a.
The weighted average accumulated expenditure for current year.
Given Information:
Amount of note payable is $2,800,000 with the interest of 5% and time period of 3 years.
Amount of 6% bond payable is $5,000,000.
Amount of 9% note payable is $1,000,000.
Additional payments in second year amounted to $900,000 and $1,800,000.
Line of credit opted to finance operating cycle amounted to $2,400,000.
b.
To determine: To determine: The amount of avoidable interest and actual interest.
Given Information:
Amount of note payable is $2,800,000 with the interest of 5% and time period of 3 years.
Amount of 6% bond payable is $5,000,000.
Amount of 9% note payable is $1,000,000.
Additional payments in second year amounted to $900,000 and $1,800,000.
Line of credit opted to finance operating cycle amounted to $2,400,000.
c.
The amount of interest to be capitalized and expensed during the year.
d.
To prepare: The
Want to see the full answer?
Check out a sample textbook solutionChapter 11 Solutions
Intermediate Accounting
- Gray Companys financial statements showed income before income taxes of 4,030,000 for the year ended December 31, 2020, and 3,330,000 for the year ended December 31, 2019. Additional information is as follows: Capital expenditures were 2,800,000 in 2020 and 4,000,000 in 2019. Included in the 2020 capital expenditures is equipment purchased for 1,000,000 on January 1, 2020, with no salvage value. Gray used straight-line depreciation based on a 10-year estimated life in its financial statements. As a result of additional information now available, it is estimated that this equipment should have only an 8-year life. Gray made an error in its financial statements that should be regarded as material. A payment of 180,000 was made in January 2020 and charged to expense in 2020 for insurance premiums applicable to policies commencing and expiring in 2019. No liability had been recorded for this item at December 31, 2019. The allowance for doubtful accounts reflected in Grays financial statements was 7,000 at December 31, 2020, and 97,000 at December 31, 2019. During 2020, 90,000 of uncollectible receivables were written off against the allowance for doubtful accounts. In 2019, the provision for doubtful accounts was based on a percentage of net sales. The 2020 provision has not yet been recorded. Net sales were 58,500,000 for the year ended December 31, 2020, and 49,230,000 for the year ended December 31, 2019. Based on the latest available facts, the 2020 provision for doubtful accounts is estimated to be 0.2% of net sales. A review of the estimated warranty liability at December 31, 2020, which is included in other liabilities in Grays financial statements, has disclosed that this estimated liability should be increased 170,000. Gray has two large blast furnaces that it uses in its manufacturing process. These furnaces must be periodically relined. Furnace A was relined in January 2014 at a cost of 230,000 and in January 2019 at a cost of 280,000. Furnace B was relined for the first time in January 2020 at a cost of 300,000. In Grays financial statements, these costs were expensed as incurred. Since a relining will last for 5 years, Grays management feels it would be preferable to capitalize and depreciate the cost of the relining over the productive life of the relining. Gray has decided to nuke a change in accounting principle from expensing relining costs as incurred to capitalizing them and depreciating them over their productive life on a straight-line basis with a full years depreciation in the year of relining. This change meets the requirements for a change in accounting principle under GAAP. Required: 1. For the years ended December 31, 2020 and 2019, prepare a worksheet reconciling income before income taxes as given previously with income before income taxes as adjusted for the preceding additional information. Show supporting computations in good form. Ignore income taxes and deferred tax considerations in your answer. The worksheet should have the following format: 2. As of January 1, 2020, compute the retrospective adjustment of retained earnings for the change in accounting principle from expensing to capitalizing relining costs. Ignore income taxes and deferred tax considerations in your answer.arrow_forwardOn January 1, 20x1, Entity A had the following general borrowings. A part of the proceeds was used to finance the construction of a qualifying asset: Principal 12% bank loan (1.5 years) ₱ 1,000,000 10% bank loan (3-year) 8,000,000 Expenditures made on the qualifying asset were as follows: Jan. 1 ₱ 5,000,000 March 1 4,000,000 August 31 3,000,000 December 1 2,000,000 Construction was completed on December 31, 20x1. How much borrowing costs are capitalized to the cost of the constructed qualifying asset? 1,045,000 1,026,667 971,111 920,000 How much is the cost of the qualifying asset on initial recognition? 13,010,000 14,920,000…arrow_forwardCapitalization of interest During 2020, Barden Building Company constructed various assets at a total cost of: $14,700,000 The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2020 were: $9,800,000 The company had the following debt outstanding at December 31, 2020: (Hint : specific construction debt) 1. 10%, 5-year note to finance construction of various assets, dated January 1, 2020, with interest payable annually on January 1 $6,300,000 (Hint : other debt) 2. 12%, ten-year bonds issued at par on December 31, 2014, with interest payable annually on December 31 $7,000,000 3. 9%, 3-year note payable, dated January 1, 2019, with interest payable…arrow_forward
