FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
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Interest During Construction
Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:
- Capitalization period: January 1, 2019, to June 30, 2020
- Expenditures on project:
2019: January 1 $ 624,000 May 1 501,000 October 1 612,000 2020: March 1 1,596,000 June 30 660,000 - Amounts borrowed and outstanding:
$1.5 million borrowed at 12%, specifically for the project
$8 million borrowed on July 1, 2018, at 14%
$14 million borrowed on January 1, 2017, at 8%
Required:
Note: Round all final numeric answers to two decimal places.
- Compute the amount of interest costs capitalized each year.
Capitalized interest, 2019 Capitalized interest, 2020 - If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line
depreciation in 2020. __________
- Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report income than if it had not capitalized interest. In future periods, the same company will report __________ income than if it had not capitalized interest.
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