Early in 2020, Qatar Corporation engaged Emirate Ltd. to design and construct a complete modernization of Qatar’s manufacturing facility. Construction began on June 1, 2020, and was completed on December 31, 2020. Qatar made the following payments to Emirate Ltd. during 2020: Date Payment June 1, 2020$ 3,300,000 August 31, 20204,800,000 December 31, 20204,000,000 In order to help finance the construction, Qatar issued the following during 2020: 1.$ 2,000,000, ten-year, 9% bonds payable, issued at par on May 31, 2020, with interest payable annually on May 31, 2.1,000,000 common shares, issued at $ 10 per share on October 1, 2020. In addition to the 9% bonds payable, the only other debt outstanding during 2020 was a $ 700,000, 12% note payable dated January 1, 2019, and due January 1, 2022, with interest payable annually on January 1. Instructions Calculate the amounts of each of the following (show calculations): a)weighted-average accumulated expenditures qualifying for capitalization of interest cost, b)avoidable interest incurred during 2020, c)total amount of interest cost to be capitalized during 2020.
Date | Expenditures | Period in Fraction | Weighted-Average |
June 1 | 3,300,000 | 7/12 | 1,925,000 |
August 31 | 4,800,000 | 4/12 | 1,600,000 |
December 31 | 4,000,000 | 0/12 | - |
Weighted-Average Accumulated Expenditures | 3,525,000 | ||
Weighted-Average Accumulated Expenditures | Applicable Interest rate | Avoidable Interest | |
Full amount | 2,000,000 | 9% | 180,000 |
3525000-2000000 | 1,525,000 | 12% | 183,000 |
3,525,000 | 363,000 | ||
Avoidable Interest | 363,000 | ||
Actual interest incurred during year 2020 | |||
Debt type | Interest rate | Amount | Remarks |
Bond Payable | 9% | 105,000 | 2000000*9%*7/12 |
Note payable | 12% | 84,000 | 700000*12% |
Actual interest incurred during year 2020 | 189,000 | ||
Avoidable Interest | 363,000 | ||
Actual interest incurred | 189,000 | ||
Interest cost to be capitalized (Whichever is lower) | 189,000 |
Early in 2020, Qatar Corporation engaged Emirate Ltd. to design and construct a complete modernization of...
Early in 2020, Qatar Corporation engaged Emirate Ltd. to design and construct a complete modernization of Qatar’s manufacturing facility. Construction began on June 1, 2020, and was completed on December 31, 2020. Qatar made the following payments to Emirate Ltd. during 2020: Date Payment June 1, 2020$ 3,300,000 August 31, 20204,800,000 December 31, 20204,000,000 In order to help finance the construction, Qatar issued the following during 2020: 1.$ 2,000,000, ten-year, 9% bonds payable, issued at par on May 31, 2020,...
Q3. (25 marks) Early in 2020, Qatar Corporation engaged Emirate Ltd. to design and construct a complete modernization of Qatar's manufacturing facility. Construction began on June 1, 2020 and was completed on December 31, 2020. Qatar made the following payments to Emirate Ltd. during 2020: Date Payment June 1, 2020$ 3,300,000 August 31, 20204,800,000 December 31, 20204,000,000 In order to help finance the construction, Qatar issued the following during 2020: 1.$ 2,000,000, ten-year, 9% bonds payable, issued at par on...
Q3. (25 marks) Early in 2020, Qatar Corporation engaged Emirate Ltd. to design and construct a complete modernization of Qatar's manufacturing facility. Construction began on June 1, 2020 and was completed on December 31, 2020. Qatar made the following payments to Emirate Ltd. during 2020: Date Payment June 1, 2020$ 3,300,000 August 31, 20204,800,000 December 31, 20204,000,000 In order to help finance the construction, Qatar issued the following during 2020: 1.$ 2,000,000, ten-year, 9% bonds payable, issued at par on...
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