Question
In: Accounting
On January 1, 2019, Jameel Company engaged Galadari Engineering Company to construct a special..
On January 1, 2019, Jameel Company engaged Galadari Engineering Company to construct
a special purpose machinery.Construction began immediately and completed on October 1 ,2019.
To help finance construction , on January 1, 2019 Otaibi issued a $500,000, 3 year 12% note payable
at Emirates Bank on which interest is payable every December 31. $375,000 of the proceeds of the
note was paid to Galadari on January 1, 2019.The reminder of the proceeds was temporarily
invested in short- term marketable securities (trading securities) at 10% until October 1.
On October1, Jameel made a final $125,000 payment to Galadari. Other than the note to Emirates
Bank, Jameel’s only outstanding liability on December 31, 2019 is a 40,000 ,8% 6 year note-
-payable,dated January 1, 2016 on which interest is payble each December 31.
Required:
- Calculate the interest revenue, weighted -average accumulated
expenditures, avoidable
interest and total
interest cost to be capitalized during 2019. (round all
computations to the nearest dollar).
- Prepare journal entrres needed on the books of Jameel Company at each of the following dates.
- January 1, 2019
- October 1, 2019
- December 31, 2019
Solutions
Expert Solution
| 1 | Following schedule calculates the weighted-average accumulated expenditures: | ||||
| Date | Expenditure | Capitalisation period | Weight | Weighted expenditure | |
| a | b | c=b/12 | d=a*c | ||
| 1-Jan-19 | $ 375,000.00 | 9 | 0.750 | $ 281,250.00 | |
| 1-Oct-19 | $ 125,000.00 | 0 | 0.000 | $ - | |
| Total | $ 281,250.00 | ||||
| Specific borrowing | $ 500,000.00 | ||||
| General Borrowing | $ - | ||||
| 2 | Entire expenditure is financed by specific loan. Nothing is financed out of the general loans. The interest rate on specific loan is 12% while the weighted interest rate on the general loans is not required to be calculated as the same has not been used. | ||||
| 3 | Computation of Total interest for 2019 | ||||
| Loan | Amount | Rate | Total Interest | ||
| Specific loan | $ 500,000.00 | 12.00% | $ 60,000 | ||
| General loan | $ 40,000.00 | 8.00% | $ 3,200 | ||
| $ 540,000.00 | $ 63,200 | ||||
| 4 | Computation of Interest Revenue for 2019 | ||||
| Loan | Amount | Rate |
Period of investment (Month) |
Interest income | |
| Trading securities | $ 125,000.00 | 10.00% | 9 | $ 9,375 | |
| $ 125,000.00 | $ 9,375 | ||||
| 5 | Computation of Avoidable Interest =(Total interest on specific loan upto construction period-interest earned) | ||||
| Loan | Amount | Rate |
Period of Construction (Month) |
Avoidable Interest | |
| Specific loan | $ 500,000.00 | 12.00% | 9 | $ 45,000 | |
| Less: Interest earned during construction period | $ (9,375) | ||||
| Avoidable interest(To be capitalised) | $ 35,625 | ||||
| 6 | Total Interest | $ 63,200 | |||
| Avoidable Interest | $ (35,625) | ||||
| Interest transferred to Profit/Loss A/c | $ 27,575 | ||||
| 7 | Journal entry for 2019 | ||||
| Date | Account & Explaination | Debit $ | Credit $ | ||
| 01-01-19 | Bank | $ 500,000.00 | |||
| 12% Note payable | $ 500,000.00 | ||||
| (Being loan taken for construction ) | |||||
| Trading Securities(Investment) | $ 125,000.00 | ||||
| Bank | $ 125,000.00 | ||||
| (Being amount invested@10%) | |||||
| Galadari(Account payable) | $ 375,000.00 | ||||
| Bank | $ 375,000.00 | ||||
| (Being advance amount paid for construction wok) | |||||
| 01-10-19 | Bank | $ 134,375.00 | |||
| Interest income | $ 9,375.00 | ||||
| Trading Securities(Investment) | $ 125,000.00 | ||||
| (Being investment sold) | |||||
| Construction of Machine(Asset) | $ 500,000.00 | ||||
| Galadari(Account payable) | $ 500,000.00 | ||||
| (Being construction exp incurred) | |||||
| Galadari(Account payable) | $ 125,000.00 | ||||
| Bank | $ 125,000.00 | ||||
| (Being amount paid for construction wok) | |||||
| 31-12-19 | Interest expense | $ 63,200 | |||
| 12% Note payable | $ 60,000 | ||||
| 6% Note payable | $ 3,200 | ||||
| (Being interest expense incurred for 2019) | |||||
| Construction of Machine(Asset) | $ 35,625 | ||||
| Profit & Loss A/C | $ 27,575 | ||||
| Interest expense | $ 63,200 | ||||
| (being interest expense capitalised). | |||||
 ekkarill92 answered 1 year agoRelated SolutionsKeystone Manufacturing Company started operations on January 1, 2019. During 2019, the company engaged in the...Keystone Manufacturing Company started operations on January 1,
2019. During 2019, the company engaged in the following
transactions: Issued common stock for $40,000. Paid $10,000 cash to
purchase raw materials used to make products. Transferred $9,000 of
raw materials to the production department. Paid $12,000 cash for
labor used to make products. Paid $18,000 cash for overhead costs
(assume actual and estimated overhead are the same). Finished work
on products that cost $35,000 to make. Sold products that cost
$31,500...
