Laserwords Inc. is a book distributor that had been operating in its original fa
ID: 2444585 • Letter: L
Question
Laserwords Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Laserwords since 2009. Laserwords’ original facility became obsolete by early 2014 because of the increased sales volume and the fact that Laserwords now carries CDs in addition to books.
On June 1, 2014, Laserwords contracted with Black Construction to have a new building constructed for $5,464,000 on land owned by Laserwords. The payments made by Laserwords to Black Construction are shown in the schedule below.
Date
Amount
$1,229,400
2,049,000
2,185,600
$5,464,000
Construction was completed and the building was ready for occupancy on May 27, 2015. Laserwords had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2015, the end of its fiscal year.
8%, 5-year note payable of $2,732,000, dated April 1, 2011, with interest payable annually on April 1.
10%, 10-year bond issue of $4,098,000 sold at par on June 30, 2007, with interest payable annually on June 30.
The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material.
Some interest cost of Laserwords Inc. is capitalized for the year ended May 31, 2015. Compute the amount of each items that must be disclosed in Laserwords’ financial statements.
Total interest capitalized
Total interest expensed
Date
Amount
July 30, 2014$1,229,400
January 30, 20152,049,000
May 30, 20152,185,600
Total payments$5,464,000
Explanation / Answer
Milly Newton Cleaners
Income Statement
For the month of December
Sales
$3,050
Salaries expense
1,550
Rent expense
600
Depreciation
1,000
Supplies expense
800
Phone expense
180
Net loss
-$1,080
Milly Newton Cleaners
Income Statement
For the month of December
Sales
$3,050
Salaries expense
1,550
Rent expense
600
Depreciation
1,000
Supplies expense
800
Phone expense
180
Net loss
-$1,080
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