Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is...

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:

Capitalization period: January 1, 2019, to June 30, 2020
Expenditures on project:

2019:

January 1 $ 516,000

May 1 549,000

October 1 492,000

2020:

March 1 1,512,000

June 30 600,000
Amounts borrowed and outstanding:
   $1.4 million borrowed at 12%, specifically for the project
   $5 million borrowed on July 1, 2018, at 14%
   $18 million borrowed on January 1, 2017, at 8%

Required:

Note: Round all final numeric answers to two decimal places.

Compute the amount of interest costs capitalized each year.

Capitalized interest, 2019 $ fill in the blank 1

Capitalized interest, 2020 $ fill in the blank 2
If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.
$ fill in the blank 3
Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report _________ income than if it had not capitalized interest. In future periods, the same company will report ________ income than if it had not capitalized interest.

Expert Solution

SOLUTION:

Answer to Question 1.

Analysis of expenditure			Amonut in ($)

Date	Expenditure	Amount Allocated to Specific Borrowing	Amount Allocated to General Borrowing
2019
01.01.2019	516,000	516,000	-
01.05.2019	549,000	549,000	-
01.10.2019	492,000	335,000	157,000
	1,557,000	1,400,000	157,000
2020
01.03.2020	1,512,000		1,512,000
30.06.2020	600,000		600,000
	2,112,000	-	2,112,000

Weighted Average Borrowing ROI
Amount Borrowed	Proportionate Share	ROI	Weighted ROI
18,000,000	0.78	8.00%	6.24%
5,000,000	0.22	14.00%	3.08%
23,000,000.00	1.00
Weighted Average Rate of Interest on General Borrowing			9.32%


Borrowing Cost to be Capitalized in 2019
2019
		Calculation
Specific Borrowing			-
01.01.2019	516,000	(516,000x12%)	61,920
01.05.2019	549,000	(549,000x12%x8/12)	49,920
01.10.2019	335,000	(335,000x12%x3/12)	10,050

General Borrowing
01.10.2019	157,000	(157,000x9.32%x3/12)	3,658.10
Total Interest Capitalized			125,548.10

Borrowing Cost to be Capitalized in 2020
2020
Specific Borrowing (Outstanding As on 01.01.2020)	1,400,000	(1,400,000x12%x6/12)	84,000
General Borrowing			-
Outstanding on 01-01-2020	157,000	(157,000x9.32%x6/12)	7,316.20
Expend on 01.03.2020	1,512,000	(1,512,000x9.32%x4/12)	46,972.80
Expend on 30.06.2020	600,000	(600,000x9.32%x0/12)	-
Total Interest Capitalized			138,289

Answer to Question 2.

Depereciation on Complex ( Under Straight Line Method)
(As the Question remain silent about the when the asset is available for use so iit hass been assumed that Complex is available for used from 01-07-2020)
Value Of Complex
Amount Expanded
2019
01.01.2019	516,000
01.05.2019	549,000
01.10.2019	492,000

2020
01.03.2020	1,512,000
30.06.2020	600,000
		3,669,000
Interest Capitalised
2019	125,548.10
2020	138,289.00	263,837.10

Total Value Complex Capitalised		3,932,837.10
Less: Residual Value		-
		3,932,837.10
Depreciation (from 01-07-2020 to 31-12-202) (Devided by 50)
For 6 month under SLM method( Use ful life 25 yrs)		76,656.74

ekkarill92 answered 9 months ago

Interest During Construction Alta Company is constructing a production complex that qualifies for interest capitalization. The...

Interest During Construction Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available: Capitalization period: January 1, 2019, to June 30, 2020 Expenditures on project: 2019: January 1 $ 516,000 May 1 477,000 October 1 648,000 2020: March 1 1,404,000 June 30 684,000 Amounts borrowed and outstanding: $1.7 million borrowed at 10%, specifically for the project $8 million borrowed on July 1, 2018, at 12% $13 million borrowed on January 1, 2017, at...

Interest during construction Jones company is constructing a production complex that qualifies for interest capitalization. The...

