Question

On July 31, 2017, Coronado Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Coronado issued a $303,600, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $208,600 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Coronado made a final $95,000 payment to Minsk. Other than the note to Netherlands, Coronado’s only outstanding liability at December 31, 2017, is a $28,200, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31.

Collapse question part

(a)

Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017.

Interest revenue

$

Weighted-average accumulated expenditures

$

Avoidable interest

$

Interest capitalized

$

Answer 1

(a)
1	Interest Revenue	=	$           264
2	Weighted Average Accumulated Expenditure	=	$     52,150
3	Avoidable Interest	=	$       6,258
4	Interest capitalized	=	$       6,258
	Workings:
1	Interest Revenue	=	[($303600 - $208600) X 10% / (12 X 3)]
		=	[($95,000 X 10%) / (36)]
		=	$           264
2	Weighted Average Accumulated Expenditure
31-Jul	$                                       2,08,600		X	3/12	=	$       52,150
01-Nov	$                                          95,000		X	0/12	=	$                -
	($303600 - $208600)
	$                                       3,03,600					$       52,150
3. & 4.	Avoidable Interest & Interest capitalized	=	Weighted Average Accumulated Expenditure X 12%
		=	$ 52,150 X 12%
		=	$       6,258