Problem 10-10 (Algo) Interest capitalization; weighted-average method [LO10- 7] On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,230,000 March 1, 2021 720,000 June 30, 2021 380,000 October 1, 2021 670,000 January 2022 April 30, 2022 1,305,000 August 31, 2022 2,340,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $5,600,000 and $7,600,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2021 and 2022. Interest is paid annually on all debt. The company's fiscal year-end is December 31. Required: 1. Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the weighted-average method. 2. What is the total cost of the building? 3. Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.

Problem 10-10 (Algo) Interest capitalization; weighted-average method [LO10- 7] On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,230,000 March 1, 2021 720,000 June 30, 2021 380,000 October 1, 2021 670,000 January 2022 April 30, 2022 1,305,000 August 31, 2022 2,340,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $5,600,000 and $7,600,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2021 and 2022. Interest is paid annually on all debt. The company's fiscal year-end is December 31. Required: 1. Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the weighted-average method. 2. What is the total cost of the building? 3. Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 106.2C

See similar textbooks

Similar questions

Q10.9 During 2020, Sunland Company incurred weighted-average accumulated expenditures of $1570000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2020 was a $2040000, 9%, 5-year note payable dated January 1, 2020. What is the amount of interest that should be capitalized by Sunland during 2020? $0. $42300. $183600. $141300.
E10-18 Calculating Capitalized Interest Kit Company borrows $6 million at 12% on January 1, 2019, specifically for the purpose of financing the construction of a building that is expected to take 18 months to complete. Kit invests the total amount at 11% until it makes payments for the construction project. During the first year of construction, Kit incurs the following expenditures related to this construction project: January 1 $1,000,000 April 1 $1,600,000 October 1 $1,200,000 December 31 $500,000 Required: 1. Compute the amount of interest expense Kit would capitalize related to the construction of the building. 2. Compute the amount of interest revenue Kit would recognize. 3. Assume that Kit uses IFRS. What amount of interest would be capitalized related to the construction of the building?
1. How much is the net share in the profit or loss of the associate (investment income) in 2021? P480,000 P825,000 P420,000 P135,000 2. How much is the carrying amount of the investment as of December 31, 2021? P7,815,000 P8,025,000 P7,680,000 P7,125,000
14. The records for ABC Co. show this data for 2020: • Gross profit on installment sales recorded on the books was P300,000. Gross profit from collections of installment receivables was P220,000. • Life insurance on officers was P3,800. (ABC Company is the beneficiary.) • Machinery was acquired in January for P300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, accelerated depreciation is used and ABC may deduct 14% for 2020. • Interest received on tax exempt Iowa State bonds was P9,000. • The estimated warranty liability related to 2020 sales was P19,600. Repair costs under warranties during 2020 were P13,600. The remainder will be incurred in 2021. For tax purposes. Expenses related to warranty is to be deducted when repair costs are actually rendered. • Pretax financial income is P450,000. The tax rate is 30%. The total income tax expense for the year 2020 would be?
29. On June 30, 2021, Mill Corp. incurred a 100,000 net loss from disposal of a business segment. Also, on June 30, 2021, Mill paid 40,000 for property taxes assessed for the calendar year 2021. What amount of the foregoing items should be included in the determination of Mill’s net income or loss for the six-month interim period ended June 30, 2021? choices: P140,000 P120,000 P90,000 P70,000
12. The records for Ivanhoe Co. show this data for 2021: ● Gross profit on installment sales recorded on the books was $350,000. Gross profit from collections of installment receivables was $210,000. ● Life insurance on officers was $3,100. ● Machinery was acquired in January for $230,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Ivanhoe may deduct 14% for 2021. ● Interest received on tax exempt Iowa State bonds was $8,300. ● The estimated warranty liability related to 2021 sales was $20,900. Repair costs under warranties during 2021 were $12,900. The remainder will be incurred in 2022. ● Pretax financial income is $530,000. The tax rate is 20%. (a) Prepare a schedule starting with pretax financial income and compute taxable income. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Schedule…
10. On January 1, 2020, Alaska Corporation purchased P1,000,000 10% bonds for P1,051,510 (including broker’s commission of P20,000). Interest is payable annually every December 31. The bonds mature on December 31, 2022. The prevailing market rate for the bonds is 9% at December 31, 2020. If the bonds are classified as FA@FVTPL, the amount to be recognized as fair value adjustment loss in its 2020 profit or loss is Group of answer choices P33,900 P6,180 P26,180 P13,900
35 On January 1, 2020, Alaska Corporation purchased P1,000,000 10% bonds for P1,051,510 (including broker’s commission of P20,000). Interest is payable annually every December 31. The bonds mature on December 31, 2022. The prevailing market rate for the bonds is 9% at December 31, 2020. If the bonds are classified as FA@FVTPL, the amount to be recognized as fair value adjustment loss in its 2020 profit or loss is
E17.22 (L04) HIT (Impairment) Komissarov SA has a debt investment in the bonds issued by Keune AG The bonds were purchased at par for € 400,000 and, at the end of 2019, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is classified as held-for-collection. Keune is facing a tough economic environment and informs its investors that it will be unable to make all payments according to the contractual terms. The con troller of Komissarov has prepared the following revised expected cash flow forecast for this bond investment. Dec. 31 Expected Cash Flows 2020 € 35,000 2021 35,000 2022 385,000 total cash flow € 455,000 Instructions a. Determine the impairment loss for Komissarov at December 31, 2019. b. Prepare the entry to record the impairment loss for Komissarov at December 31, 2019. c. On January 15, 2020, Keune receives a…
11. On June 30, 2021, Line Company incurred a P100,000 net loss from disposal of a business segment. Also, on June 30, 2021, the entity paid P40,000 for property taxes assessed for 2021. What amount should be included in the determination of net income or loss for the six-month interim period ended June 30, 2021? CHOICES: P140,000 P120,000 P100,000 P90,000
40 On January 1, 2022, AA Company sold an equipment costing P5,000,000 and accumulated depreciation of P1,500,000. AA received a P1,000,000 cash and a 10%, 5-year, P7,000,000 note receivable every December 31 in equal annual installment of P1,000,000 plus interest starting December 31, 2022. Interest effective on this note when received is at 8%. How much of the note receivable is reported as current as of December 31, 2022?
24 On January 1, 2021, BB Company sold an equipment costing P10,000,000 and accumulated depreciation of P2,500,000. BB received a P1,000,000 cash and a 10%, 7-year, P7,000,000 note receivable every December 31 in equal annual installment of P1,000,000 plus interest starting December 31, 2021. Interest effective on this note when received is at 8%. Statement 1: The amount of gain (loss) on sale should BB recognized on January 1, 2021 is P948,407. Statement 2: The interest income in BB’s statement of comprehensive income for the period ending December 31, 2021 is P595,873. Group of answer choices Both statements are true Only statement 2 is true Both statements are false Only statement 1 is true