Doggy Co. began construction of a new cutter for the U.S. Coast Guard



Doggy Co. began construction of a new cutter for the U.S. Coast Guard on
January 1, 2011 and completed construction of the ship on October 31, 2012. To
finance construction, Doggy took out an $8,000,000, 2-year 6% construction loan on
February 1, 2011. Interest on the loan was to be paid annually on the anniversary
date of the loan. Doggy has no other outstanding interest-bearing debt. Doggy made
the following expenditures in conjunction with this construction project:

a) What would be the amount of Doggy’s cumulative weighted average expenditure during 2011 related to cutter
b) how much interest should Doggy capitalize in 2011 related to the cutter project?

Problem 2

2) Lessee company leased equipment from lessor manufacturing on january 1,2013
for an eight year lease term. Lessor manufactured the equipment at a cost of
$85000 and the equipment had a fair value of $112080. the equipment had an
eight year life and the implicit interest rate of lease was 8%. Yearly lease
payments are $15000 due at the beginning of each year starting on January 1,
a) Make necessary journal entries on Lessor book for January 1, 2013.
b) What amount of interest revenue would lessor report for 2013?
c)what amount of depreciation expense should Lessor report during 2013?



Problem 3

On january 1, 2011 Big Corporation purchased 30% ownership of Smaller Company for $100000 when smaller had total stockholders equity of $300000. At the time the book value of Smaller assets equaled their fair value except for a patent which had a remaining life of five years. During the next two years Smaller reported net income of $30000 each year and paid dividends of $5000 each year. ( Assume no goodwill throughout this problem)
A) What would be the balance in Bigs investment in Smaller account on December 31, 2012?
B) What amount of of income would Big report in 2011 from this investment?
c) Assume that on January 1, 2013 Big purchased an additional 10% ownership in Smaller for $40000. At that time Smallers assets equaled their book value except for equipment which had a remaining life of ten years. During 2013 Smaller had net income of $40000 and paid dividends of $5000. what would be the balance in Bigs investment in smaller account on December 31, 2013?

problem 4
The following information is available for ARC in for 2013

Common Stock outstanding during the year


Net income for 2013
5% Convertible Preferred stock, $100 par value
8% Convertible Bonds payable issued at par
Tax rate


Each share of the Preferred stock is convertible into 2 shares of common stock. The preferred stock is cumulative.
Each $1000 bond can be converted into 15 shares of common stock. Compute the necessary earnings per share that
ARC would be required to report for 2013 for ARC INC.


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