On Jan. 1, 2020, the entity started the preparation of its building construction. On the same date, it specifically acquired a loan for the construction. The entity spent P3,000,000 on Jan. 1, 2020 and P5,000,000 on Mar. 31, 2021. The loan has a principal amount of P10,000,000, interest of 5% due every Jan. 1, maturity date of Jan. 1, 2023, net proceeds of P9,732,700, and an effective interest rate of 6%. While not yet paid out for the construction, the amount borrowed was temporarily invested. Investment income for the two years totaled P480,000. 5. How much is the total capitalizable cost as of Dec. 31, 2021?

On Jan. 1, 2020, the entity started the preparation of its building construction. On the same date, it specifically acquired a loan for the construction. The entity spent P3,000,000 on Jan. 1, 2020 and P5,000,000 on Mar. 31, 2021. The loan has a principal amount of P10,000,000, interest of 5% due every Jan. 1, maturity date of Jan. 1, 2023, net proceeds of P9,732,700, and an effective interest rate of 6%. While not yet paid out for the construction, the amount borrowed was temporarily invested. Investment income for the two years totaled P480,000. 5. How much is the total capitalizable cost as of Dec. 31, 2021?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 6P

See similar textbooks

Related questions

Q: At the beginning of 2018, VHF Industries acquired a machine with a fair value of $6,074,700 by…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub parts for…

Q: At December 31, 2020, the available-for-sale debt investment for Zorro Community Bancorp has…

A: Other comprehensive income is that income which is not the part of profit and loss(P/L) account.…

Q: On January 1, 2024, the company obtained a $3 million construction loan with a 11% interest rate.…

A: Calculation of Weighted Average Interest Rate Principle Amount Interest Rate Interest…

Q: Yebi Corp began operations in December 2024. Yebi builds and sells warehouses under the installment…

A: Journal entries are made to record the transactions as the first process in the books of accounts…

Q: Ayayai Corporation, a publicly-traded company, agreed to loan money to another company. On July 1,…

A: The concept in this question is the present value of a promissory note, which refers to the current…

Q: On January 1, 2017, Marin Inc. borrowed and received $310,000 from a major customer, Bramble Corp.…

A: Notes payable is a financial instrument that is issued by the entity at a fixed rate of interest to…

Q: On January 1, 2022, MinMin Co. took out a loan of P24,000,000 in order to finance specifically the…

A: Borrowing cost are capitalized on the cost of eligible assets up until completion, and investment…

Q: Prepare a statement of net position as of June 30, 2023. For the period, net position restricted for…

A: A Statement of Net position is a statement, which discloses the assets, liabilities and the net…

Q: X company started construction of a new office building for its own use at an estimated cost of $5…

A: The concept of "avoidable interest" in construction accounting refers to the interest expense that a…

Q: User In February 2024, Cullumber Corp, began the construction of a 10-storey building. The…

A: The objective of the question is to calculate the avoidable borrowing costs for Cullumber Corp for…

Q: The following amortization schedule indicates the interest and principal that Chip's Cookie…

A: The journal entries are prepared to record the transactions on regular basis. The interest is paid…

Q: Company A signed an agreement with a contractor to have a production facility built. The…

A: To calculate the amount of interest cost to be capitalized in 2025, we need to consider the timing…

Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

On Jan. 1, 2020, the entity started the preparation of its building
construction. On the same date, it specifically acquired a loan for
the construction.

The entity spent P3,000,000 on Jan. 1, 2020 and P5,000,000 on Mar.
31, 2021.

The loan has a principal amount of P10,000,000, interest of 5% due
every Jan. 1, maturity date of Jan. 1, 2023, net proceeds of
P9,732,700, and an effective interest rate of 6%. While not yet paid
out for the construction, the amount borrowed was temporarily
invested. Investment income for the two years totaled P480,000.

