On 1 January 2020, Entity A contracted with Entity B to construct a residential building for $20,000,000 on a piece of land that Entity A had already purchased years earlier. The construction was started on 1 January 2020. Entity A was to make five payments in 2020, with the last payment scheduled for the date of completion. The building was completed on 31 December 2020. Entity A made the following payments during 2020: 1 January 2020 $2,000,000 1 April 2020 $4,000,000 30 June 2020 $6,100,000 30 September 2020 $4,400,000 1 December 2020 $3,500,000 Entity A had the following debt outstanding on 31 December 2020: 12%, 2-year long-term debt of $7,500,000 which was borrowed on 1 July 2019. It is specifically related to the residential building project on 1 January 2020. The fund is re-invested and earns interest at a rate of 6.00% per annum. 8%, 10-year long-term debt of $6,000,000 which was borrowed on 31 March 2016. 10%, 5-year long-term debt of $7,000,000 which was borrowed on 31 March 2018. The end of the reporting period is 31 December. The annual interest payable to various lenders is always settled by direct bank transfer within 2 weeks after the end of the reporting period. REQUIRED: According to relevant accounting standards, measure the amount of the four items below on 31 December 2020. The interest payable ，the borrowing cost capitalised，the borrowing cost expensed and the carrying amount of the qualifying asset.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On 1 January 2020, Entity A contracted with Entity B to construct a residential building for $20,000,000 on a piece of land that Entity A had already purchased years earlier.

The construction was started on 1 January 2020.
Entity A was to make five payments in 2020, with the last payment scheduled for the date of completion.
The building was completed on 31 December 2020.
Entity A made the following payments during 2020:

1 January 2020 $2,000,000
1 April 2020 $4,000,000
30 June 2020 $6,100,000
30 September 2020 $4,400,000
1 December 2020 $3,500,000

Entity A had the following debt outstanding on 31 December 2020:

12%, 2-year long-term debt of $7,500,000 which was borrowed on 1 July 2019. It is specifically related to the residential building project on 1 January 2020. The fund is re-invested and earns interest at a rate of 6.00% per annum.
8%, 10-year long-term debt of $6,000,000 which was borrowed on 31 March 2016.
10%, 5-year long-term debt of $7,000,000 which was borrowed on 31 March 2018.

The end of the reporting period is 31 December.

The annual interest payable to various lenders is always settled by direct bank transfer within 2 weeks after the end of the reporting period.

REQUIRED:

According to relevant accounting standards, measure the amount of the four items below on 31 December 2020.

The interest payable ，the borrowing cost capitalised，the borrowing cost expensed and the carrying amount of the qualifying asset.

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