Question

On January 1, 2016, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2017. Expenditures on the project were as follows:

  

January 1, 2016	$316,000
September 1, 2016	$462,000
December 31, 2016	$462,000
March 31, 2017	$462,000
September 30, 2017	$316,000

  

Dreamworld had $5,400,000 in 14% bonds outstanding through both years.

  

Dreamworld's capitalized interest in 2016 was:

2) --------------------------------------------------------------------------------------------

Data related to the inventories of Alpine Ski Equipment and Supplies is presented below:

	Skis	Boots	Apparel	Supplies
Selling price	$172,000	$165,000	$109,000	$73,000
Cost	148,000	141,000	76,300	51,100
Replacement cost	110,000	125,000	111,000	47,100
Sales commission	10%	10%	10%	10%

In applying the lower of cost and net realizable value rule, the inventory of apparel would be valued at:

Answer 1

As the funds that were accumulated by the company were not specifically for the purpose of building the ware house therefore interest for the whole should not be capitalized by the company therefore first we need to calculate average accumulation expenses

Computation Of Average accumulated expenses
Amount Utilised	Utilization Period	Totatl ($)
$316000	12 months	316000
$462000	4 Months	154000
Average Accumulated Expenses for the Year		470000

as only $ 470000 were used from the funds only interest of that much will be capitalized in the year 2016, therefore interest to be capitalized in the year 2106 will be

$ 4,70,000*14%=$ 65800.

Therefore interest amounting to $65800 will be capitalized in the year 2016.

2. Bacause of the prudence purpose the valuation inventory should be valued lower of all therefore,

Valuation Of Inventory
Particulars	Selling Price net of Selling Commission(in $)	Cost (in $ )	Replacement Cost (in $)	Remarks
SKIS	1,54,800	1,48,000	1,10,000	At Replacement Cost
BOOTS	1,48,500	1,41,000	1,25,000	At Replacement Cost
APPARELS	98,100	76,300	1,11,000	At Cost Price
SUPPLIES	65,700	51,100	47,100	At Replacement Cost