During 2015, Allyson Scott Building Company constructed equipment (qualified) at

Question

During 2015, Allyson Scott Building Company constructed equipment (qualified) at a total cost of $9,000,000. The company made the payments to complete the project as follows: 1/1/15 - $1,600,000, 3/1/15 - 1,800,00, 5/1/15 - $2,100,000, 8/1/15 - $2,400,000, 12/3/15 - $1,100,000. The company had the following debt outstanding at December 31, 2015:

1. 10%, 5-year note to finance construction of various assets, dated January 1, 2015, with interest payable annually on January 1 $4,500,000

2. 12%, ten-year bonds issued at par on December 31, 2009, with interest payable annually on December 31 $5,000,000

3. 9%, 3-year note payable, dated January 1, 2012, with interest payable annually on January 1 $2,500,000

Instructions:

Compute the amount of each of the following ( Show computations)

1. Weight average accumulated expenditures.

2. Avoidable interest

3. Total interest to be capitalized during 2015

4. Journal entry to capitalize the interest. Assume all interest expense for the year has already been paid or accrued.

Explanation / Answer

toal                                                                 $5591,667

2)

3) Actual interest incurred

since avoidable interest is less than incurred so we will capitalise $581,000

journal entry

Date Capitalised expenditure Period Weighted average accumulated expenditure 1/1/15 1,600,000 12/12 $1,600,000 3/1/15 1,800,000 10/12 $1500,000 5/1/15 2100,000 8/12 $1400,000 8/1/15 2400,000 5/12 $1000,000 12/3/15 1100,000 1/12       91,667

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