Interest During ConstructionAlta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:Capitalization period: January 1, 2019, to June 30, 2020Expenditures on project:2019: January 1$ 504,000 May 1393,000 October 1660,0002020: March 11,380,000 June 30528,000Amounts borrowed and outstanding: $1.4 million borrowed at 12%, specifically for the project $8 million borrowed on July 1, 2018, at 14% $20 million borrowed on January 1, 2017, at 8%Required:Note: Round all final numeric answers to two decimal places.Compute the amount of interest costs capitalized each year.Capitalized interest, 2019$ fill in the blank 1Capitalized interest, 2020$ fill in the blank 2If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.$ fill in the blank 3Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report income than if it had not capitalized interest. In future periods, the same company will report income than if it had not capitalized interest.

A borrowing cost is that costs which is related to the acquisition , construction and production of…

Answered: a Company is constructing a production…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter10: Property, Plant And Equipment: Acquisition And Subsequent Investments

Section: Chapter Questions

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Interest During Construction

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:

Capitalization period: January 1, 2019, to June 30, 2020
Expenditures on project:

2019:

January 1 $ 504,000

May 1 393,000

October 1 660,000

2020:

March 1 1,380,000

June 30 528,000
Amounts borrowed and outstanding:
   $1.4 million borrowed at 12%, specifically for the project
   $8 million borrowed on July 1, 2018, at 14%
   $20 million borrowed on January 1, 2017, at 8%

Required:

Note: Round all final numeric answers to two decimal places.

Compute the amount of interest costs capitalized each year.

Capitalized interest, 2019 $ fill in the blank 1

Capitalized interest, 2020 $ fill in the blank 2
If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.

$ fill in the blank 3
Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report

income than if it had not capitalized interest. In future periods, the same company will report

income than if it had not capitalized interest.

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2019:
	January 1	$ 504,000
	May 1	393,000
	October 1	660,000
2020:
	March 1	1,380,000
	June 30	528,000

Capitalized interest, 2019	$ fill in the blank 1
Capitalized interest, 2020	$ fill in the blank 2