Question

1. ABC exchanged cash of $17 and a machine with a carrying value of $1897 and a fair value of $3739 for a machine. The exchange has commercial substance.

At what amount should ABC record the machine it received for? __________

2. ABC began constructing a building for its own use at the beginning of the year. During the year ABC incurred interest of $68182 on specific construction debt and $85776 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during the year was $20168.

The amount of interest ABC should capitalize is: ___________

Answer 1

Problem 1:ABC should record the machine at the folloimg value

Fair value of machine exchaged 3739

Add Cash given 17

Total value of machine to be recorded 3756

Problem 2

Here Actual interest is the sum up of interest incurred on specific construction debt and on other borrowings 68182 + 85776 = $153,958

Avoidable interest here is equal to the interest computed on the weighted average amount of accumulated expenditures for the building during the year . $20168

The interest that should be capitalized is Lower of actual interest or avoidable interest.

Lower of $153,958 or $20168

Answer :- So $20168 should be capitalized

Hope this helped ! Let me know in case of any queries.