Keystone Manufacturing Company started operations on January 1, 2019. During 2019, the company engaged in the...Keystone Manufacturing Company started operations on January 1,
2019. During 2019, the company engaged in the following
transactions:
Issued common stock for $40,000.
Paid $10,000 cash to purchase raw materials used to make
products.
Transferred $9,000 of raw materials to the production
department.
Paid $12,000 cash for labor used to make products.
Paid $18,000 cash for overhead costs (assume actual and
estimated overhead are the same).
Finished work on products that cost $35,000 to make.
Sold products that cost $31,500...
On January 1, 2018 The Village of Port Jefferson engaged to Frog Construction company to construct...On January 1, 2018 The Village of Port Jefferson engaged to Frog
Construction company to construct a municipal office complex. The
three-year a to receive 10 million in cash payments from the city
in three installments: 25% when the project was 30% complete; 25%
when the project was 60% complete; and50% when the project was
fully complete. The contract required that Frog's completion
estimates be certified by an independent consultant before payments
were made.
During the first year of the...
On July 31, 2017, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of...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...
On July 31, 2017, Coronado Company engaged Minsk Tooling Company to construct a special-purpose piece of...On July 31, 2017, Coronado 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 Coronado issued a
$303,600, 3-year, 12% note payable at Netherlands National Bank, on
which interest is payable each July 31. $208,600 of the proceeds of
the note was paid to Minsk on July 31. The remainder of the
proceeds was temporarily invested in short-term...
On July 31, 2017, Wildhorse Company engaged Minsk Tooling Company to construct a special-purpose piece of...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...
ABC Co. organized as a proprietorship on January 1, 2019 and engaged in the following transactions...ABC Co. organized as a proprietorship on January 1, 2019 and
engaged in the following transactions during its first year of
operation:
Jan 1: The owner invested SR 1,000,000 cash to start the
company.
Jan 31: The company purchased a piece of machinery on credit for
SR 10,000.
Feb1: It purchased a truck by paying SR 50,000 and borrowing the
remaining SR 25,000 required to complete the transaction.
Feb 3: The company had cash revenue of SR 100,000
Feb 16:...
On January 1 2019 Areej entered into a contract with a customer to construct a stadium...On January 1 2019 Areej entered into a contract with a customer
to construct a stadium for consideration of $ 200 million. The
contract was expected to take 2 years to complete. At 31 December
2019 Areej had incurred costs of $ 55 million, Costs to complete
are estimated at $ 50 million. In addition to these costs, Amir
purchased plant to be used on the contract at a cost of $ 30
million. This plant was purchased on 1...
Use the information below to construct a balance sheet for January 1, 2019. Then answer the...Use the information below to construct a balance sheet for
January 1, 2019. Then answer the questions that follow.
Accounts payable $12,000
Accounts receivable $8,250
Accrued interest on land loan of $2,000
Breeding livestock (raised) $165,000
Checking account balance $17,500
Crops $125,000
Machinery and equipment $275,000
Market livestock $115,000
Net present value of land $1,500,000
Principal loan payment on land of $40,000 leaving a remaining
balance of $920,000
Taxes payable $17,000
What was the farm's current ratio? [6]
What was...
Early in 2019, Dobbs Corporation engaged Kiner Construction, Inc. to design and construct a new manufacturing...Early in 2019, Dobbs Corporation engaged Kiner Construction,
Inc. to design and construct a new manufacturing facility for
Dobbs. Construction began on June 1, 2019, and was completed on
December 31, 2019. Dobbs made the following payments to Kiner
during 2019: Date Payment amount June 1, 2019, $6,000,000 August
31, 2019, 9,000,000 December 31, 2019 7,500,000 In order to finance
the construction, Dobbs issued a $5,000,000, 10 year, 9% bond,
issued at par on May 31, 2019, with interest payable...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|