Interest during construction Jones company is constructing a production complex that qualifies for interest capitalization. The following information is available: • capitalization period: January 1, 2016 to June 30, 2017 • expenditures on project 2016: January 1-$468,000 May 1-$489,000 October 1-$648,000 2017 March 1-$1,452,000 June 30-$588,000 • amounts borrowed and outstanding: $1.4 million borrowed at 10%, specifically for the project $7 million borrowed on July 1, 2105, at 12% $19 million borrowed on January 1, 2011, at 6% Required: Note:...

interest During Construction Zimmer Company is constructing a production complex that qualifies for interest capitalization. The...

interest During Construction Zimmer Company is constructing a production complex that qualifies for interest capitalization. The following information is available: Capitalization period: January 1, 2016, to June 30, 2017 Expenditures on project: 2016: January 1 $ 612,000 May 1 573,000 October 1 492,000 2017: March 1 1,404,000 June 30 612,000 Amounts borrowed and outstanding: $1.5 million borrowed at 10%, specifically for the project $7 million borrowed on July 1, 2015, at 12% $17 million borrowed on January 1, 2011, at...

1. Cooper, Inc., is constructing a building that qualifies for interest capitalization. The following information...

1. Cooper, Inc., is constructing a building that qualifies for interest capitalization. The following information is available: Capitalization period: January 1, 2013-December 31, 2014 Expenditures on project (incurred evenly): 2013 $30,000 2014 $50,000 Amounts borrowed and outstanding (all debt incurred January 1, 2013) $10,000 at 10% (specifically for the construction project) $18,000 at 11% (general debt) $30,000 at 13% (general debt) Required: a. Compute the amount of interest that should be capitalized in 2013 and 2014. (Round interest rates...

Given the following information, calculate the capitalization rate for the following apartment complex: number of apartments:30;...

Given the following information, calculate the capitalization rate for the following apartment complex: number of apartments:30; market rent (per month): $1,250; vacancy and collection loss: 5% of potential gross income; operating expenses: 20% of effective gross income; capital expenditures: 5% of effective gross income; acquisition price: $5,550,000 Can you teach me how to do this on excel?

Computing and Recording Interest Capitalization Weld Corporation is constructing a plant for its own use. Weld...

Computing and Recording Interest Capitalization 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, $30,000; July 1, $290,000; September 1, $800,000; and December 31, $2,110,000. The following debts were outstanding throughout the current year. Debt Amount Construction note, 12% $100,000 Short-term note payable, 15% 400,000 Accounts payable (noninterest-bearing) 400,000 Answer the following questions, rounding your answers to the nearest whole dollar....

Which of the following statements regarding the capitalization of interest expense is least accurate? The capitalization...

Which of the following statements regarding the capitalization of interest expense is least accurate? The capitalization of interest expense will result in higher: Group of answer choices A)operating cash flow. b) leverage ratios. C) interest coverage ratio.

Computing and Recording Interest Capitalization The following information is from Bowin Inc. for a long-term construction...

Computing and Recording Interest Capitalization The following information is from Bowin Inc. for a long-term construction project that is expected to be completed in January 2021. The construction project is for a building intended for the company’s own use. The capital expenditure on January 1, 2020, is for the purchase of land for the building site. No new construction loans were opened for the project in 2020. All debt was outstanding for the full year. Capital Expenditures for 2020 Date...

Company Corp. is constructing a building. The following information pertains to the construction of the building....

Company Corp. is constructing a building. The following information pertains to the construction of the building. prepare journal entries 1) On 1/1/2015, company borrows $2,400,000 at 12% for 8 years to finance the new construction project. Payments are due quarterly with the first due date falling on 3/31/2015. Prepare the journal entries for each quarter’s payment. 2) Expenditures made on the project during 2015 are as follows: 1/1/2015 of $300,000; 5/1/2015 of $400,000; 7/1/2015 of $1,100,000; 10/1/2015 of $400,000. Journalize...

Alta Ski Company’s inventory records contained the following information regarding its latest ski model. The company...

Alta Ski Company’s inventory records contained the following information regarding its latest ski model. The company uses a periodic inventory system. Beginning inventory, January 1, 20x1 600 units @ $80 each Purchases: January 15 1,000 units @ $95 each January 21 800 units @ $100 each Sales: January 5 400 units @ $120 each January 22 800 units @ $130 each January 29 400 units @ $135 each Ending inventory, January 31, 20x1 800 units Compute cost of goods sold...

Question