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Flounder Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Flounder since 2015. Flounder' original facility became obsolete by early 2020 because of the increased sales volume and the fact that Flounder now carries CDs in addition to books. On June 1, 2020, Flounder contracted with Black Construction to have a new building constructed for $5,600,000 on land owned by Flounder. The payments made by Flounder to Black Construction are shown in the schedule below. Date July 30, 2020 January 30, 2021 May 30, 2021 Total payments Amount $1,260,000 2,100,000 2.240,000 $5,600,000 Construction was completed and the building was ready for occupancy on May 27, 2021. Flounder had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year. 10%, 5-year note payable of $2,800,000, dated April 1, 2017, with interest payable annually on April 1. 12%, 10-year bond issue of $4,200,000 sold at par on June 30, 2013, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material. (a) Compute the weighted-average accumulated expenditures on Flounder's new building during the capitalization period. Weighted-Average Accumulated Expenditures S

Flounder Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Flounder since 2015. Flounder' original facility became obsolete by early 2020 because of the increased sales volume and the fact that Flounder now carries CDs in addition to books. On June 1, 2020, Flounder contracted with Black Construction to have a new building constructed for $5,600,000 on land owned by Flounder. The payments made by Flounder to Black Construction are shown in the schedule below. Date July 30, 2020 January 30, 2021 May 30, 2021 Total payments Amount $1,260,000 2,100,000 2.240,000 $5,600,000 Construction was completed and the building was ready for occupancy on May 27, 2021. Flounder had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year. 10%, 5-year note payable of $2,800,000, dated April 1, 2017, with interest payable annually on April 1. 12%, 10-year bond issue of $4,200,000 sold at par on June 30, 2013, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material. (a) Compute the weighted-average accumulated expenditures on Flounder's new building during the capitalization period. Weighted-Average Accumulated Expenditures S

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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**Introduction:** Flounder Inc. is a book distributor that began operating in its original facility in 1990. Due to the rise in certification programs and continuing education requirements, Flounder has experienced an annual growth rate of 15% since 2015. By early 2020, the original facility became obsolete because of increased sales and the addition of CDs to their inventory. **Building Construction Details:** On June 1, 2020, Flounder contracted with Black Construction to build a new facility for $5,600,000 on Flounder's land. The payment schedule is as follows: | Date | Amount | |-------------|-------------| | July 30, 2020 | $1,260,000 | | January 30, 2021 | $2,100,000 | | May 30, 2021 | $2,240,000 | **Total payments: $5,600,000** **Completion and Occupancy:** Construction was completed, and the building was ready for use on May 27, 2021. Flounder had no new borrowings related to the building but had the following outstanding debts as of May 31, 2021: - 10% note payable of $2,800,000, dated April 1, 2017, with interest due annually on April 1. - 12% bond issue of $4,200,000, sold on June 30, 2013, with interest due annually on June 30. **Interest Capitalization:** The new building qualifies for interest capitalization, which is materially beneficial compared to expensing the interest. **Exercise (a):** Calculate the weighted-average accumulated expenditures on the new building during the capitalization period. - **Weighted-Average Accumulated Expenditures: $______**
Transcribed Image Text:**Introduction:** Flounder Inc. is a book distributor that began operating in its original facility in 1990. Due to the rise in certification programs and continuing education requirements, Flounder has experienced an annual growth rate of 15% since 2015. By early 2020, the original facility became obsolete because of increased sales and the addition of CDs to their inventory. **Building Construction Details:** On June 1, 2020, Flounder contracted with Black Construction to build a new facility for $5,600,000 on Flounder's land. The payment schedule is as follows: | Date | Amount | |-------------|-------------| | July 30, 2020 | $1,260,000 | | January 30, 2021 | $2,100,000 | | May 30, 2021 | $2,240,000 | **Total payments: $5,600,000** **Completion and Occupancy:** Construction was completed, and the building was ready for use on May 27, 2021. Flounder had no new borrowings related to the building but had the following outstanding debts as of May 31, 2021: - 10% note payable of $2,800,000, dated April 1, 2017, with interest due annually on April 1. - 12% bond issue of $4,200,000, sold on June 30, 2013, with interest due annually on June 30. **Interest Capitalization:** The new building qualifies for interest capitalization, which is materially beneficial compared to expensing the interest. **Exercise (a):** Calculate the weighted-average accumulated expenditures on the new building during the capitalization period. - **Weighted-Average Accumulated Expenditures: $______**
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(b) Compute the avoidable interest on Flounder’s new building. *(Round intermediate percentage calculations to 1 decimal place, e.g., 15.6%, and final answer to 0 decimal places, e.g., 5,125.)* **Avoidable Interest:** $ [Input Box]
Transcribed Image Text:(b) Compute the avoidable interest on Flounder’s new building. *(Round intermediate percentage calculations to 1 decimal place, e.g., 15.6%, and final answer to 0 decimal places, e.g., 5,125.)* **Avoidable Interest:** $ [Input Box]
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