On July 31, 2017, Coronado Company engaged Minsk Tooling Company to construct a
ID: 2329205 • Letter: O
Question
On July 31, 2017, Coronado Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Coronado issued a $303,600, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $208,600 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Coronado made a final $95,000 payment to Minsk. Other than the note to Netherlands, Coronado’s only outstanding liability at December 31, 2017, is a $28,200, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31.
Collapse question part
(a)
Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017.
Interest revenue
$
Weighted-average accumulated expenditures
$
Avoidable interest
$
Interest capitalized
$
Explanation / Answer
(a) 1 Interest Revenue = $ 264 2 Weighted Average Accumulated Expenditure = $ 52,150 3 Avoidable Interest = $ 6,258 4 Interest capitalized = $ 6,258 Workings: 1 Interest Revenue = [($303600 - $208600) X 10% / (12 X 3)] = [($95,000 X 10%) / (36)] = $ 264 2 Weighted Average Accumulated Expenditure 31-Jul $ 2,08,600 X 3/12 = $ 52,150 01-Nov $ 95,000 X 0/12 = $ - ($303600 - $208600) $ 3,03,600 $ 52,150 3. & 4. Avoidable Interest & Interest capitalized = Weighted Average Accumulated Expenditure X 12% = $ 52,150 X 12% = $ 6,258
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