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 $ 552,000 May 1 561,000 October 1 528,000 2020: March 1 1,572,000 June 30 540,000 • Amounts borrowed and outstanding: $1.7 million borrowed at 12%, specifically for the project $6 million borrowed on July 1, 2018, at 14% $16 million borrowed on January 1, 2017, at 8% Required: Note: Round all final numeric answers to two decimal places. 1. Compute the amount of interest costs capitalized each year. Capitalized interest, 2019 Capitalized interest, 2020 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 dep 2020.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Compute the amount of interest costs capitalized each year.
Compute straight line
See attacehd image.
![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
$ 552,000
May 1
561,000
October 1
528,000
2020:
March 1
1,572,000
June 30
540,000
• Amounts borrowed and outstanding:
$1.7 million borrowed at 12%, specifically for the project
$6 million borrowed on July 1, 2018, at 14%
$16 million borrowed on January 1, 2017, at 8%
Required:
Note: Round all final numeric answers to two decimal places.
1. Compute the amount of interest costs capitalized each year.
Capitalized interest, 2019
Capitalized interest, 2020
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.
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