Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Question
Chapter 10, Problem 16E
1.
To determine
Calculate the amount of interest capitalized related to the construction of the building.
2.
To determine
Calculate the weighted average accumulated expenditure and the amount of interest capitalized on the building.
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On January 3, 2020, Mercury Company began self-constructing an asset that qualified for interest capitalization. On January 5, Mercury borrowed $300,000 on an 8% construction loan. In addition, Mercury had $400,000 of 6% notes payable and $600,000 of 9% bonds payable outstanding. By December 31, expenditures (occurring evenly throughout the year) of $900,000 had been made on the asset. Investment of unused funds during the year yielded $1,200 of interest revenue.Required:Compute the amount of interest that should be capitalized during 2020.
Sulo Company had the following borrowings during 2021. The borrowing were made for general purposes but the proceeds were used to finance the construction of new building.
12% bank loan – Principal – 3,000,000; Interest – 360,000
14% long term loan – Principal -5,000,000; Interest – 700,000
The construction began on January 1, 2021 and was completed on December 31, 2021.
Expenditures on the building were 2,000,000 on January 1, 2,000,000 on June 30 and 1,000,000 in December 31.
Required:
Compute the cost of the building.
On January 1, 2021, the Highlands Company began construction on a new manufacturing facility for its own use. The building was
completed in 2022. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the construction
loan, Highlands had the following debt outstanding throughout 2021:
B
4
12% bonds
Long-term note, 8%
Required:
Construction expenditures incurred during 2021 were as follows:
January 1
March 31
June 30
September 30
December 1
$600,000
$1,200,000
$800,000
$600.000
$300,000
Calculate the amount of interest capitalized for 2021 using the specific interest method.
(Do not round the intermediate calculations. Round your percentage answers to 1 decimal place.)
Expenditure
Average
Date
January 1
March 31
June 30
September 30
December 1
Avg. accumulated expenditures
5,000,000
3,000,000
Average accumulated expenditures
X X X X X
Amount
Weight
X
X
IIII||
Interest
Rate
P
Capitalized
Interest
Chapter 10 Solutions
Intermediate Accounting: Reporting And Analysis
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