California Industries, Inc. borrowed $300,000 at 12% interest on January 1, 2025, for the construction or their new headquarters. Construction began on January 1, 2025, and concluded on December 31, 2025. In addition to the construction loan, California Industries provided the following data: Expenditures: June 1 $500,000 (7 months: 0.58) July 1 $500,000 (6 months:0.50) December 1 $1,000,000 (1 month: 0.08) Other Debt: 10-year, 13% Bond for $4,000,000, dated December 31, 2018 6-year, 10% Note for $1,600,000, dated December 31, 2022 HOW MUCH INTEREST SHOULD BE CAPITALIZED? Avoidable Interest Actual Interest

California Industries, Inc. borrowed $300,000 at 12% interest on January 1, 2025, for the construction or their new headquarters. Construction began on January 1, 2025, and concluded on December 31, 2025. In addition to the construction loan, California Industries provided the following data: Expenditures: June 1 $500,000 (7 months: 0.58) July 1 $500,000 (6 months:0.50) December 1 $1,000,000 (1 month: 0.08) Other Debt: 10-year, 13% Bond for $4,000,000, dated December 31, 2018 6-year, 10% Note for $1,600,000, dated December 31, 2022 HOW MUCH INTEREST SHOULD BE CAPITALIZED? Avoidable Interest Actual Interest