- Shamrock Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $2,028,000 on March 1, $1,308,000 on June 1, and $3,003,740 on December 31. Compute Shamrock’s weighted-average accumulated expenditures for interest capitalization purposes.arrow_forwardRobert Sporting Goods Company constructed a building that qualified for interest capitalization. The construction began at the beginning of the 2020 and was completed at the end of the year. The construction cost totaled $10 200 000 and the weighted average accumulated expenditure associated with the asset was $6 800 000. Robert Sporting Goods Company had outstanding notes payable during the entire year of construction comprising $6 000 000 8% interest and $9 000 000 9% interest. None of these borrowings were specified for the construction of the qualified asset. Required: Complete the following schedules to calculate the following for 2020: i) Actual interest ii) Capitalization rate iii) Avoidable interest iv) Capitalized interest v) Interest expensed vi) Capitalized cost of the buildingarrow_forwardRobert Sporting Goods Company constructed a building that qualified for interest capitalization. The construction began at the beginning of the 2020 and was completed at the end of the year. The construction cost totaled $10 200 000 and the weighted average accumulated expenditure associated with the asset was $6 800 000. Robert Sporting Goods Company had outstanding notes payable during the entire year of construction comprising $6 000 000 8% interest and $9 000 000 9% interest. None of these borrowings were specified for the construction of the qualified asset. Required: Complete the following schedules to calculate the following for 2020: i) Actual interest ii) Capitalization rate iii) Avoidable interest iv) Capitalized interest v) Interest expensed vi) Capitalized cost of the building Principal ($) Interest ($) 8% Note Payable Answer Answer 9% Note Payable Answer Answer Total Answer Answer 2020: i. Actual interest…arrow_forward
- Use the following information for the next two questions: On January 1, 20x1, Entity A had the following general borrowings. A part of the proceeds was used to finance the construction of a qualifying asset: Principal 12% bank loan (1.5 years) ₱ 1,000,000 10% bank loan (3-year) 8,000,000 Expenditures made on the qualifying asset were as follows: Jan. 1 ₱ 5,000,000 March 1 4,000,000 August 31 3,000,000 December 1 2,000,000 Construction was completed on December 31, 20x1. How much borrowing costs are capitalized to the cost of the constructed qualifying asset? 1,045,000 c. 1,026,667 971,111 d. 920,000 How much is the cost of the qualifying asset on initial recognition? 13,010,000 c. 14,920,000 15,045,000 d. 14,971,111arrow_forwardJugular Company started construction on a building on January 1 of the current year and completed construction on December 31 of the same year. The entity had only two interest-bearing notes outstanding during the year, and both of these notes were outstanding for all 12 months of the year.The following information is available:Average accumulated expenditures 2,500,000Ending balance in construction in progress beforecapitalization of interest 3,600,0006% note incurred specifically for the project 1,500,0009% long-term note 5,000,000What is the total cost of the building?a. 3,780,000b. 3,680,000c. 3,750,000d. 3,825,000arrow_forwardOn April 1, Paine Co. began construction of a small building. Payments of P120,000 were made monthly for four months beginning on April 1. The building was completed and ready for occupancy on August 1. For the purpose of determining the amount of interest cost to be capitalized, calculate the weighted-average accumulated expenditures on the building by completing the schedule below: Date Expenditures Capitalization Period Weighted-Average Expenditures _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____arrow_forward
- Change Entity had the following borrowing on January 1 of the current year. The borrowings were made for general purposes and the proceeds were partly used to finance the construction of a new building.10% bank loan, 2,800,000 - 280,000 annual interest10% short-term note, 1,600,000 - 160,000 annual interest12% long-term loan, 2,000,000 - 240,000 annual interestThe construction of the building was started on January 1 and was completed on December 31 of the current year. Expenditures on the building were made as follows: January 1 - 400,000; March 31 - 1,000,000; June 30 - 1,200,000; September 30 - 1,000,000; December 31 - 400,000. (Round off the capitalization rate to 3-decimal). What is the average expenditure?arrow_forwardHanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,800,000 on March 1, $1,200,000 on June 1, and $3,000,000 on December 31. Compute Hanson’s weighted-average accumulated expenditures for interest capitalization purposes.arrow_forwardABC 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?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning