Question

The following three situations involve the capitalization of interest. Situation I On January 1, 2017, Riverbed, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,491,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2017, to finance the construction cost, Riverbed borrowed $4,491,000 payable in 10 annual installments of $449,100, plus interest at the rate of 10% During 2017, Riverbed made deposit and progress payments totaling $1,684,125 under the contract; the weighted-average amount of accumulated expenditures was $898,200 for the year. The excess borrowed funds were invested in short-term securities, from which Riverbed realized investment income of $261,100. What amount should Riverbed report as capitalized interest at December 31, 2017? Capitalized interest s Situation II During 2017, Marin Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities. Interest Costs Incurred Warehouse constructed for Marin's own use Special-order machine for sale to unrelated customer, produced according to customer's specifications Inventories routinely manufactured, produced on a repetitive basis $31,110 9,640 8,640

Answer 1

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Interest is capitalized for the period of manufacturing of capital asset.