Trump Company constructed various assets at a total cost of $8,400,000 during 2019. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2019 were $5,600,000. Trump had the following debts outstanding at December 31, 2019: 2%, ten-year bonds issued at par on December 31, 2013, with interest payable annually on December 31 $4,000,000. 9%, 3-year note payable, dated January 1, 2018, with interest payable annually on January 1 $2,000,000. 10%, 5-year note to finance construction of various assets, dated January 1, 2019, with interest payable annually on January 1 $3,600,000 Required: Compute the amounts of each of the following. Show all workings. Avoidable interest. Total interest to be capitalized during 2019. Explain the rational for the decision.
Trump Company constructed various assets at a total cost of $8,400,000 during 2019. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2019 were $5,600,000. Trump had the following debts outstanding at December 31, 2019: 2%, ten-year bonds issued at par on December 31, 2013, with interest payable annually on December 31 $4,000,000. 9%, 3-year note payable, dated January 1, 2018, with interest payable annually on January 1 $2,000,000. 10%, 5-year note to finance construction of various assets, dated January 1, 2019, with interest payable annually on January 1 $3,600,000 Required: Compute the amounts of each of the following. Show all workings. Avoidable interest. Total interest to be capitalized during 2019. Explain the rational for the decision.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Trump Company constructed various assets at a total cost of $8,400,000 during 2019. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2019 were $5,600,000. Trump had the following debts outstanding at December 31, 2019:
- 2%, ten-year bonds issued at par on December 31, 2013, with interest payable annually on December 31 $4,000,000.
- 9%, 3-year note payable, dated January 1, 2018, with interest payable annually on January 1 $2,000,000.
- 10%, 5-year note to finance construction of various assets, dated January 1, 2019, with interest payable annually on January 1 $3,600,000
Required:
Compute the amounts of each of the following. Show all workings.
- Avoidable interest.
- Total interest to be capitalized during 2019. Explain the rational for the decision.
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