Question

Situation I

On January 1, 2020, Kingbird, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,471,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2020, to finance the construction cost, Kingbird borrowed $4,471,000 payable in 10 annual installments of $447,100, plus interest at the rate of 10%. During 2020, Kingbird made deposit and progress payments totaling $1,676,625 under the contract; the weighted-average amount of accumulated expenditures was $894,200 for the year. The excess borrowed funds were invested in short-term securities, from which Kingbird realized investment income of $265,300.

What amount should Kingbird report as capitalized interest at December 31, 2020?

Capitalized interest

$

Situation II

During 2020, Oriole Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities.

		Interest Costs Incurred
Warehouse constructed for Oriole’s own use		$33,290
Special-order machine for sale to unrelated customer, produced according to customer’s specifications		9,660
Inventories routinely manufactured, produced on a repetitive basis		8,250

All of these assets required an extended period of time for completion.

Assuming the effect of interest capitalization is material, what is the total amount of interest costs to be capitalized?

The total amount of interest costs to be capitalized

$

Situation III

Waterway, Inc. has a fiscal year ending April 30. On May 1, 2020, Waterway borrowed $10,886,000 at 11% to finance construction of its own building. Repayments of the loan are to commence the month following completion of the building. During the year ended April 30, 2021, expenditures for the partially completed structure totaled $7,620,200. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $707,590 for the year.

How much should be shown as capitalized interest on Waterway’s financial statements at April 30, 2021?

Capitalized interest on Waterway’s financial statements

$

Answer 1

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