Question

On July 31, 2017, Wildhorse Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Wildhorse issued a $328,800, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $232,800 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Wildhorse made a final $96,000 payment to Minsk. Other than the note to Netherlands, Wildhorse’s only outstanding liability at December 31, 2017, is a $28,600, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31. Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017. Interest revenue $ Weighted-average accumulated expenditures $ Avoidable interest $ Interest capitalized $ Prepare the journal entries needed on the books of Wildhorse Company at each of the following dates. (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.) (1) July 31, 2017. (2) November 1, 2017. (3) December 31, 2017. Date Account Titles and Explanation Debit Credit (To record the note.) (To record the payment to Minsk.) (To record the proceeds from the investment.) (To record the payment to Minsk.) 12/31 Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer :-

It was given in the question that On July 31, Wildhorse issued a $328,800, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $232,800 of the proceeds of the note was paid to Minsk on July 31.And remaining invested in short-term marketable securities (trading securities) at 10% until November 1.

Remaining investment = $328,800 - $232,800 = $96,000

Interest rate = 10%

No of month = 3 months

Interest revenue = $96,000 × 10% × 3/12

Interest revenue = $2,400

Weighted-average accumulated expenditures are as follows :-

Date	Amount	Capitalisation period	Weighted Average accumulated Expenditure
July 31, 2017	$232,800	3/12	$58,200
Nov 1,2017	$96,000	0	$0
Total	$328,800		$58,200

Avoidable interest = Weighted average accumulated expenditure × Interest rate

Interest rate = 12%

Avoidable interest = $58,200 × 12%

Avoidable interest = $ 6,984

Interest Capitalized = Avoidable interest

Interest Capitalized = $6,984

Journal entries needed on the books of Wildhorse Company are as follows:-

Date	Account Titles and Explanation	Debit	Credit
July 31	Cash A/c Dr.	$328,800
	To Note Payable A/c Dr.		$328,800
	(To record the note)
July 31	Machinery A/c Dr.	$232,800
	Trading securities A/c Dr.	$96,000
	To Cash A/c		$328,800
	(To record the payment to Minsk)
Nov 1	Cash A/c Dr.	$98,400
	To Interest revenue A/c		$2,400
	To Trading securities A/c		$96,000
	(To record the proceeds from the investment)
Nov 1	Machine A/c Dr.	$96,000
	To Cash A/c		$96,800
	(To record the payment to Minsk)
Dec 31	Machinery A/c Dr. (Interest capitalized amount)	$6,984
	Interest A/c Dr.	$11,744
	To Cash A/c ($28,600× 8%)		$2,288
	To Interest payable A/c ($328,800 × 12% × 5/12)		$16,440