Interest 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:●2019:2020:January 1May 1October 1$ 636,000357,000588,000March 1June 30Amounts borrowed and outstanding:$1.7 million borrowed at 10%, specifically for the project$4 million borrowed on July 1, 2018, at 12%$11 million borrowed on January 1, 2017, at 6%Required:1,560,000696,000Note: Round all final numeric answers to two decimal places.1. Compute the amount of interest costs capitalized each year.Capitalized interest, 2019$$Capitalized interest, 20202. 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.$3. Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will reportincome than if it had not capitalized interest. In future periods, the same company will reportincome than if it had not capitalized interest.

Capitalization of Borrowing Cost: When it is economic benefits to the firm and the expenses can be…

penditures on project: 2 2 January 1 May 1 October 1 $ 636.000 357,000 588,000 1,560,000 696,000 March 1 June 30 nounts borrowed and outstanding: 7 million borrowed at 10%, specifically for the project million borrowed on July 1, 2018, at 12% 1 million borrowed on January 1, 2017, at 6% red: Round all final numeric answers to two decimal places. mpute the amount of interest costs capitalized each year. pitalized interest, 2019 $ pitalized interest, 2020 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. ce 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 in

penditures on project: 2 2 January 1 May 1 October 1 $ 636.000 357,000 588,000 1,560,000 696,000 March 1 June 30 nounts borrowed and outstanding: 7 million borrowed at 10%, specifically for the project million borrowed on July 1, 2018, at 12% 1 million borrowed on January 1, 2017, at 6% red: Round all final numeric answers to two decimal places. mpute the amount of interest costs capitalized each year. pitalized interest, 2019 $ pitalized interest, 2020 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. ce 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 in

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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