eBookPrint ItemInterest During ConstructionAlta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:Capitalization period: January 1, 2019, to June 30, 2020Expenditures on project:2019: January 1$ 516,000 May 1381,000 October 1516,0002020: March 11,620,000 June 30588,000Amounts borrowed and outstanding: $1.5 million borrowed at 12%, specifically for the project $5 million borrowed on July 1, 2018, at 14% $10 million borrowed on January 1, 2017, at 8%Required:Note: Round all final numeric answers to two decimal places.Compute the amount of interest costs capitalized each year.Capitalized interest, 2019$ fill in the blank 1Capitalized interest, 2020$ fill in the blank 2If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.$ fill in the blank 3

Capitalization of Borrowing Cost: When it is likely that borrowing costs will result in future economic benefits to the firm and the expenses can be evaluated accurately, borrowing costs are capitalized as part of the cost of a qualifying asset. Other borrowing expenses are expensed in the period in which they are incurred and are not deducted from gross income.Particulars Workings Amount ( Interest) 14% Loan 5,000,000 * 14% 700,000 8% Loan 10,000,000 * 8% 800,000 Total 1,500,000 Average Interest Rate [1,500,000 / 15,000,000 ] * 100 10% Date Expenditures (A) A portion of year outstanding (B) Weighted average accumulated expenditure (A*B) January 1 $516,000 12/12 $516,000 May 1 $ 381,000 8/12 $ 254,000 October 1 $ 516,000 3/12 $ 129,000 $1,413,000 $ 899,000 Capitalization of interest = $ 899,000 * 10% + 1,500,000 * 12% Capitalization of interest = $ 89,900 + 180,000 Capitalization of interest = $ 169,900Date Expenditures (A) A portion of year outstanding (B) Weighted average accumulated expenditure (A*B) March 1 $ 1,620,000 10/12 $ 1,350,000 June 30 $ 588,000 6/12 $ 294,000 $2,008,000 $1,644,000 Capitalization of interest = $ 1,644,000 * 10% + 1,500,000 * 12% Capitalization of interest = $ 164,400 + 180,000 Capitalization of interest = $ 344,400Total capitalization = 899,000 + 1,644,000 + 169,900 + 344,400 Total capitalization = 3,057,300 Depreciation = Total capitalization / life of assets Depreciation = 3,057,300 / 25 Years Depreciation = $ 122,292

Answered: Alta Company is constructing a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Interest During Construction

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:

Capitalization period: January 1, 2019, to June 30, 2020
Expenditures on project:

2019:

January 1 $ 516,000

May 1 381,000

October 1 516,000

2020:

March 1 1,620,000

June 30 588,000
Amounts borrowed and outstanding:
   $1.5 million borrowed at 12%, specifically for the project
   $5 million borrowed on July 1, 2018, at 14%
   $10 million borrowed on January 1, 2017, at 8%

Required:

Note: Round all final numeric answers to two decimal places.

Compute the amount of interest costs capitalized each year.

Capitalized interest, 2019 $ fill in the blank 1

Capitalized interest, 2020 $ fill in the blank 2
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 2020.

$ fill in the blank 3

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