Sun Company was constructing an asset that qualified for interest capitalization. The construction began at the beginning of the current year and was completed at the end of current year. The construction cost totaled P12,000,000 and was incurred evenly during the current year. The average expenditures on the asset totaled P6,000,000. The entity had outstanding notes payable during the entire year of construction comprising P6,000,000 8% interest and P9,000,000 9% interest. None of the borrowings were specified for the construction of the qualifying asset. 1. What amount of interest should be capitalized? a. 480,000 b. 516,000 c. 810,000 d. 960,000 2. What is the interest expense for the current year? a. 960,000 b. 645,000 c. 774,000 d.
Sun Company was constructing an asset that qualified for interest capitalization. The construction began at the beginning of the current year and was completed at the end of current year. The construction cost totaled P12,000,000 and was incurred evenly during the current year. The average expenditures on the asset totaled P6,000,000. The entity had outstanding notes payable during the entire year of construction comprising P6,000,000 8% interest and P9,000,000 9% interest. None of the borrowings were specified for the construction of the qualifying asset. 1. What amount of interest should be capitalized? a. 480,000 b. 516,000 c. 810,000 d. 960,000 2. What is the interest expense for the current year? a. 960,000 b. 645,000 c. 774,000 d.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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This topic is about borrowing costs. Please choose the letter of the correct answer.
Transcribed Image Text:Sun Company was constructing an asset that qualified for
interest capitalization. The construction began at the
beginning of the current year and was completed at the end
of current year.
The construction cost totaled P12,000,000 and was incurred
evenly during the current year. The average expenditures
on the asset totaled P6,000,000.
The entity had outstanding notes payable during the entire
year of construction comprising P6,000,000 8% interest and
P9,000,000 9% interest.
None of the borrowings were specified for the construction
of the qualifying asset.
1. What amount of interest should be capitalized?
a. 480,000
b. 516,000
c. 810,000
d. 960,000
2. What is the interest expense for the current year?
a. 960,000
b. 645,000
c. 774,000
d.
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