Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Question
Chapter 11, Problem 11.6BE
To determine
The amount of interest to be capitalized during the year if the firm is reporting under IFRS.
Given information:
Amount of notes payable issued is $ 2,200,000.
Time period is 2 years.
Interest rate is 8%
Interest income earned is $3,000.
Expenditures are given for the 1st year.
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Students have asked these similar questions
ABC begins the construction of a building on 1 January 20X1. The following expenditures on this property incurred during the year 20X1: (Unit: CU 1000)1 January 20X1 – 100,0001 June 20X1 – 300,0001 October 20X1 – 600,000On 1 January 20X1, Entity A had 500,000 of general borrowings which increased by 1 million to 1.5 million in total on 1 June 20X1. Interest expense on these borrowings calculated to 50,000 for full-year 20X1.Calculate the amount relating to borrowing cost that should be capitalized in the cost of the building?
interest During Construction
Sunfish Company is constructing a building that qualifies for interest capitalization. It is build between January 1 and
December 31, 2021. Sunfish made the following expenditures related to this building:
370,000
1-May $
1-Jun 5 410,000
1-Aug $
1-Dec $
500,000
130,000
The company borrowed $550,000 at 11% to help finance the project. In addition, Sunfish had outstanding borrowings of $2 million at
7% and $1 million at 8%.
Required:
1 Compute the amount of interest to be capitalized related to the construction of the building.
2 Next Level: What effect does the interest capitalization have on the company's financial statements after it completes the building?
Interest During Construction
Snowbird Company is constructing a building that qualifies for interest capitalization. It is built between January 1 and December 31, 2019. Snowbird made the following
expenditures related to this building:
April 1
$396,000
July 1
400,000
September 1
510,000
December 1 120,000
The company borrowed $500,000 at 12% to help finance the project. In addition, Snowbird had outstanding borrowings of $2 million at 8% and $1 million at 9%.
Required:
1. Compute the amount of interest capitalized related to the construction of the building. Do not round your interim calculations. Round your final answer to the
nearest dollar.
74,750
X
2. Next Level In the current period, the capitalization of interest decreases shareholders' equity
decreases depreciation expense
; in future period the effect of capitalized interest is to
Chapter 11 Solutions
Intermediate Accounting
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