Exercise 10-8 On December 31, 2016, Monty nc. borrowed 53,840,000 at 13% payable

Question

Exercise 10-8 On December 31, 2016, Monty nc. borrowed 53,840,000 at 13% payable annually to finance the construction of a new building. In 2017, the company made the following expenditures related to this building: March 1.460,800,June 1 $768,000; July 1, $1,920,000; December 1, $1,920,000. The building was completed in February 2018. Additional information is provided as follows. 1. Other debt outstanding 10-year, 14% bond, December 31, 2010, interest payable annually 6-year, 11% note, dated December 31, 2014, interest payable annually $5,120,000 $2,048,000 2. March 1, 2017, expenditure included land costs of S192,000 3. Interest revenue carned in 2017 $62,720 Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building. The amount of interest

Explanation / Answer

Amount of interest to be capitalized in 2017 in relation to the construction of a building is as shown below:

Journal entry will be:

Note: Expense incurred on Mar 1 will be included in building cost.

Interest Capitalized Months outstanding Average Investment Mar-01 460,800 10 384,000 Jun-01 768,000 7 448,000 Jul-01 1,920,000 6 960,000 Dec-01 1,920,000 1 160,000 1,952,000 Total Interest Exp 3,840,000*13% 499,200 5,120,000*14% 716,800 2,048,000*11% 225,280 Total Interest Expense 1,441,280 Capitalized Interest (1,952,000*13%) 253,760

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.