Accounting Two Exercises

Exercise 10-­8
On December 31, 2011, Hurston Inc. borrowed $6,390,000 at 13% payable annually to finance the construction of a
new building. In 2012, the company made the following expenditures related to this building: March 1, $766,800; June
1, $1,278,000; July 1, $3,195,000; December 1, $2,556,000. Additional information is provided as follows.
1. Other debt outstanding
10­year, 12% bond, December 31, 2005, interest payable
annually
6­year, 11% note, dated December 31, 2009, interest payable
annually
2. March 1, 2012, expenditure included land costs of $319,500
3. Interest revenue earned in 2012

$8,520,000
$3,408,000
$104,370

(a) Determine the amount of interest to be capitalized in 2012 in relation to the construction of the building.
The amount of interest

$

(b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at
December 31, 2012. (Credit account titles are automatically indented when amount is entered. Do not indent
manually.)
Account Titles and Explanation

Debit

Credit

Exercise 10­17
Alatorre Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting
department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an
adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the
machine. Alatorre Corporation gave the machine plus $497 to Mills Business Machine Company (dealer) in exchange
for a new machine. Assume the following information about the machines.
Alatorre Corp.

Mills Co.

(Old Machine)

(New Machine)

Machine cost

$451

$420

Accumulated depreciation

218

–0–

Fair value

132

629

For each company, prepare the necessary journal entry to record the exchange. (The exchange has commercial
substance.) (Credit account titles are automatically indented when amount is entered. Do not indent
manually.)
Account Titles and Explanation
Alatorre Corporation

Debit

Credit

Mills Business Machine Company