INTERMEDIATE ACCOUNTING +ACCLL
9th Edition
ISBN: 9781260951349
Author: SPICELAND
Publisher: MCG
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Chapter 10, Problem 10.24E
Interest capitalization
• LO10–7
On January 1, 2018, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2018:
$5,000,000, 12% bonds
$3,000,000, 8% long-term note
Construction expenditures incurred during 2018 were as follows:
January 1 $ 600,000
March 31 1,200,000
June 30 800,000
September 30 600,000
December 31 400,000
Required:
Calculate the amount of interest capitalized for 2018 using the specific interest method
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Question 1
Patrick Industries began construction of a warehouse on July 1, 2023. The project was completed
on May 31, 2024. Patrick took out a $1,000,000 note at interest of 6% to help finance the
construction. Patrick also has the following other debt outstanding throughout the construction
period:
$2,000,000, 8% note
$5,000,000,4% bond
Construction expenditures incurred were as follows:
July 1, 2023
September 30, 2023
November 30, 2023
$300,000
700,000
500,000
February 1, 2024
200,000
May 31, 2024
200,000
The company's fiscal year-end is December 31 and it uses the specific interest method.
Required
a. Calculate the amount of interest capitalized for 2023 and 2024.
b. Calculate the interest expense to be reported on the income statement for 2023 and 2024.
c. Calculate the cost of the new warehouse.
Required:
Calculate the amount of interest capitalized for 2024.
E 10-24 Interest capitalization LO10-7
On January 1, 2024, the Highlands Company began construction on a new manufacturing facility for its own use. The building was
completed in 2025. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the
construction loan, Highlands had the following debt outstanding throughout 2024:
$5,000,000,
$3,000,000,
Construction expenditures incurred during 2024 were as follows:
January 1
March 31
June 30
12% bonds
8% long-term note
September 30
December 31
$ 600,000
1,200,000
800,000
600,000
400,000
Required:
Calculate the amount of interest capitalized for 2024 using the specific interest method.
Page 554
Problem 25Davao Bank loaned P7,500,000 to a borrower on January 1, 2018. The terms of the loan were payment in full on January 1, 2023, plus annual interest payment at 12%. The interest payment was made as scheduled on January 1, 2019. However, due to financial setbacks, the borrower was unable to make its 2020 interest payment and Davao Bank considers the loan impaired and projects the cash flows from the loan as of December 31, 2020. The bank has accrued the interest at December 31, 2019, but did not continue to accrue interest for 2020 due to the impairment of the loan. The projected cash flows are:
Date of cash flow Amount projectedas of Dec. 31, 2020December31, 2021 500,000December31, 2022 1,000,000December31, 2023 2,000,000December31, 2024 4,000,000The present value at l2% is as follows:For one period 0.89For two periods 0.80For three periods 0.71For four periods 0.64
Required:1.Prepare a table of amortization for the loan receivable.2. Prepare journal entries for 2018 – 2024.
Chapter 10 Solutions
INTERMEDIATE ACCOUNTING +ACCLL
Ch. 10 - Prob. 10.1QCh. 10 - Prob. 10.2QCh. 10 - Prob. 10.3QCh. 10 - Prob. 10.4QCh. 10 - Prob. 10.5QCh. 10 - Prob. 10.6QCh. 10 - When an asset is acquired and a note payable is...Ch. 10 - Explain how assets acquired in exchange for equity...Ch. 10 - Prob. 10.9QCh. 10 - What account is credited when a company receives...