5. How much is the total capitalizable cost as of Dec. 31, 2021?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

On January 1, 2019, Q Co. contracted for the construction of a building for 20,000,000 on land that it had previously purchased. The building was completed on December 31, 2019. The following payments were made to the contractor: Payment date AmountJanuary 1. 2,000,000March 1. 6,000,000August 30. 10,000,000December 1. 2,000,000 The following represents the borrowings of Q Co. as of December 31, 2019:• 10%, 7,000,000, 4-year note dated January 1, 2019 with simple interest payable annually, specifically borrowed to finance the construction project. Interest income earned on the temporary investment of the proceeds is 120,000.• 10%, 10,000,000, 10-year note dated January 1, 2019 with interest payable annually.•12.5%, 15,000,000, 10-year note dated December 31, 2018 with interest payable annually. The building is estimated to have useful life of 20 years and a residual value of 1,482,500. The Building is…
On January 1, 2020, Entity A issues a debt instrument for a price of P1,250,000. The principal amount is P1,250,000 and the debt instrument is repayable on December 31, 2024. The rate of interest is specified in the debt agreement as a percentage of the principal amount as follows: 6% in 2020, 8% in 2021, 10% in 2022, 12% in 2023, and 16.4% in 2024. The interest expense to be recognized in 2020 is
DBC Company has received a confirmation letter from the First National Bank of Miami (FNBM) about a line of credit for $12,000,000 on January 2, 2020. According to the terms of this short-term loan, DBC Company will be charged the following: A. ABC will be charged for 50 basis points interest (on an annual basis) for any unused amount of credit from the commencement of this agreement. B. Upon usage of any funds, the interest charge will be Prime rate plus 75 basis points. Prime rate at the commencement of this loan on January 2, 2020, was 5.25%. C. The following events took place in 2020: 1) On February 1, 2020; DBC Co., used $4,000,000 against its line of credit for its working capital purposes. 2) On May 1, 2020; DBC Co., used an additional $2,400,000 to purchase fixed assets. 3) On June 1, 2020, upon the meeting of F.O.M.C., the Fed announced its "Quantitative Easiness" policy and reduced the discount rate by 0.50 basis points. Immediately FNBM bank reflected the same reduction to…
Subject :- Accounting
On 1January 2018, Global Drilling Ltd entered into a GHS22million contract for the construction of an office complex at Tema. The building was completed at the end of December 2018. During the period, thefollowing payments were made to the contractor:Payment date Amount GHS’m 1 January 2018 2.00 31 March 2018 6.00 30 September 2018 12.00 31 December 2018 2.00 22.00 Global Drilling’s borrowings as at its year end of 31stDecember 2018 were as follows:  10% 4-year Loan Note with simple interest payable annually, which relates specifically to the buildingproject, loans outstanding at 31stDecember 2018 amounted to GHS7,000,000. Interest of GHS700,000 was incurred on these borrowings during the year, and interest income of GHS200,000was earned on these funds while they were held in anticipation of payments.  12.5% Five-year Loan Note with simple interest payable annually; debt outstanding at 1stJanuary 2018 amounted to GHS10,000,000 and remained unchanged during the year. 10% Five-year…
On January 1, 2018, Laramie Inc. acquired land for $6.2 million. Laramie paid $1.2 million in cash and signed a 6% note requiring the company to pay the remaining $5 million plus interest on December 31, 2019. An interest rate of 6% properly reflects the time value of money for this type of loan agreement. For what amount should Laramie record the purchase of land?
On September 1, 2020, Vicovaro SpA borrows €450,000 from Unidebit Bank, to be repaid one year later, on August 31, 2021, plus 7% interest. Journalize all the entries related to the loan, from the date in which it is incurred to its repayment, including all the adjusting and closing entries at the end of 2020. The entries should be presented first by applying present value accounting, and then using future value accounting. Determine the present value of the loan at December 31, 2020, and the interest expense related to the loan for 2020 and 2021, under both present and future value accounting.
On 15 April 2021, Growth Realty Ltd purchased a piece of equipment worth $200,000 by accepting a 6 - month discounted bank bill. The bill has a face value of $209,000 and is due for settlement on 15 October 2023. Required: (a) State the items and amounts, if any, that would appear in each of Growth Realty Ltd's financial statements on 30 June 2023 pertaining to the discounted bill. Provide your working process. (1) Income statement items) and amount(s): (i) Balance sheet items) and amounts): (ili) Cash flow statement items) and amount(s) ):
1. At what amount should Montgomery record the note payable and corresponding cost of the building on January 1, 2021?2. How much interest expense on this note will Montgomery recognize in 2021?(For all requirements, Round your final answers to nearest whole dollar amount
Company A signed an agreement with a contractor to have a production facility built. The construction started on 01/01/2025 and continued until 08/31/2026. Company A borrowed a bank loan to be used in financing of the construction. The following information on Company A's bank loans is available: Annual Interest Date Borrowed Amount ($) Term Rate Specific Construction 01/01/2025 850,000 10 percent 2 years Loan Other Loan Other Loan 08/10/2024 450,000 12 percent 3 years 11/05/2023 750,000 13 percent 5 years Company A incurred the following costs during 2025: Expenditure Date Expenditure Amount ($) 01/01/2025 03/01/2025 07/01/2025 12/31/2025 600,000 720,000 540,000 330,000 The amount of interest cost to be capitalized in 2025 is approximately: $160,027 O $155,626 O $163,275 $152,215
On January 1, 2020, Empress Bank granted a loan to a borrower. The interest rate on the loan is 10% payable annually on December 31, 2020. The loan matures in three years on December 31, 2022. Principal amount 5,000,000 Direct origination cost incurred 457,500 Origination fee received from the borrower 200,000 After considering the origination fee charged against the borrower and the direct origination cost incurred, the effective rate on the loan is 8%. Prepare the journal entries for 2020, 2021, and 2022.
1. On December 31, 2020, Norway Company had: 2021, a receiver was appointed for the said customer. Norway Company reported that the year-end is December The receiver informed Norway that the P400,000 would days after the end of reporting period. On January 15, authorized receivable of P400,000 from a customer that is due 60 31, 2020, these investments were recorded at the market 31, 2020 and the financial statements are issue on March 15, 2021. for be paid in full by June 30, 2021. 2. Norway Company measured share investments held . trading at fair value through profit or loss. On December value of P5,000,000. During the period up to February 15 2021, there was a steady decline in the market value of all the shares in the portfolio, and on February 15, 2021. the market value had fallen to P2,000,000. 3. Norway Company had reported a contingent liability on December 31, 2020 related to a court case in which Norway Company was the defendant. The case was not heard until the first week of…