance | $420,222 |
The following additional information is to be considered.
| 1. | To acquire land and building, the company paid $88,500 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair value of the stock is $111 per share. | |||||||||||||
| 2. | Cost of removal of old buildings amounted to $9,970, and the demolition company retained all materials of the building. | |||||||||||||
| 3. | Legal fees covered the following.
|
| 4. | Insurance premium covered the building for a 2-year term beginning May 1, 2025. | ||||||||||
| 5. | The special tax assessment covered street improvements that are permanent in nature. | ||||||||||
| 6. | General expenses covered the following for the period from January 2, 2025, to June 30, 2025.
|
| 7. | Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $56,495, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount. | |
| 8. | Estimated life of building—50 years. Depreciation for 2025—1% of asset value (1% of $424,500, or $4,245). |
(a)
Prepare entries to reflect correct land, buildings, and depreciation accounts at December 31, 2025. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. List all debit entries before credit entries.)
| No. | Account Titles and Explanation | Debit | Credit |
|---|---|---|---|
| 1. | select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| 2. | select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount | |
| select an account title Accumulated Depreciation−BuildingsBuildingsDepreciation ExpenseInsurance ExpenseLandLand and BuildingsNo EntryPaid-in Capital in Excess of Par−Common StockPrepaid InsuranceOrganization ExpenseRetained EarningsSalaries and Wages Expense | enter a debit amount | enter a credit amount |
Question 5
Flounder Resorts began construction of a new hotel on December 1, 2025. On this date, the company purchased a parcel of land for $260,000 in cash. In addition, it paid $2,800 in surveying costs and $6,700 for a title insurance policy. An old dwelling on the premises was demolished at a cost of $9,100, with $1,800 being received from the sale of materials.
Architectural plans were also formalized on December 1, 2025, when the architect was paid $63,000. The necessary building permits costing $17,000 were obtained from the city and paid for on December 1 as well. The excavation work began during the first week in December with payments made to the contractor as follows:
| Date of Payment | Amount of Payment | |
|---|---|---|
| January 1 | $806,000 | |
| April 1 | 895,000 | |
| July 1 | 495,000 |
The building was completed on July 1, 2026.
To finance construction of this hotel, Flounder borrowed $2,483,000 from the bank on December 1, 2025. Flounder had no other borrowings. The $2,483,000 was a 10-year loan bearing interest at 6%.
Compute the balance in each of the following accounts at December 31, 2025, and December 31, 2026. (Round answers to 0 decimal places, e.g. 5,275.)
| December 31, 2025 | December 31, 2026 | |||||
| (a) | Land | $enter a dollar amount | $enter a dollar amount | |||
| (b) | Buildings | enter a dollar amount | enter a dollar amount | |||
| (c) | Interest Expense | enter a dollar amount | enter a dollar amount |
Question 6
Wildhorse Inc. is a book distributor that had been operating in its original facility since 1995. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Wildhorse since 2020. Wildhorse’s original facility became obsolete by early 2025 because of the increased sales volume and the fact that Wildhorse now carries DVDs in addition to books.
On June 1, 2025, Wildhorse contracted with Black Construction to have a new building constructed for $5,440,000 on land owned by Wildhorse. The payments made by Wildhorse to Black Construction are shown in the schedule below.
| Date | Amount | |
|---|---|---|
| July 30, 2025 | $1,224,000 | |
| January 30, 2026 | 2,040,000 | |
| May 30, 2026 | 2,176,000 | |
| Total payments | $5,440,000 |
Construction was completed and the building was ready for occupancy on May 27, 2026. Wildhorse had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2026, the end of its fiscal year.
| 10%, 5-year note payable of $2,720,000, dated April 1, 2022, with interest payable annually on April 1. |
| 12%, 10-year bond issue of $4,080,000 sold at par on June 30, 2018, with interest payable annually on June 30. |
The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material.
(a)
Compute the weighted-average accumulated expenditures on Wildhorse’s new building during the capitalization period.
| Weighted-average accumulated expenditures | $enter the weighted-average accumulated expenditures in dollars |
Question 7
On August 1, Tamarisk, Inc. exchanged productive assets with Vaughn, Inc. Tamarisk’s asset is referred to below as “Asset A,” and Vaughn’ is referred to as “Asset B.” The following facts pertain to these assets.
| Asset A | Asset B | |||
| Original cost | $126,720 | $145,200 | ||
| Accumulated depreciation (to date of exchange) | 52,800 | 62,040 | ||
| Fair value at date of exchange | 79,200 | 99,000 | ||
| Cash paid by Tamarisk, Inc. | 19,800 | |||
| Cash received by Vaughn, Inc. | 19,800 |
(a)
Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Tamarisk, Inc. and Vaughn, Inc. in accordance with generally accepted accounting principles. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. List all debit entries before credit entries.)
| Account Titles and Explanation | Debit | Credit |
|---|---|---|
| Tamarisk, Inc.’s Books | ||
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| Vaughn, Inc.’s Books | ||
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
| select an account title Accumulated Depreciation – Machinery (A)Accumulated Depreciation – Machinery (B)CashGain on Disposal of MachineryMachinery (A)Machinery (B)No Entry | enter a debit amount | enter a credit amount |
