East Company built two similar buildings. Each building took one year to build and required $25,000,000 in construction costs. East had limited internal financial resources, so it could fund only Building A internally and financed Building B by borrowing the $25,000,000 evenly over the year (i.e., zero at the beginning and increasing to $25,000,000 by the end of the year). The interest rate on the loan is 5%. Both projects were finished on December 31, 2018, and were ready for occupancy immediately. The buildings are estimated to have a useful life of 30 years with no residual value. East uses the straight-line method for depreciation. Required Requirement a. How much interest cost can be capitalized on Building B? $ 625,000 Requirement b. What will be the annual depreciation expense for each of the two buildings? (Round the depreciation expense to the nearest whole dollar.)
East Company built two similar buildings. Each building took one year to build and required $25,000,000 in construction costs. East had limited internal financial resources, so it could fund only Building A internally and financed Building B by borrowing the $25,000,000 evenly over the year (i.e., zero at the beginning and increasing to $25,000,000 by the end of the year). The interest rate on the loan is 5%. Both projects were finished on December 31, 2018, and were ready for occupancy immediately. The buildings are estimated to have a useful life of 30 years with no residual value. East uses the straight-line method for depreciation. Required Requirement a. How much interest cost can be capitalized on Building B? $ 625,000 Requirement b. What will be the annual depreciation expense for each of the two buildings? (Round the depreciation expense to the nearest whole dollar.)
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:East Company built two similar buildings. Each building took one year to build and required $25,000,000 in construction costs. East had limited internal financial resources, so it could fund only Building A internally and financed
Building B by borrowing the $25,000,000 evenly over the year (i.e., zero at the beginning and increasing to $25,000,000 by the end of the year). The interest rate on the loan is 5%. Both projects were finished on December 31,
2018, and were ready for occupancy immediately. The buildings are estimated to have a useful life of 30 years with no residual value. East uses the straight-line method for depreciation.
Required
Requirement a.
How much interest cost can be capitalized on Building B?
$
625,000
Requirement b. What will be the annual depreciation expense for each of the two buildings? (Round the depreciation expense to the nearest whole dollar.)
Annual
depreciation
Building A
Building B
833333
833333
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