Concept Introduction:
Accounting is an art of recording, classifying, analyzing and summarizing the financial statement to produce meaningful information and reports.
Accounting is done with two methods as follows:
Cash Basis accounting: Under the cash basis accounting all the cash receipts for the period are considered as revenue and all the cash payments for the period are considered as expenses and net income us calculated.
Accrual Basis accounting: Under the accrual basis, the revenue and expenses are recorded accreting to their accrual for the given period and cash receipts and payments are not considered to decide their accrual. The net income is calculated using the accrued revenue and accrued expenses belonging to the particular period.
To Indicate:
A short statement stating the reason of supporting expensing the $550,000 in the current period or spreading the expense over the 4 year lease term.
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Cornerstones of Financial Accounting
- Start-Up Costs Kling Company was organized in late 2019 and began operations on January 2, 2020. Prior to the start of operations, it incurred the following costs: Costs of hiring new employees $3,000 Attorney's fees in connection with the organization of the company 12,000 Improvements to leased offices prior to occupancy (10-year lease) 6,000 Costs of pre-opening advertising 5,000 1. What amount should the company expense in 2019? What amount should the company expense in 2020? 2. Next Level Kling Company was organized in late 2019 and began operations on January 2, 2020. Prior to the start of operations, it incurred costs to hire new employees, attorney fees in connection with the organization of the company, improvements to leased offices prior to occupancy (10-year lease), and costs related to pre-opening advertising. Start-up costs are:arrow_forwardanent Attempt togress Sheridan Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $6,000,000 on January 1, 2025. Sheridan expected to complete the building by December 31, 2025. Sheridan has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2024 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2026 Long-term loan-11% interest, payable on January 1 of each year; principal payable on January 1, 2029 (a) Avoidable interest Assume that Sheridan completed the office and warehouse building on December 31, 2025, as planned, at a total cost of $6,240,000, and the weighted-average amount of accumulated expenditures was $4,320,000. 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…arrow_forward7- Tamra, Inc. began work on a $ 7000,000 contract in 2019 to construct an office building. During 2010, Tamra, Inc. incurred costs of $1,700,00, billed their customers for $1,200,000, and collected $960,000. At December 31,2019, the estimated future costs to complete the project total $3,300,000.Instructions: compute Tamra’s Gross profit to be recognized in 2019?arrow_forward
- See Page1' Illustration PROBLEM On January 1, 2019, Cagayan Company took out a loan of P24,000,000 in order to finance specifically the renovation of a building. The renovation work started on the same date. The loan carried annual interest at 10%. Work on the building was substantially complete on October 31, 2019. The loan was repaid on December 31, 2019 and P200,000 investment income was earned in the period to October 31 on the proceeds of the loan not yet used for the renovation. What is the amount of borrowing cost to be included in the cost of the building? a. 2,400,000 b. 2,200,000 C. 2,000,000 d. 1,800,000 34arrow_forwardAccounting Two fixed assets are purchased during 2021: a copier for $10,987.65 on September 30, 2021 and an office desk for 5,432.10 on December 31, 2021. Depreciation entries are recorded at the end of each month. What will be general journal adjusting entry on December 31, 2021 for the depreciation of these fixed assets, if tax basis 150% MACRS is used?arrow_forwardBlossomFurniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $7,000,000 on January 1, 2020. Blossom expected to complete the building by December 31, 2020. Blossom has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $2,800,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 1,960,000 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 1,400,000 Assume that Blossom completed the office and warehouse building on December 31, 2020, as planned at a total cost of $7,280,000, and the weighted-average amount of accumulated expenditures was $5,040,000. 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…arrow_forward
- ok nces Braxton Technologies, Incorporated, constructed a conveyor for A&G Warehousers that was completed and ready for use on January 1, 2024. • A&G paid for the conveyor by Issuing a $150,000, four-year note that specified 8% Interest to be paid on December 31 of each year, and the note is to be repald at the end of four years. • The conveyor was custom-bullt for A&G, so Its cash price was unknown. By comparison with similar transactions It was determined that a reasonable Interest rate was 12%. . Required: 1. Prepare the Journal entry for A&G's purchase of the conveyor on January 1, 2024. 2. Prepare an amortization schedule for the four-year term of the note 3. Prepare the Journal entry for A&G's third Interest payment on December 31, 2026. 4. If A&G's note had been an installment note to be paid in four equal payments at the end of each year beginning December 31, 2024, what would be the amount of each Installment? 5. By considering the installment payment of requirement 4, prepare…arrow_forwardConstruction loan-12% interest, payable semiannually, issued December 31, 2019 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 Ⓒ Whispering Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $3,000,000 on January 1, 2020. Whispering expected to complete the building by December 31, 2020. Whispering has the following debt obligations outstanding during the construction period. $1,200,000 840,000 600,000 Show Time Assume that Whispering completed the office and warehouse building on December 31, 2020, as planned at a total cost of $3.120,000, and the weighted average amount of accumulated expenditures was $2.160,000. 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…arrow_forwardIn early February 2020, Bridgeport Corp. began construction of an addition to its head office building that is expected to take 18 months to complete. The following 2020 expenditures relate to the addition: Feb. 1 Mar. 1 July 1 Dec. 1 Dec. 31 Payment #1 to contractor Payment to architect Payment #2 to contractor Payment #3 to contractor Asset carrying amount $168,000 21,000 64,400 177,000 Amount of interest $ $430,400 On February 1, Bridgeport issued a $102,000, three-year note payable at a rate of 11% to finance most of the initial payment to the contractor. No other asset-specific debt was entered into. Details of other interest-bearing debt during the period are provided in the table below: Other Debt Instruments Outstanding-2020 9%, 15-year bonds, issued May 1, 2005, matured May 1, 2020 6%, 10-year bonds, issued June 15, 2014 6%, 12-year bonds, issued May 1, 2020 Principal amount $303,000 $500,000 $303,000 What amount of interest should be capitalized for the fiscal year ending…arrow_forward
- SandhillFurniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $10,000,000 on January 1, 2020. Sandhill expected to complete the building by December 31, 2020. Sandhill has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $4,000,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,000,000 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,000,000 (a) Assume that Sandhill completed the office and warehouse building on December 31, 2020, as planned at a total cost of $10,400,000, and the weighted-average amount of accumulated expenditures was $7,200,000. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% for computational…arrow_forwardSandhillFurniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $10,000,000 on January 1, 2020. Sandhill expected to complete the building by December 31, 2020. Sandhill has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $4,000,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,000,000 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,000,000 (a) Correct answer icon Your answer is correct. Assume that Sandhill completed the office and warehouse building on December 31, 2020, as planned at a total cost of $10,400,000, and the weighted-average amount of accumulated expenditures was $7,200,000. Compute the avoidable interest on this project. (Use interest rates rounded to…arrow_forwardVaughn Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $10,000,000 on January 1, 2020. Vaughn expected to complete the building by December 31, 2020. Vaughn has the following debt obligations outstanding during the construction period. Construction loan-10% interest, payable semiannually, issued December 31, 2019 $4,000,000 Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2021 2,800,000 Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,000,000 Assume that Vaughn completed the office and warehouse building on December 31, 2020, as planned at a total cost of $10,400,000, and the weighted-average amount of accumulated expenditures was $7,200,000. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% for computational purposes and round…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning