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 1 477,000 October 1 648,000 2020: March 1 1,404,000 June 30 684,000 Amounts borrowed and outstanding: $1.7 million borrowed at 10%, specifically for the project $8 million borrowed on July 1, 2018, at 12% $13 million borrowed on January 1, 2017, at 6% 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 20 years and a residual value of $0, compute the straight-line depreciation in 2020. $ fill in the blank 3 Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report income than if it had not capitalized interest. In future periods, the same company will report income than if it had not capitalized interest.

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 1 477,000

October 1 648,000

2020:

March 1 1,404,000

June 30 684,000
Amounts borrowed and outstanding:
   $1.7 million borrowed at 10%, specifically for the project
   $8 million borrowed on July 1, 2018, at 12%
   $13 million borrowed on January 1, 2017, at 6%

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 20 years and a residual value of $0, compute the straight-line depreciation in 2020.

$ fill in the blank 3
Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report income than if it had not capitalized interest. In future periods, the same company will report income than if it had not capitalized interest.

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