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Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year: January 1, $102,000; July 1, $986,000; September 1, $2,720,000; and December 31, $7,174,000. The following debts were outstanding throughout the current year. Debt Construction note, 12% Short-term note payable, 15% Amount $340,000 1,360,000 Accounts payable (noninterest-bearing) 1,360,000 Note: Round all of your answers to the nearest whole number or whole percentage point. a. Compute the amount of interest to be capitalized during the year. Calculation of Actual Interest Debt Debt Amount Interest rate Interest Amount Specific Debt Construction loan $ 340,000 12 % $ 40,800 General Debt Note payable $ 1,360,000 15% Total Actual Interest $ 204,000✔ 244,800 Calculation of Weighted Average Accumulated Expenditures Weighted Avg. Date January 1 July 1 $ Expenditures 102,000 ✔ 986,000 ✔ Months outstanding Accum. Expenditures 12 $ 102,000✔ 6✓ 493,000✔ September 1 2,720,000✔ 4✓ 906,667 ✔ 7,174,000 ✔ December 31 Weighted avg. accum. expenditures $ 1,501,667 Calculation of Avoidable Interest Debt Weighted Avg. Category Accum. Expenditures Interest Rate Avoidable Interest Specific Debt S General Debt 340,000 1,161,667 ✔ 1,501,667 12% $ 15% ▼ 40,800 ▼ 174,250✓ 215,050 Amount of interest to be capitalized during the year: $ 215,050 b. Calculate the amount of interest expense for the year. $ 29,750 c. Prepare the summary journal entry for the year to record the construction expenditures and interest, assuming that construction is not complete on December 31. Assume all payments are in cash. Dec. 31 Building Interest Expense Cash Account Name To record construction expenditures and interest. Dr. 11,156,250 Cr. 29,750 0 ✓ 0 7,174,000 x

Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year: January 1, $102,000; July 1, $986,000; September 1, $2,720,000; and December 31, $7,174,000. The following debts were outstanding throughout the current year. Debt Construction note, 12% Short-term note payable, 15% Amount $340,000 1,360,000 Accounts payable (noninterest-bearing) 1,360,000 Note: Round all of your answers to the nearest whole number or whole percentage point. a. Compute the amount of interest to be capitalized during the year. Calculation of Actual Interest Debt Debt Amount Interest rate Interest Amount Specific Debt Construction loan $ 340,000 12 % $ 40,800 General Debt Note payable $ 1,360,000 15% Total Actual Interest $ 204,000✔ 244,800 Calculation of Weighted Average Accumulated Expenditures Weighted Avg. Date January 1 July 1 $ Expenditures 102,000 ✔ 986,000 ✔ Months outstanding Accum. Expenditures 12 $ 102,000✔ 6✓ 493,000✔ September 1 2,720,000✔ 4✓ 906,667 ✔ 7,174,000 ✔ December 31 Weighted avg. accum. expenditures $ 1,501,667 Calculation of Avoidable Interest Debt Weighted Avg. Category Accum. Expenditures Interest Rate Avoidable Interest Specific Debt S General Debt 340,000 1,161,667 ✔ 1,501,667 12% $ 15% ▼ 40,800 ▼ 174,250✓ 215,050 Amount of interest to be capitalized during the year: $ 215,050 b. Calculate the amount of interest expense for the year. $ 29,750 c. Prepare the summary journal entry for the year to record the construction expenditures and interest, assuming that construction is not complete on December 31. Assume all payments are in cash. Dec. 31 Building Interest Expense Cash Account Name To record construction expenditures and interest. Dr. 11,156,250 Cr. 29,750 0 ✓ 0 7,174,000 x

FINANCIAL ACCOUNTING
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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Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year: January 1, $102,000; July 1, $986,000; September 1, $2,720,000; and December 31, $7,174,000. The following debts were outstanding throughout the current year. Debt Construction note, 12% Short-term note payable, 15% Amount $340,000 1,360,000 Accounts payable (noninterest-bearing) 1,360,000 Note: Round all of your answers to the nearest whole number or whole percentage point. a. Compute the amount of interest to be capitalized during the year. Calculation of Actual Interest Debt Debt Amount Interest rate Interest Amount Specific Debt Construction loan $ 340,000 12 % $ 40,800 General Debt Note payable $ 1,360,000 15% Total Actual Interest $ 204,000✔ 244,800 Calculation of Weighted Average Accumulated Expenditures Weighted Avg. Date January 1 July 1 $ Expenditures 102,000 ✔ 986,000 ✔ Months outstanding Accum. Expenditures 12 $ 102,000✔ 6✓ 493,000✔ September 1 2,720,000✔ 4✓ 906,667 ✔ 7,174,000 ✔ December 31 Weighted avg. accum. expenditures $ 1,501,667 Calculation of Avoidable Interest Debt Weighted Avg. Category Accum. Expenditures Interest Rate Avoidable Interest Specific Debt S General Debt 340,000 1,161,667 ✔ 1,501,667 12% $ 15% ▼ 40,800 ▼ 174,250✓ 215,050 Amount of interest to be capitalized during the year: $ 215,050 b. Calculate the amount of interest expense for the year. $ 29,750 c. Prepare the summary journal entry for the year to record the construction expenditures and interest, assuming that construction is not complete on December 31. Assume all payments are in cash. Dec. 31 Building Interest Expense Cash Account Name To record construction expenditures and interest. Dr. 11,156,250 Cr. 29,750 0 ✓ 0 7,174,000 x
Transcribed Image Text:Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year: January 1, $102,000; July 1, $986,000; September 1, $2,720,000; and December 31, $7,174,000. The following debts were outstanding throughout the current year. Debt Construction note, 12% Short-term note payable, 15% Amount $340,000 1,360,000 Accounts payable (noninterest-bearing) 1,360,000 Note: Round all of your answers to the nearest whole number or whole percentage point. a. Compute the amount of interest to be capitalized during the year. Calculation of Actual Interest Debt Debt Amount Interest rate Interest Amount Specific Debt Construction loan $ 340,000 12 % $ 40,800 General Debt Note payable $ 1,360,000 15% Total Actual Interest $ 204,000✔ 244,800 Calculation of Weighted Average Accumulated Expenditures Weighted Avg. Date January 1 July 1 $ Expenditures 102,000 ✔ 986,000 ✔ Months outstanding Accum. Expenditures 12 $ 102,000✔ 6✓ 493,000✔ September 1 2,720,000✔ 4✓ 906,667 ✔ 7,174,000 ✔ December 31 Weighted avg. accum. expenditures $ 1,501,667 Calculation of Avoidable Interest Debt Weighted Avg. Category Accum. Expenditures Interest Rate Avoidable Interest Specific Debt S General Debt 340,000 1,161,667 ✔ 1,501,667 12% $ 15% ▼ 40,800 ▼ 174,250✓ 215,050 Amount of interest to be capitalized during the year: $ 215,050 b. Calculate the amount of interest expense for the year. $ 29,750 c. Prepare the summary journal entry for the year to record the construction expenditures and interest, assuming that construction is not complete on December 31. Assume all payments are in cash. Dec. 31 Building Interest Expense Cash Account Name To record construction expenditures and interest. Dr. 11,156,250 Cr. 29,750 0 ✓ 0 7,174,000 x
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