Ch. 10 - Prob. 10.11QCh. 10 - Identify the two exceptions to valuing property,...Ch. 10 - In what situations is interest capitalized?Ch. 10 - Define average accumulated expenditures and...Ch. 10 - Explain the difference between the specific...Ch. 10 - Prob. 10.16QCh. 10 - Prob. 10.17QCh. 10 - Explain the accounting treatment of costs incurred...Ch. 10 - Explain the difference in the accounting treatment...Ch. 10 - Prob. 10.20QCh. 10 - Prob. 10.21QCh. 10 - Prob. 10.22QCh. 10 - Prob. 10.23QCh. 10 - Acquisition cost; machine LO101 Beavert on Lumber...Ch. 10 - Prob. 10.2BECh. 10 - Prob. 10.3BECh. 10 - Cost of a natural resource; asset retirement...Ch. 10 - Asset retirement obligation LO101 Refer to the...Ch. 10 - Prob. 10.6BECh. 10 - Acquisition cost; noninterest-bearing note LO103...Ch. 10 - Prob. 10.8BECh. 10 - Fixed-asset turnover ratio LO105 Huebert...Ch. 10 - Fixed-asset turnover ratio; solve for unknown ...Ch. 10 - Prob. 10.11BECh. 10 - Nonmonetary exchange LO106 Refer to the situation...Ch. 10 - Nonmonetary exchange LO106 Refer to the situation...Ch. 10 - Prob. 10.14BECh. 10 - Prob. 10.15BECh. 10 - Research and development LO108 Maxtor Technology...Ch. 10 - Prob. 10.17BECh. 10 - Research and development; various types LO108...Ch. 10 - Prob. 10.19BECh. 10 - Acquisition costs; land and building LO101 On...Ch. 10 - Acquisition cost; equipment LO101 Oaktree Company...Ch. 10 - Prob. 10.3ECh. 10 - Cost of a natural resource; asset retirement...Ch. 10 - Intangibles LO101 In 2018, Bratten Fitness...Ch. 10 - Goodwill LO101 On March 31, 2018, Wolfson...Ch. 10 - Prob. 10.7ECh. 10 - Prob. 10.8ECh. 10 - Prob. 10.9ECh. 10 - Acquisition costs; noninterest-bearing note ...Ch. 10 - Prob. 10.11ECh. 10 - Prob. 10.12ECh. 10 - Prob. 10.13ECh. 10 - Prob. 10.14ECh. 10 - Nonmonetary exchange LO106 [This is a variation...Ch. 10 - Prob. 10.16ECh. 10 - Nonmonetary exchange LO106 [This is a variation...Ch. 10 - Prob. 10.18ECh. 10 - Prob. 10.19ECh. 10 - Prob. 10.20ECh. 10 - FASB codification research LO101, LO106, LO107,...Ch. 10 - Prob. 10.22ECh. 10 - Interest capitalization LO107 On January 1, 2018,...Ch. 10 - Interest capitalization LO107 On January 1, 2018,...Ch. 10 - Interest capitalization; multiple periods LO107...Ch. 10 - Research and development LO108 In 2018, Space...Ch. 10 - Prob. 10.27ECh. 10 - IFRS; research and development LO108, LO109...Ch. 10 - IFRS; research and development LO109 IFRS NXS...Ch. 10 - Prob. 10.30ECh. 10 - Software development costs LO108 Early in 2018,...Ch. 10 - Prob. 10.32ECh. 10 - Intangibles; start-up costs LO101, LO108 Freitas...Ch. 10 - Prob. 10.34ECh. 10 - Prob. 10.1PCh. 10 - Prob. 10.2PCh. 10 - Prob. 10.3PCh. 10 - Prob. 10.4PCh. 10 - Acquisition costs; journal entries LO101, LO103,...Ch. 10 - Prob. 10.6PCh. 10 - Nonmonetary exchange LO106 On September 3, 2018,...Ch. 10 - Prob. 10.8PCh. 10 - Interest capitalization; specific interest method ...Ch. 10 - Prob. 10.10PCh. 10 - Research and development LO108 In 2018,...Ch. 10 - Prob. 10.12PCh. 10 - Judgment Case 101 Acquisition costs LO101, LO103,...Ch. 10 - Research Case 102 FASB codification; locate and...Ch. 10 - Judgment Case 103 Self-constructed assets LO107...Ch. 10 - Judgment Case 104 Interest capitalization LO107...Ch. 10 - Prob. 10.6BYPCh. 10 - Prob. 10.7BYPCh. 10 - Judgment Case 108 Research and development LO108...Ch. 10 - Prob. 10.9BYPCh. 10 - Prob. 10.11BYPCh. 10 - Ethics Case 1012 Research and development LO108...Ch. 10 - Prob. 10.13BYPCh. 10 - Prob. 10.14BYPCh. 10 - Prob. 10.15BYPCh. 10 - Prob. 10.16BYPCh. 10 - Continuing Cases Target Case LO101, LO105 Target...
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