In mid-2020, Asheville Corporation engaged Greensboro, Inc. to design and construct a complete modernization of Asheville's manufacturing facility. Construction was begun on June 30, 2020 and was completed on December 31, 2020. Asheville made the following payments to Greensboro, Inc. during 2020: Date Payment June 30, 2020 $600 ,000 August 31, 2020 900,000 December 31, 2020 750,000 To help finance the construction, on May 31, 2020, Asheville issued at par, a $500,000 of 2-year, 12% bonds payable, with interest payable annually, on June 1st. In addition to the 12% bonds payable mentioned above, the only other debts outstanding during 2020 were a $250,000, 12% note payable dated January 1, 2012 and due January 1, 2022, with interest payable annually on January 1, and a $750,000, 8% note payable dated January 1, 2017 and due on January 1, 2022, with interest payable annually on January 1. Instructions Compute weighted-average accumulated expenditures (WAAE) qualifying for capitalization of interest in 2020. Determine the avoidable interest in 2020. Determine the actual interest incurred during 2020.
In mid-2020, Asheville Corporation engaged Greensboro, Inc. to design and construct a complete modernization of Asheville's manufacturing facility. Construction was begun on June 30, 2020 and was completed on December 31, 2020. Asheville made the following payments to Greensboro, Inc. during 2020:
Date Payment
June 30, 2020 $600 ,000
August 31, 2020 900,000
December 31, 2020 750,000
To help finance the construction, on May 31, 2020, Asheville issued at par, a $500,000 of 2-year, 12% bonds payable, with interest payable annually, on June 1st.
In addition to the 12% bonds payable mentioned above, the only other debts outstanding during 2020 were a $250,000, 12% note payable dated January 1, 2012 and due January 1, 2022, with interest payable annually on January 1, and a $750,000, 8% note payable dated January 1, 2017 and due on January 1, 2022, with interest payable annually on January 1.
Instructions
- Compute weighted-average accumulated expenditures (WAAE) qualifying for capitalization of interest in 2020.
- Determine the avoidable interest in 2020.
- Determine the actual interest incurred during 2020.
- Prepare the
journal entries necessary to record the capitalization of interest on December 31st, 2020.
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