Question
In: Accounting
On January 1, 2016, Dreamworld Co. began construction of a new warehouse. The building was finished...
On January 1, 2016, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2017. Expenditures on the project were as follows:
January 1, 2016 $300,000
September 1, 2016 $450,000
December 31, 2016 $450,000
March 31, 2017 $450,000
September 30, 2017 $300,000
Dreamworld had $5,000,000 in 12% bonds outstanding through both years.
Dreamworld's capitalized interest in 2016 was:
|
a. |
$72,000 |
|
|
b. |
$63,000 |
|
|
c. |
$54,000 |
|
|
d. |
$36,000 |
Solutions
Expert Solution
Step-1: Determine the average accumulated expenditures during the year.
Here, we will time weight the expenditures, which means, we will multiply the expenditure incurred with the months left in the year after it incurred and divide it by the total number of months in a year.
In year 2016, expenditures incurred are as follows:
January 1,2016- 300000*(12/12)= $300,000
September 1,2016- 450,000*(4/12)= $150,000
Total average accumulated expenditure= 300,000+150,000= $450,000
Step-2: Calculate the amount of interest to capitalize
- Multiply the interest rate by average accumulated expenditures.
- Interest calculated is limited to interest incurred.
Interest on accumulated expenditures= 12% of 450,000 i.e. $54,000
Interest incurred = 12% of 500,000= $60,000(on bonds)
As Interest on accumulated expenditures is within the limit of interest incurred, therefore, Capitalised interest rate will be $54,000 during the year 2016.
The correct option will be C i.e. $54,000
ekkarill92 answered 2 years agoRelated Solutions
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On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished...
On January 1, 2018, Dreamworld Co. began construction of a new
warehouse. The building was finished and ready for use on September
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January 1, 2018
$
300,000
September 1, 2018
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450,000
December 31, 2018
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450,000
March 31, 2019
$
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Dreamworld had the following debt obligations outstanding during
both years:
Construction loan,
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$500,000
Long-term note,
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Required: What would Dreamworld's capitalized
interest be in 2019 (assuming interest...
On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished...
On January 1, 2018, Dreamworld Co. began construction of a new
warehouse. The building was finished and ready for use on September
30, 2019. Expenditures on the project were as follows:
January 1, 2018
$
300,000
September 1, 2018
$
450,000
December 31, 2018
$
450,000
March 31, 2019
$
450,000
Dreamworld had the following debt obligations outstanding during
both years:
Construction loan,
10%
$500,000
Long-term note,
12% $2,500,000
Required: What would Dreamworld's capitalized
interest be in 2018?
$50,000
None...
On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished...
On January 1, 2018, Dreamworld Co. began construction of a new
warehouse. The building was finished and ready for use on September
30, 2019. Expenditures on the project were as follows:
January 1, 2018
$
300,000
September 1, 2018
$
450,000
December 31, 2018
$
450,000
March 31, 2019
$
450,000
Dreamworld had the following debt obligations outstanding during
both years:
Construction loan,
10%
$500,000
Long-term note,
12% $2,500,000
Required: What would Dreamworld's capitalized
interest be in 2019 (assuming interest...
On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished...
On January 1, 2018,
Dreamworld Co. began construction of a new warehouse. The building
was finished and ready for use on September 30, 2019. Expenditures
on the project were as follows:
January 1, 2018
$
336,000
September 1,
2018
$
504,000
December 31,
2018
$
504,000
March 31,
2019
$
504,000
September 30,
2019
$
336,000
Dreamworld had $6,800,000 in 10% bonds outstanding through both
years.
What was the final cost of Dreamworld's warehouse?
On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished...
On January 1, 2018, Dreamworld Co. began construction of a new
warehouse. The building was finished and ready for use on September
30, 2019. Expenditures on the project were as follows:
January 1, 2018
$
300,000
September 1, 2018
$
450,000
December 31, 2018
$
450,000
March 31, 2019
$
450,000
Dreamworld had the following debt obligations outstanding during
both years:
Construction loan,
10%
$500,000
Long-term note,
12% $2,500,000
Required: What would Dreamworld's capitalized
interest be in 2018?
$45,000
$134,000...
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On January 1, 2018, Dreamworld Co. began construction of a new
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30, 2019. Expenditures on the project were as follows:
January 1, 2018
$
307,000
September 1, 2018
$
459,000
December 31, 2018
$
459,000
March 31, 2019
$
459,000
September 30, 2019
$
307,000
Dreamworld had $5,300,000 in 13% bonds outstanding through both
years.
The average accumulated expenditures for 2019 by the end of the
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On January 1, 2015 Costco began construction of a new warehouse in Redmond, WA. The building...
On January 1, 2015 Costco began construction of a new warehouse
in Redmond, WA. The building was completed on June 30, 2016. Cash
outlays for the $5 million project were as follows:
2015
January
1
$1,000,000
March
1
$600,000
June
30
$800,000
September
30
$750,000
December
1
$600,000
2016
March
31
$800,000
June
30
$450,000 (final payment)
Total
payments
$5,000,000
On January 1, 2015 Costco obtained a
$3 million dollar construction loan with a 5% interest rate.
Costco’s other long-term...
The Ugenti Construction Company contracted to construct a warehouse building for $2,600,000. Construction began in 2016...
The Ugenti Construction Company contracted to construct a
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was completed in 2017. Data relating to the contract are summarized
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Costs incurred during the
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1,560,000
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Billings during the year
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430,000
2,170,000
Cash collections during the
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320,000
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Required:
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