Question

Exercise 10-9 (Part Level Submission) On July 31, 2017, Amsterdam 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 Amsterdam issued a $300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $200,000 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, Amsterdam made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam’s only outstanding liability at December 31, 2017, is a $30,000, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31. Collapse question part (a) Partially correct answer. Your answer is partially correct. Try again. Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017. Interest revenue $Entry field with correct answer 2500 Weighted-average accumulated expenditures $Entry field with correct answer 50000 Avoidable interest $Entry field with correct answer 6000 Interest capitalized $Entry field with incorrect answer 50000 SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 3 of 3 used Collapse question part (b) Prepare the journal entries needed on the books of Amsterdam 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 Cash 300000 Notes Payable 300000 (To record the note.) Machinery Notes Payable Cash (To record the payment to Minsk.) (To record the proceeds from the investment.) (To record the payment to Minsk.) 12/31

Answer 1

Ans- 1-Interest Revenue- ($300,000-$200,000) *10 *3/12= $2,500

2- Calculation of weighted average accumulated expenditure:-

Date	Expenditure	Cpitalised Period	Weight	Weighted Expenditure
	a	b	c=b/12	a*c
July-31	$200,000	3	0.25	50,000
Nov-01	$100,000	0	-	0
	$300,000			$50,000

Avoidable interest $50,000*12/100=$6,000

Interest Capitalised= $6,000

3- Journal Entries:-

Date	Account Title	Debit ($)	Credit ($)
July 31,2017	Cash A/c Dr.	$300,000
	Notes Payable A/c		300,000
	(To record the note)
July 31,2017	Machinery A/c Dr.	200,000
	Trading Securities A/c Dr.	100,000
	Cash A/c		300,000
	(To record the payment to Minsk)
Nov.1,2017	Cash A/c Dr.	102,500
	Interest Revenue A/c		2,500
	Trading Securities A/c		100,000
	(To record the proceeds from the investment)
Nov.1,2017	Machine A/c Dr.	100,000
	Cash A/c		100,000
	(To record purchase of machine)
Dec.31,2017	Machine A/c Dr.	6,000
	Interest A/c Dr. ($2,400+$15,000-$6,000)	11,400
	Cash A/c ($30,000*8/100)		2,400
	Interest Payable A/c ($300,000*12/100*5/12)		15,000
	(To record the payment to Minsk)

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