Problem 4. Capitalized Interest Costs Construction of Long-Term Assets On November 1, 2021, Moby Company contracted XYZ Construction Co. to construct a building for $1,400,000. Moby made the following payments to XYZ Construction company during 2022: January 1 $200,000 April 30 $325,000 June 30 600,000 November 1 $150,000 December 1 S $125,000 XYZ Construction completed the building, ready for occupancy, on January 5, 2023. Moby had the following debt outstanding during the construction period timeframe: Specific Construction Debt $650,000 15 %, 3-year note to finance construction of the building, dated January 1, 2022, with interest payable annually on December 31 Other Debt on the books at time of construction $ 450,000 10%, 5-year note payable, dated December 31, 2020, with interest payable annually on December 31 $ 500,000 12%, 10-year bonds issued December 31, 2018, with interest payable annually on December 31 Instructions: 4.1 Determine the amount of interest to be capitalized in 2022 due to the construction of the self-constructed building. 4.2 Prepare the journal entries to record the disbursement of cash to XYZ Construction company on Jan. 1, Apr 30, Jun 30, Nov 1, & Dec 1. 4.3 Prepare a compound journal entry to record the capitalization of interest and the recognition of interest expense (if any) for 2022. Offset to interest payable.
Problem 4. Capitalized Interest Costs Construction of Long-Term Assets On November 1, 2021, Moby Company contracted XYZ Construction Co. to construct a building for $1,400,000. Moby made the following payments to XYZ Construction company during 2022: January 1 $200,000 April 30 $325,000 June 30 600,000 November 1 $150,000 December 1 S $125,000 XYZ Construction completed the building, ready for occupancy, on January 5, 2023. Moby had the following debt outstanding during the construction period timeframe: Specific Construction Debt $650,000 15 %, 3-year note to finance construction of the building, dated January 1, 2022, with interest payable annually on December 31 Other Debt on the books at time of construction $ 450,000 10%, 5-year note payable, dated December 31, 2020, with interest payable annually on December 31 $ 500,000 12%, 10-year bonds issued December 31, 2018, with interest payable annually on December 31 Instructions: 4.1 Determine the amount of interest to be capitalized in 2022 due to the construction of the self-constructed building. 4.2 Prepare the journal entries to record the disbursement of cash to XYZ Construction company on Jan. 1, Apr 30, Jun 30, Nov 1, & Dec 1. 4.3 Prepare a compound journal entry to record the capitalization of interest and the recognition of interest expense (if any) for 2022. Offset to interest payable.
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
Chapter10: Property, Plant And Equipment: Acquisition And Subsequent Investments
Section: Chapter Questions
Problem 18E
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Transcribed Image Text:Problem 4. Capitalized Interest Costs Construction of Long-Term Assets On November 1, 2021, Moby Company
contracted XYZ Construction Co. to construct a building for $1,400,000. Moby made the following payments to XYZ
Construction company during 2022: January 1
$200,000 April 30
$325,000 June 30
600,000 November 1
$150,000 December 1
S
$125,000 XYZ Construction completed the building, ready
for occupancy, on January 5, 2023. Moby had the following debt outstanding during the construction period
timeframe: Specific Construction Debt $650,000 15 %, 3-year note to finance construction of the building, dated
January 1, 2022, with interest payable annually on December 31 Other Debt on the books at time of construction $
450,000 10%, 5-year note payable, dated December 31, 2020, with interest payable annually on December 31 $
500,000 12%, 10-year bonds issued December 31, 2018, with interest payable annually on December 31 Instructions:
4.1 Determine the amount of interest to be capitalized in 2022 due to the construction of the self-constructed
building. 4.2 Prepare the journal entries to record the disbursement of cash to XYZ Construction company on Jan. 1, Apr
30, Jun 30, Nov 1, & Dec 1. 4.3 Prepare a compound journal entry to record the capitalization of interest and the
recognition of interest expense (if any) for 2022. Offset to interest payable.
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