Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Question
Chapter 11, Problem 11.6BE
To determine
The amount of interest to be capitalized during the year if the firm is reporting under IFRS.
Given information:
Amount of notes payable issued is $ 2,200,000.
Time period is 2 years.
Interest rate is 8%
Interest income earned is $3,000.
Expenditures are given for the 1st year.
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Students have asked these similar questions
ABC begins the construction of a building on 1 January 20X1. The following expenditures on this property incurred during the year 20X1: (Unit: CU 1000)1 January 20X1 – 100,0001 June 20X1 – 300,0001 October 20X1 – 600,000On 1 January 20X1, Entity A had 500,000 of general borrowings which increased by 1 million to 1.5 million in total on 1 June 20X1. Interest expense on these borrowings calculated to 50,000 for full-year 20X1.Calculate the amount relating to borrowing cost that should be capitalized in the cost of the building?
interest During Construction
Sunfish Company is constructing a building that qualifies for interest capitalization. It is build between January 1 and
December 31, 2021. Sunfish made the following expenditures related to this building:
370,000
1-May $
1-Jun 5 410,000
1-Aug $
1-Dec $
500,000
130,000
The company borrowed $550,000 at 11% to help finance the project. In addition, Sunfish had outstanding borrowings of $2 million at
7% and $1 million at 8%.
Required:
1 Compute the amount of interest to be capitalized related to the construction of the building.
2 Next Level: What effect does the interest capitalization have on the company's financial statements after it completes the building?
Interest During Construction
Matrix Inc. borrowed $1,100,000 at 8% to finance the construction of a new building for its own use. Construction began on January 1, 2019, and
was completed on October 31, 2019. Expenditures related to this building were:
January 1 $258,000 (includes cost of purchasing land of $150,000)
May 1
310,000
July 1
450,000
October 31 280,000
In addition, Matrix had additional debt (unrelated to the construction) of $500,000 at 9% and $800,000 at 10%. All debt was outstanding for the
entire year.
Required:
1. Compute the amount of interest capitalized related to the construction of the building.
24
42,000 x
2. If the expenditures are assumed to have been incurred evenly throughout the year:
Compute weighted average accumulated expenditures
654,000 x
Compute the amount of interest capitalized on the building
52,320 x
Chapter 11 Solutions
Intermediate Accounting
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