Date Amount $2,151,000 3,585,000 3,824,000 $9,560,000 LINK TO TEXT LINK TO TEXT
ID: 2453842 • Letter: D
Question
Date
Amount
$2,151,000
3,585,000
3,824,000
$9,560,000
LINK TO TEXT
LINK TO TEXT
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 $9,560,000 on land owned by Laserwords. The payments made by Laserwords to Black Construction are shown in the schedule below.
Date
Amount
July 30, 2014$2,151,000
January 30, 20153,585,000
May 30, 20153,824,000
Total payments$9,560,000
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.
10%, 5-year note payable of $4,780,000, dated April 1, 2011, with interest payable annually on April 1.
12%, 10-year bond issue of $7,170,000 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.
Explanation / Answer
Fiscal Year From June, 01 To May, 31 Every Year
(1) Thus, Weighted Average Accumulated Expenditure is $ 3,056,022.
Fiscal Year From June, 01 To May, 31 Evey Year
(2) Thus, Avoidable interest amount is $ 338,524.
Thus,
(3)
Total actual interest cost
Fiscal Year From June, 01 To May, 31 Every Year
Construction Was Completed on May 27, 2015 Capitlization Period From June ,01 to May , 27 361 Days Date Amount Period of investment(In Days) Weighted Average Amount Working 30-Jul-14 2,151,000 306 1,823,285 2151000*306/361 30-Jan-15 3,585,000 122 1,211,551 2151000*122/361 30-May-15 3,824,000 2 21,186 2151000*2/361 Total 9,560,000 3,056,022Related Questions
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