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter9: Operating Activities

Section: Chapter Questions

Problem 18PC

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California Industries, Inc. borrowed $300,000 at 12% interest on January 1, 2025, for the construction of their new headquarters. Construction began on January 1, 2025, and concluded on December 31, 2025. In addition to the construction loan, California Industries provided the following data: Expenditures: June 1 $500,000 (7 months: 0.58) July 1 $500,000 (6 months:0.50) December 1 $1,000,000 (1 month: 0.08) Other Debt: 10-year, 13% Bond for $4,000,000, dated December 31, 2018* ó-year, 10% Note for $1,600,000, dated December 31, 2022 WHAT IS THEIR AVOIDABLE INTEREST? $24,000 $74,400 $36,000 $30,250
California Industries, Inc. borrowed $300,000 at 12% interest on January 1, 2025, for the construction of their new headguarters. Construction began on January 1, 2025, and concluded on December 31, 2025. In addition to the construction loan, California Industries provided the following data: Expenditures: June 1 $500,000 (7 months: 0.58) July 1 $500,000 (6 months: 0.50) December 1 $1,000,000 (1 month: 0.08) Other Debt: 10-year, 13% Bond for $4,000,000, dated December 31, 2018 6-year, 10% Note for $1,600,000, dated December 31, 2022 WHAT IS THE WEIGHTED AVERAGE EXPENSES? $540,000 $80,000 $620,000 $250,000
On January 1, 2021, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2022. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2021: B 4 12% bonds Long-term note, 8% Required: Construction expenditures incurred during 2021 were as follows: January 1 March 31 June 30 September 30 December 1 $600,000 $1,200,000 $800,000 $600.000 $300,000 Calculate the amount of interest capitalized for 2021 using the specific interest method. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place.) Expenditure Average Date January 1 March 31 June 30 September 30 December 1 Avg. accumulated expenditures 5,000,000 3,000,000 Average accumulated expenditures X X X X X Amount Weight X X IIII|| Interest Rate P Capitalized Interest
On June 1, 2020, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2021. Expenditures on the project were as follows ($ in millions): July 1, 2020 94 October 1, 2020 62 February 1, 2021 70 April 1, 2021 41 September 1, 2021 40 October 1, 2021 26 On July 1, 2020, Crocus obtained a $110 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2021. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2020 and 2021. The company's fiscal year-end is December 31.What is the amount of interest that Crocus should capitalize in 2020, using the specific interest method?
Isko Company had the following general borrowings during 2021 which were used to finance the construction of the entity's new building. Principal 2,800,000 Borrowing Cost 280,000 10% bank loan 10% short-term note 1,600,000 160,000 2,000,000 6,400,000 The construction began on January 1, 2021 and the building was completed on December 31, 2021. In the first phase of the construction, there were idle funds which the entity invested and earned interest 12% long-term loan 240,000 680,000 income of P62,500. Expenditures on the building were made as follows: January 1 March 31 400,000 1,000,000 June 30 1,200,000 September 30 1,000,000 December 31 400,000 What is the amount of capitalizable borrowing cost? (Use 3 decimal places for capitalization rate.)
On January 1, 2024, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2025. The company borrowed $2,200,000 at 8% on January 1 to help finance the construction in addition to the construction loan, Highlands had the following debt outstanding throughout 2024 $9,000,000, 10% bonds $6,000,000, 8% long-term note Construction expenditures incurred during 2024 were as follows January 1 March 31 June 30 September 30 December 31 Date $ 900,000 1,500,000 1,160,000 Required: Calculate the amount of interest capitalized for 2024 using the specific interest method Note: Do not round the Intermediate calculations, Round your percentage answers to 1 decimal place (l.e. 0.123 should be entere es 12.3%). January 1 March 31 June 30 September 30 December 31 Accumulated expenditure 900,000 700,000 Expenditure $ Average accumulated expenditures S Amount 0 0 X x X X X x X Weight Interest Rate %6 % = = = = = Average S Capitalized…
Novak, Inc. has a fiscal year ending April 30. On May 1, 2020, Novak borrowed $10,728,000 at 11% to finance construction of its own building. Repayments of the loan are to commence the month following completion of the building. During the year ended April 30, 2021, weighted-average accumulated expenditures were $3,754,800. Interest earned on the unexpended portion of the loan amounted to $697,320 for the year.How much should be shown as capitalized interest on Novak’s financial statements at April 30, 2021? Capitalized interest on Novak’s financial statements $
On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,240,000 March 1, 2021 660,000 June 30, 2021 450,000 October 1, 2021 650,000 January 31, 2022 900,000 April 30, 2022 1,215,000 August 31, 2022 2,160,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $5,400,000 and $7,400,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding during all of 2021 and 2022. Interest is paid annually on all debt. The company’s fiscal year-end is December 31. Required:1. Calculate the amount of interest that Mason should…
Culver Inc. has a fiscal year ending April 30. On May 1, 2023, Culver borrowed $10 million at 11% to finance construction of its own building. Repayments of the loan are to begin the month after the building's completion. During the year ended April 30, 2024, expenditures for the partially completed structure totalled $7 million. These expenditures were incurred evenly throughout the year. Interest that was earned on the part of the loan that was not expended amounted to $482,000 for the year. For situation 3, how much should be shown as capitalized borrowing costs on Culver's financial statements at April 30, 2024? (If an answer is zero, please enter O. Do not leave any fields blank.) Capitalized borrowing $
On December 31, 2023, Novak Inc., a public company, borrowed $3 million at 10% payable annually to finance the construction of a new building. In 2024, the company made the following expenditures related to this building structure: March 1, $516,000; June 1, $612,000; July 1, $1.5 million (of which $390,000 was for the roof); December 1, $1.5 million (of which $738,000 was for the building HVAC). Additional information follows: 1. 2. 3. Other debt outstanding: $3-million, 10-year, 12% bond, dated December 31, 2016, with interest payable annually $1.5-million, six-year, 10% note, dated December 31, 2020, with interest payable annually The March 1, 2024 expenditure included land costs of $156,000. Interest revenue earned in 2024 on the unused idle construction loan amounted to $54,000. Prepare the journal entry to record the capitalization of borrowing costs and the recognition of interest expense, if any, at December 31, 2024. (Credit account titles are automatically indented when the…
On January 1, 2021, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2022. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2021: $5,000,000, 12% bonds $3,000,000, 8% long-term note Construction expenditures incurred during 2021 were as follows:January 1 $ 600,000March 31 1,200,000June 30 800,000September 30 600,000December 31 400,000Required:Calculate the amount of interest capitalized for 2021 using the specific interest method.
On December 31, 2023, Cheyenne Inc., a public company, borrowed $3 million at 11% payable annually to finance the construction of a new building. In 2024, the company made the following expenditures related to this building structure: March 1, $519,000; June 1, $630,000; July 1, $1.5 million (of which $412,000 was for the roof); December 1, $1.5 million (of which $728,000 was for the building HVAC). Additional information follows: 1. 2. 3. Other debt outstanding: $5-million, 10-year, 12% bond, dated December 31, 2016, with interest payable annually $1.5-million, six-year, 10% note, dated December 31, 2020, with interest payable annually The March 1, 2024 expenditure included land costs of $147,000. Interest revenue earned in 2024 on the unused idle construction loan amounted to $52,400. Prepare the journal entry to record the capitalization of borrowing costs and the recognition of interest expense, if any, at December 31, 2024. (Credit account titles are automatically indented when…