Question 1 The following three situations involve the capitalization of interest

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Question 1 The following three situations involve the capitalization of interest. Situation I On January 1, 2017, Sage, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,145,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2017, to finance the construction cost, Sage borrowed $4,145,000 payable in 10 annual installments of $414,500, plus interest at the rate of 10%. During 2017, Sage made deposit and progress payments totaling $1,554,375 under the contract, the weighted-average amount of accumulated expenditures was $829,000 for the year. The excess borrowed funds were invested in short-term securities, from which Sied investment income of $256,600 What amount should Sage report as capitalized interest at December 31, 2017? Capitalized interest Situation II During 2017, Pronghorn Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities Interest Costs Incu Warehouse constructed for Pronghorn's own use Special-order machine for sale to unrelated customer, produced according to customer's specifications Inventories routinely manufactured, produced on a repetitive basis $32,410 9,760 8,510 All of these assets required an extended period of time for completion Assuming the effect of interest capitalization is material, what is the total amount of interest costs to be capitalized? The total amount of interest costs to be capitalized Situation III Stellar, Inc. has a fiscal year ending April 30, On May 1, 2017, Stellar borrowed $9,766,000 at 11% to finance construction of its own building. Repayments of the loan are to commence the month following completion of the building. During the year ended April 30, 2018, expenditures for the partially completed structure totaled $6,836,200. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $634,790 for the year How much should be shown as capitalized interest on Stellar's financial statements at April 30, 2018? Capitalized interest on Stellar's financial statements Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Situation 2

It is assumed inventories routinely manufactured is not qualified asset

Situation 3

Calculation of weigheted average cost of construction

Situation 1 Particulars $ weighted average amount of expenditure $8,29,000 Interest rate 10% Interest Cost $82,900 Investment Income -$2,56,000 Interest Cost to be capitalised $0

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