Problem II-Analysis of Alternatives

The Black Knights Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to
increase its market share in the Sunbelt. In order to do so, Black Knights has decided to locate a new factory in the
Panama City area. Black Knights will either buy or lease a site depending upon which is more advantageous. The
site location committee has narrowed down the available sites to the following three buildings.
Building A: Purchase for a cash price of $600,000, useful life 25 years. PV= $600,000
Building B: Lease for 25 years with annual lease payments of $69,000 being made at the beginning of the
year.
Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can
be sublet for 25 years at a net annual rental of $7,000. Rental payments will be received at the end of each year. The
Black Knights Inc. has no aversion to being a landlord.

Instruction: In which building would you recommend that The Black Knights Inc. locate, assuming a 12% cost of
funds?
PV of annuity due of 25 periods at 12% is 8.78432
PV of ordinary annuity of 25 periods at 12% is 7.84314
FV of ordinary annuity of 25 periods at 12% is 133.33387
GIẢI
CÔNG THỨC: PV= R*PV factor (oa/ad)
FV= R* PV factor (oa/ad)

Building A—PV = $600,000.

Building B—
Rent X (PV of annuity due of 25 periods at 12%) = PV
$69,000 X 8.78432 = PV
$606,118 = PV

Building C—
Rent X (PV of ordinary annuity of 25 periods at 12%) = PV
$7,000 X 7.84314 = PV
$54,902 = PV

Cash purchase price $650,000

PV of rental income – 54,902
Net present value $595,098

Answer: Lease Building C since the present value of its net cost is the smallest.

Problem III

PV of annuity due of 4 period at 8% is 3.57710, at 10% is 3.48685

PV of ordinary annuity of 4 period at 8% is 3.31213, at 10% is 3.16986
PV of single sum of 4 period at 8% is, at 10% is 0.73503, and at 10% is 0.68301
Problem IV
Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company.
Jan. 1 Inventory 100 units at $5 each 4 Sale 80 units at $8 each
11 Purchase 150 units at $6 each 13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each 27 Sale 100 units at $9 each

(a)Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end-of-month
closing entry to record cost of goods sold. A physical count indicates that the ending inventory for Jan is 110 units
(b)Assume Fong Sai- Yuk uses a perpetual system. Prepare all necessary journal entries

GIẢI

Available for sale: = 100* $5 + 150*$6 + 160*$7= $2520

Beginning inventory: 100* $5= $500
FIFO:
80+120+100=300 units were sold
COGS: 100*5 + 150*6 +50*7 = $1750
Ending inventory: $2520- $1750= $770

(a) Jan. 4 Accounts Receivable 640

Sales Revenue(80 X $8) 640

Jan. 11 Purchases ($150 X $6) 900

Accounts Payable 900

Jan. 13 Accounts Receivable 1,050

Sales Revenue (120 X $8.75) 1,050

Jan. 20 Purchases (160 X $7) 1,120

Accounts Payable 1,120

Jan. 27 Accounts Receivable 900

Sales Revenue (100 X $9) 900

Jan. 31 Inventory ($7 X 110) 770

Cost of Goods Sold 1,750*
Purchases ($900 + $1,120) 2,020
Inventory (100 X $5) 500

*($500 + $2,020 – $770)

(b) Jan. 4 Accounts Receivable 640

Sales Revenue (80 X $8) 640

Cost of Goods Sold 400

Inventory (80 X $5) 400

Jan. 11 Inventory 900

Accounts Payable (150 X $6) 900

Jan. 13 Accounts Receivable 1,050

Sales Revenue (120 X $8.75) 1,050

Cost of Goods Sold 700

Inventory ([(20 X $5) +
(100 X $6)] 700

Jan. 20 Inventory 1,120

Accounts Payable (160 X $7) 1,120

Jan. 27 Accounts Receivable 900

Sales Revenue (100 X $9) 900

Cost of Goods Sold 650

Inventory [(50 X $6) +
(50 X $7)] 650

Problem V
Assume that the following cases are independent and rely on the following data.
Mensen Co. Jerton Co.
Equipment (cost) $900,000 $1,650,000
Accumulated depreciation 290,000 1,050,000
Fair value of equipment 560,000 700,000
Cash received (paid) (140,000) 140,000

GIẢI

Problem VI
On December 31, 2016, Main Inc borrowed $3,000,000 at 12% payable annually to finance the construction of a
new building. In 2017, the company made the following expenditures related to this building: March 1 $360,000;
June 1, $600,000, July 1 $1,500,000; December 1, $1,500,000. The building was completed in February 2018.
Additional information is provided as follows.
1) Other debt outstanding
10-year, 13% bond, December 31, 2010 interest payable annually $4,000,000

6-year, 10% note, dated December 31, 2014, interest payable annually $1,600,000

2) March 1, 2014, expenditure included land cost of $150,000

3) Interest revenue earned in 2014 $ 49,000

Instructions;
a) Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building.

b) Prepare the journal entry to record the capitalization of interest and recognition of interest expense, if any, at
December31, 2017.
GIẢI

(a) Computation of Weighted-Average Accumulated Expenditures

Expenditures
Capitalization Weighted-Average Accumulated
Date Amount X Period = Expenditures
March 1 $ 360,000 10/12 $ 300,000
 June 1 600,000 7/12 350,000
July 1 1,500,000 6/12 750,000
December 1 1,500,000 1/12 125,000
$3,960,000 $1,525,000
Computation of Avoidable Interest
Weighted-Average
Accumulated Expenditures X Interest Rate = Avoidable Interest
$1,525,000 0.12 (Construction loan) $183,000
Computation of Actual Interest
Actual interest
$3,000,000 X 12% $ 360,000
$4,000,000 X 13% 520,000
$1,600,000 X 10% 160,000
$1,040,000

(b) Buildings 183,000

Interest Expense* 857,000
Cash ($360,000 + $520,000 + $160,000) 1,040,000

*Actual interest for year $1,040,000

Less: Amount capitalized 183,000
Interest expense debit $ 857,000
Problem