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