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 6%

Required:

Note: Round all final numeric answers to the nearest dollar.

Compute the amount of interest costs capitalized each year.

Capitalized interest, 2016	$
Capitalized interest, 2017	$

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 2017.

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.

Solutions

Expert Solution

Weighted average rate for general borrowings = (7,000,000*12/100+17,000,000*6/100)/24,000,000*100 = 7.75%

ekkarill92 answered 1 year ago

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