Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year. January 1, $102,000, July 1, 5986,000; September 1, $2,720,000; and December 31, $7,174,000. The following debts were outstanding throughout the current year. Debt Construction note, 12% Short-term note payable. 15% Amount $340.000 1.360.000 Accounts payable (noninterest-bearing) 1.360.000 Note: Round all of your answers to the nearest whole number or whole percentage point a. Compute the amount of interest to be capitalized during the year. Calculation of Actual Interest Debt Debt Amount Interest rate Interest Amount Specific Debt Construction loans 340,000 12% 5 40,800 General Debt Note payable $ 1.360,000 15% Total Actual Interest 204,000 244,800 Calculation of Weighted Average Accumulated Expenditures Weighted Avg. Date Expenditures Months outstanding Accum. Expenditures January 11 July 11 $ 102.000 986.000 125 6 102.000 493.000 September 1 2.720.000 4 906.667 December 31 7.174,000 0~ Weighted avg accum expenditures 1.501.667 Calculation of Avoidable Interest Debt Weighted Avg. Interest Avoidable Category Accum. Expenditures Rate Interest Specific Debt s 340.000 12% 5 40.800 General Debt 1.161.667 15% 1.501.667 174.250 215.050 Amount of interest to be capitalized during the year: $ 215,050 b. Calculate the amount of interest expense for the year. 5 29,750 c. Prepare the summary journal entry for the year to record the construction expenditures and interest, assuming that construction is not complete on December 31. Assume all payments are in cash. Dec. 31 Building Interest Expense Cash Account Name To record.construction expenditures and interest Dr. 11.156,250 Cr. 29.750 0 7.174.000 x
Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year. January 1, $102,000, July 1, 5986,000; September 1, $2,720,000; and December 31, $7,174,000. The following debts were outstanding throughout the current year. Debt Construction note, 12% Short-term note payable. 15% Amount $340.000 1.360.000 Accounts payable (noninterest-bearing) 1.360.000 Note: Round all of your answers to the nearest whole number or whole percentage point a. Compute the amount of interest to be capitalized during the year. Calculation of Actual Interest Debt Debt Amount Interest rate Interest Amount Specific Debt Construction loans 340,000 12% 5 40,800 General Debt Note payable $ 1.360,000 15% Total Actual Interest 204,000 244,800 Calculation of Weighted Average Accumulated Expenditures Weighted Avg. Date Expenditures Months outstanding Accum. Expenditures January 11 July 11 $ 102.000 986.000 125 6 102.000 493.000 September 1 2.720.000 4 906.667 December 31 7.174,000 0~ Weighted avg accum expenditures 1.501.667 Calculation of Avoidable Interest Debt Weighted Avg. Interest Avoidable Category Accum. Expenditures Rate Interest Specific Debt s 340.000 12% 5 40.800 General Debt 1.161.667 15% 1.501.667 174.250 215.050 Amount of interest to be capitalized during the year: $ 215,050 b. Calculate the amount of interest expense for the year. 5 29,750 c. Prepare the summary journal entry for the year to record the construction expenditures and interest, assuming that construction is not complete on December 31. Assume all payments are in cash. Dec. 31 Building Interest Expense Cash Account Name To record.construction expenditures and interest Dr. 11.156,250 Cr. 29.750 0 7.174.000 x
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year. January 1, $102,000, July 1, 5986,000; September 1, $2,720,000; and December 31, $7,174,000. The following debts were outstanding throughout the current year.
Debt
Construction note, 12%
Short-term note payable. 15%
Amount
$340.000
1.360.000
Accounts payable (noninterest-bearing) 1.360.000
Note: Round all of your answers to the nearest whole number or whole percentage point
a. Compute the amount of interest to be capitalized during the year.
Calculation of Actual Interest
Debt
Debt Amount Interest rate
Interest
Amount
Specific Debt
Construction loans 340,000
12% 5
40,800
General Debt
Note payable
$ 1.360,000
15%
Total Actual Interest
204,000
244,800
Calculation of Weighted Average Accumulated Expenditures
Weighted Avg.
Date
Expenditures
Months
outstanding
Accum. Expenditures
January 11
July 11
$ 102.000
986.000
125
6
102.000
493.000
September 1
2.720.000
4
906.667
December 31
7.174,000
0~
Weighted avg accum expenditures
1.501.667
Calculation of Avoidable Interest
Debt
Weighted Avg.
Interest
Avoidable
Category Accum. Expenditures
Rate
Interest
Specific Debt s
340.000
12% 5
40.800
General Debt
1.161.667
15%
1.501.667
174.250
215.050
Amount of interest to be capitalized during the year: $ 215,050
b. Calculate the amount of interest expense for the year. 5 29,750
c. Prepare the summary journal entry for the year to record the construction expenditures and interest, assuming that construction is not complete on December 31. Assume all payments are in cash.
Dec. 31 Building
Interest Expense
Cash
Account Name
To record.construction expenditures and interest
Dr.
11.156,250
Cr.
29.750
0
7.174.000 x
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