nterest During ConstructionAlta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:Capitalization period: January 1, 2019, to June 30, 2020Expenditures on project:2019: January 1$ 492,000 May 1441,000 October 1648,0002020: March 11,392,000 June 30708,000Amounts borrowed and outstanding: $1.7 million borrowed at 10%, specifically for the project $5 million borrowed on July 1, 2018, at 12% $12 million borrowed on January 1, 2017, at 6%Required:Note: Round all final numeric answers to two decimal places.Compute the amount of interest costs capitalized each year.Capitalized interest, 2019$ fill in the blank 1Capitalized interest, 2020$ fill in the blank 2If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.$ fill in the blank 3Since 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.

It is the amount of reduction in the value of a tangible fixed asset due to tear and wear,…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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nterest 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 $ 492,000
  
  May 1 441,000
  
  October 1 648,000
  
  2020:
  
  March 1 1,392,000
  
  June 30 708,000
- Amounts borrowed and outstanding:
     $1.7 million borrowed at 10%, specifically for the project
     $5 million borrowed on July 1, 2018, at 12%
     $12 million borrowed on January 1, 2017, at 6%
Required:

Note: Round all final numeric answers to two decimal places.
1. 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
2. If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.
  
  $ fill in the blank 3
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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