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DEF Company’s fiscal year ends on May 31. The company contracted with CCC Construction for the...

DEF Company’s fiscal year ends on May 31. The company contracted with CCC Construction for the building of a new warehouse. DEF made the following cash payments to CCC as follows:

       

Date

Amount

7/30/2017

           900,000

1/30/2018

        1,500,000

5/30/2018

        1,600,000

Total

        4,000,000

        CCC completed the building on 5/27/18.

DEF had no new borrowings directly associated with the new building, but had the following debt outstanding at 5/31/18:

Note Payable, due 4/1/19

10% interest payable annually on 4/1

$ 2,000,000

Bond Payable, due 6/30/20; issued at par

12%, interest payable annually on 6/30

$ 3,000,000

Management concluded that the new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared to the effect of expensing the interest immediately, is material to the financial statements as a whole.

A. Calculate the weighted average accumulated expenditures.

B. Calculate avoidable interest.

C. Calculate actual interest.

D. Prepare a schedule indicating the amount of interest to be capitalized.

E. Using the attached T-account template, prepare the entry to recognize each of the cash transactions indicated above and the recognition of the completion of the construction project.

f. Using the attached T-account template, prepare the entry to recognize x

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Expert Solution

Answer to first 4 subparts as per policy

ekkarill92 answered 1 year ago
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