Metlock Inc. is a book distributor that had been operating in its original facility since 1995. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Metlock since 2020. Metlock's original facility became obsolete by early 2025 because of the increased sales volume and the fact that Metlock now carries DVDs in addition to books. On June 1, 2025, Metlock contracted with Black Construction to have a new building constructed for $4,800,000 on land owned by Metlock. The payments made by Metlock to Black Construction are shown in the schedule below. Date July 30, 2025 January 30, 2026 May 30, 2026 Total payments Amount $1,080,000 1,800,000 1,920,000 $4,800,000 Construction was completed and the building was ready for occupancy on May 27, 2026. Metlock had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2026, the end of its fiscal year. 10%, 5-year note payable of $2,400,000, dated April 1, 2022, with interest payable annually on April 1. 12%, 10-year bond issue of $3,600,000 sold at par on June 30, 2018, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material.
Metlock Inc. is a book distributor that had been operating in its original facility since 1995. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Metlock since 2020. Metlock's original facility became obsolete by early 2025 because of the increased sales volume and the fact that Metlock now carries DVDs in addition to books. On June 1, 2025, Metlock contracted with Black Construction to have a new building constructed for $4,800,000 on land owned by Metlock. The payments made by Metlock to Black Construction are shown in the schedule below. Date July 30, 2025 January 30, 2026 May 30, 2026 Total payments Amount $1,080,000 1,800,000 1,920,000 $4,800,000 Construction was completed and the building was ready for occupancy on May 27, 2026. Metlock had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2026, the end of its fiscal year. 10%, 5-year note payable of $2,400,000, dated April 1, 2022, with interest payable annually on April 1. 12%, 10-year bond issue of $3,600,000 sold at par on June 30, 2018, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Some interest cost of Metlock Inc. is capitalized for the year ended May 31, 2026. Compute the amount of each of the items that must be disclosed in Metlock's financial statements.
Total actual interest cost $ Total interest capitalized $ Total interest expensed $
Transcribed Image Text:Metlock Inc. is a book distributor that had been operating in its original facility since 1995. The increase in certification programs and
continuing education requirements in several professions has contributed to an annual growth rate of 15% for Metlock since 2020.
Metlock's original facility became obsolete by early 2025 because of the increased sales volume and the fact that Metlock now carries
DVDs in addition to books.
On June 1, 2025, Metlock contracted with Black Construction to have a new building constructed for $4,800,000 on land owned by
Metlock. The payments made by Metlock to Black Construction are shown in the schedule below.
Date
July 30, 2025
January 30, 2026
May 30, 2026
Total payments
Amount
$1,080,000
1,800,000
1,920,000
$4,800,000
Construction was completed and the building was ready for occupancy on May 27, 2026. Metlock had no new borrowings directly
associated with the new building but had the following debt outstanding at May 31, 2026, the end of its fiscal year.
10%, 5-year note payable of $2,400,000, dated April 1, 2022, with interest payable annually on April 1.
12%, 10-year bond issue of $3,600,000 sold at par on June 30, 2018, with interest payable annually on June 30.
The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the
effect of expensing the interest, is material.
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