Capitalized Interest
Scenario
ABC began constructing a building on September 1, 2009 and completed it on December 31, 2009. Construction costs totaled $500,000. On September 1, 2009 a one-year loan at 12% for $210,000 was obtained and immediately spent on the project. Additionally, at the beginning of the construction period ABC paid $120,000 to start the construction. The additional costs of the project were paid in equal installments at the end of each month with the first installment being paid September 30, 2009 and the last installment being made on December 31, 2009. The only other debt of the company was a 10% long-term note-payable of $15,000.
ABC Company entered into a contract with XYZ Company to construct a building for ABC. The contract called for work to begin on January 1, 2009 and for ABC to make an initial payment of $100,000 at that time. Another $200,000 was to be paid by ABC at the end of each three-month period until and including December 31, 2009 when the building was to be completed, transferred to ABC and placed into service. All aspects of the contract were completed on schedule. ABC Co. borrowed $300,000 on April 1, 2009 to help finance this project at an interest rate of 6%. Throughout the construction period, ABC had $900,000 of additional long-term debt outstanding at an average interest rate of 7%.
What are the average annual expenditure on the building for 2009?
$
$
How much interest should be capitalized for this building in 2009?
$
$
What should be in the building account on the December 31, 2009 balance sheet?
$
$
How much interest expense should have been included on the income statement as of December 31, 2009?
Capitalized Interest
Scenario
ABC began constructing a building on September 1, 2009 and completed it on December 31, 2009. Construction costs totaled $500,000. On September 1, 2009 a one-year loan at 12% for $210,000 was obtained and immediately spent on the project. Additionally, at the beginning of the construction period ABC paid $120,000 to start the construction. The additional costs of the project were paid in equal installments at the end of each month with the first installment being paid September 30, 2009 and the last installment being made on December 31, 2009. The only other debt of the company was a 10% long-term note-payable of $15,000.
ABC Company entered into a contract with XYZ Company to construct a building for ABC. The contract called for work to begin on January 1, 2009 and for ABC to make an initial payment of $100,000 at that time. Another $200,000 was to be paid by ABC at the end of each three-month period until and including December 31, 2009 when the building was to be completed, transferred to ABC and placed into service. All aspects of the contract were completed on schedule. ABC Co. borrowed $300,000 on April 1, 2009 to help finance this project at an interest rate of 6%. Throughout the construction period, ABC had $900,000 of additional long-term debt outstanding at an average interest rate of 7%.
What are the average annual expenditure on the building for 2009?
$
$
How much interest should be capitalized for this building in 2009?
$
$
What should be in the building account on the December 31, 2009 balance sheet?
$
$
How much interest expense should have been included on the income statement as of December 31, 2009?
$
$
$
$