Answer.
The interest to be capitalized needs to be calculated on two types of borrowing that is the first borrowing of 12% construction loan for a period of one year (Jan. 1 to Dec. 31) and 8% borrowing outstanding during the year for one year. It is assumed that the 8% loan was also taken for construction purpose.
Interest on 12% Const. loan = $400,000
12%
1 = $48,000
Interest on 8% Borrowings = $200,000
8%
1 = $16,000
Total interest to be capitalized = $48,000 + $16,000 = $64,000
Note: If the second loan is not taken for the purpose of construction, the interest to be capitalized will be only $48,000.
7. (7 points) A building was constructed on land purchased last year at a cost of...
7. (7 points) A building was constructed on
land purchased last year at a cost of $150,000. Construction began
on January 1 and was completed on December 31. The payments to the
contractor were as follows. Date Payment 1/1 $120,000 4/1 320,000
8/1 460,000 10/1 100,000 To finance construction of the
building, a $400,000, 12% construction loan was taken out on
January 1. The loan was repaid on December 31. The firm had
$200,000 of other outstanding debt during the...
7. (7 points) A building was constructed on
land purchased last year at a cost of $150,000. Construction began
on January 1 and was completed on December 31. The payments to the
contractor were as follows. Date Payment 1/1 $120,000 4/1 320,000
8/1 460,000 10/1 100,000 To finance construction of the
building, a $400,000, 12% construction loan was taken out on
January 1. The loan was repaid on December 31. The firm had
$200,000 of other outstanding debt during the...
E10-16B (L03,4) (Asset Acquisition) Ogden Industries purchased
the following assets and constructed a building as well. All this
was done during the current year.
Asset 3
This machine was acquired by making a $25,000 down payment and
issuing a $75,000, 1-year, zero-interest-bearing note. The note is
to be paid off in at the end of the first year. It was estimated
that the asset could have been purchased outright for $91,000.
Asset 4
This machinery was acquired by trading in...
Sheridan Industries purchased the following assets and constructed a building as well. All this was done during the current year. Assets 1 and 2: These assets were purchased as a lump sum for $200,000 cash. The following information was gathered. Description Initial Cost on Seller’s Books Depreciation to Date on Seller’s Books Book Value on Seller’s Books Appraised Value Machinery $200,000 $100,000 $100,000 $180,000 Equipment 120,000 20,000 100,000 60,000 Asset 3: This machine was acquired by making a $20,000 down...
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A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $500,000; March 31, $600,000; June 30, $400,000; October 30, $600,000. To help finance construction, the company arranged a 7% construction loan on January 1 for $700,000. The company's other borrowings, outstanding for the whole year, consisted of a $3 million loan and a $5 million note with interest rates of 8% and...
Headland Industries purchased the following assets and constructed a building as well. All this was done during the current year. Assets 1 and 2: These assets were purchased as a lump sum for $130,000 cash. The following information was gathered. Initial Cost on Description Seller's Books Machinery $130,000 Equipment 78,000 Depreciation to Date on Seller's Books $65,000 13,000 Book Value on Seller's Books Appraised Value $65,000 $117.000 65,000 39,000 Asset 3: This machine was acquired by making a $13.000 down...
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Hart began construction of a new building last year on July 1, 2017. On the day construction was started, the land was appraised at $350,000. It had been purchased 2 years earlier for $200,000. By Dec. 31, 2017 it had spent $600,000 on construction and correctly paid and capitalized interest in the amount of $32,000. The following added expenditures were made in 2018 prior to completion of the building on September 1, 2018: Date Amount Feb. 1, 2018 840,000 Aug.1,...
Matrix Inc. borrowed $1,000,000 at 8% to finance the construction of a new building for its own use. Construction began on January 1, 2016, and was completed on October 31, 2016. Expenditures related to this building were: January 1 $252,000 (includes cost of purchasing land of $150,000) May 1 310,000 July 1 420,000 October 31 276,000 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...