Question

In: Accounting

On March 1, 2020, Reed hired a contractor to construct a new office building. The construction...

On March 1, 2020, Reed hired a contractor to construct a new office building. The construction work commenced on April 1, 2020, and it is expected to continue through July 31, 2022, the estimated completion date. Reed made progress payments to the contractor in 2020 as follows:

Date

Amount

April 1

$ 48,000

June 1

195,000

September 1

322,000

November 1

67,000

$632,000

As stated in A5 above, Reed took a 1-year, 9%, $225,000 construction loan to help fund the work on this project. The company also has a 6-year, 5%, $559,165 loan that is not related to the construction project. Give the adjusting entry needed at December 31, 2020 to record the capitalization of interest for this project.

(A5)The Notes Payable balance of $784,165 results from two loans the company has taken. On September 1, 2019, Reed took a 6-year, 5%, $559,165 loan. The interest on this loan is payable annually, on each August 31. Also, on April 1, 2020, Reed took a 1-year, 9%, $225,000 construction loan (see A7 below). The interest on the construction loan is payable on the loan’s maturity date, March 31, 2021. (Note – Reed already recorded the interest paid on these loans in 2020. For this adjustment, consider any accrued interest on the loans at the December 31, 2020 reporting date.)

Solutions

Expert Solution

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

UVW began construction of a new office building on March 1, Y1. On the day construction...
UVW began construction of a new office building on March 1, Y1. On the day construction began, UVW borrowed $240,000 at 7% and immediately spent it on the project. An additional payment of $60,000 was also made on the day construction began. Additional expenditures of $75,000 were made on May 1 and August 31. Construction was complete and the building was placed in service on December 31, Y1. In addition to the $240,000 borrowed to finance the project, UVW also...
A) Cullumber Company hired Kirk Construction to construct an office building for ₤7600000 on land costing...
A) Cullumber Company hired Kirk Construction to construct an office building for ₤7600000 on land costing ₤2300000, which Cullumber Company owned. The building was complete and ready to be used on January 1, 2022 and it has a useful life of 40 years. The price of the building included land improvements costing ₤610000 and equipment costing ₤750000. The useful lives of the land improvements and the equipment are 10 years and 5 years, respectively. Cullumber Company uses component depreciation, and...
On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on...
On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on land costing $800,000 (purchased from the contractor and included in the first payment). The construction began on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2019 $ 1,200,000 May 1, 2019 1,680,000 August 1, 2019 3,000,000 September 30, 2019 4,800,000 The building was completed and ready for occupancy on September 30, 2019. To finance purchase...
On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on...
On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on land costing $800,000 (purchased from the contractor and included in the first payment). The construction began on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2019 $ 1,200,000 May 1, 2019 1,680,000 August 1, 2019 3,000,000 September 30, 2019 4,800,000 The building was completed and ready for occupancy on September 30, 2019. To finance purchase...
On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on...
On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on land costing $800,000 (purchased from the contractor and included in the first payment). The construction began on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2019 $ 1,200,000 May 1, 2019 1,680,000 August 1, 2019 3,000,000 September 30, 2019 4,800,000 The building was completed and ready for occupancy on September 30, 2019. To finance purchase...
On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on...
On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on land costing $800,000 (purchased from the contractor and included in the first payment). The construction began on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2019 $ 1,200,000 May 1, 2019 1,680,000 August 1, 2019 3,000,000 September 30, 2019 4,800,000 The building was completed and ready for occupancy on September 30, 2019. To finance purchase...
You are field manager for the general contractor on a multi-story office building under construction. The...
You are field manager for the general contractor on a multi-story office building under construction. The project has risen all 15 floors above the foundation. The roof is on and the exterior façade of the structure, consisting of alternating blue glass ribbon windows and red granite panels, has “dried in” the project many weeks ago. On the third, seventh and fifteenth floors, the executive offices located on the corners of the building have blue glass doors that lead outside to...
On May 1, 2020, Jackson Construction Company contracted to construct a factory building for a total...
On May 1, 2020, Jackson Construction Company contracted to construct a factory building for a total contract price of $9,600,000. The building was completed by May 31,2022. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2020, 2021, and 2022 are given below.                                                                                                                                                                                    2020                                    2021                      2022 Contract costs incurred during the year                            $3,400,000            $2,400,000          $2,900,000 Estimated costs to complete the contract at Dec 31          ...
On March 1, 2017, Oriole Construction Company contracted to construct a factory building for Fabrik Manufacturing...
On March 1, 2017, Oriole Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,450,000. The building was completed by October 31, 2019. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2017, 2018, and 2019 are given below: 2017 2018 2019 Contract costs incurred during the year $3,052,800 $2,254,300 $1,962,900 Estimated costs to complete the contract at 12/31 3,307,200 1,962,900 –0– Billings...
On March 1, 2017, Shamrock Construction Company contracted to construct a factory building for Fabrik Manufacturing...
On March 1, 2017, Shamrock Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,390,000. The building was completed by October 31, 2019. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2017, 2018, and 2019 are given below: 2017 2018 2019 Contract costs incurred during the year $3,003,300 $2,179,700 $2,117,000 Estimated costs to complete the contract at 12/31 3,386,700 2,117,000 –0– Billings...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT