Accounting Homework
I. Capitalization of interest.
During 2017, Barden Building Company constructed various assets at a total cost of $14,700,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2017 were $9,800,000. The company had the following debt outstanding at December 31, 2017:
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10%, 5-year note to finance construction of various assets, dated January 1, 2017, with interest payable annually on January 1
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$6,300,000
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12%, ten-year bonds issued at par on December 31, 2011, with interest payable annually on December 31
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7,000,000
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9%, 3-year note payable, dated January 1, 2016, with interest payable annually on January 1
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3,500,000
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Instructions
Compute the amounts of each of the following (show computations).
• Avoidable interest.
• Total interest to be capitalized during 2017.
II. Dividends on preferred stock.
It is assumed that the corporation has $800,000 of 5% preferred stock and $3,200,000 of common stock outstanding, each having a par value of $10. No dividends have been declared for 2016 and 2017.
• As of 12/31/18, it is desired to distribute $250,000 in dividends. How much will the preferred stockholders receive if their stock is cumulative?
III. Bond issue price and premium amortization.
On January 1, 2018, Piper Co. issued ten-year bonds with a face value of $4,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:
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Present value of 1 for 10 periods at 10%
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.386
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Present value of 1 for 10 periods at 12%
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.322
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Present value of 1 for 20 periods at 5%
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.377
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Present value of 1 for 20 periods at 6%
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.312
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Present value of annuity for 10 periods at 10%
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6.145
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Present value of annuity for 10 periods at 12%
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5.650
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Present value of annuity for 20 periods at 5%
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12.462
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Present value of annuity for 20 periods at 6%
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11.470
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Instructions
• Calculate the issue price of the bonds.
• Without prejudice to your solution in part (a), assume that the issue price was $3,542,000. Prepare the amortization table for 2018, assuming that amortization is recorded on interest payment dates using the effective-interest method.
Format your homework according to the give formatting requirements:
• The answer must be using Times New Roman font (size 12), double spaced, typed, with one-inch margins on all sides.
• The response also includes a cover page containing the student's name, the title of the homework, the course title, and the date. The cover page is not included in the required page length.
• Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.