1 The following three situations involve the capitalization of interest a On January 1, 2020, Pharoah, Inc signed a fixed price contract to have Builder Associates construct a major plant facility at a cost of $4,246,000 It was estimated that it would take 3 years to complete the project Also on January 1, 2020, to finance the construction cost, Pharoah borrowed $4,246,000 payable in 10 annual installments of $424,600, plus interest at the rate of 10 During 2020, Pharoah made deposit and progress payments totaling $1,592,250 under the contract the weighted average amount of accumulated expenditures was $849,200 for the year The excess borrowed funds were invested in short term securities, from which Pharoah realized investment income of $260,100 What amount should Pharoah report as capitalized interest at December 31, 2020 b During 2020, Novak Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities Interest Costs Incurred Warehouse constructed for Novaks own use $33,320 Special order machine for sale to unrelated customer, produced according to customers specifications 9,080 Inventories routinely manufactured, produced on a repetitive basis 7,370 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 c Splish, Inc has a fiscal year ending April 30 On May 1, 2020, Splish borrowed $9,292,000 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, 2021, expenditures for the partially completed structure totaled $6,504,400 These expenditures were incurred evenly throughout the year Interest earned on the unexpended portion of the loan amounted to $603,980 for the year How much should be shown as capitalized interest on Splishs financial statements at April 30, 2021

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1. The following three situations involve the capitalization of interest. a. On January 1, 2020, Pharoah, Inc. signed a fixed-price contract to have Builder Associates

1. The following three situations involve the capitalization of interest.

a. On January 1, 2020, Pharoah, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,246,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2020, to finance the construction cost, Pharoah borrowed $4,246,000 payable in 10 annual installments of $424,600, plus interest at the rate of 10%. During 2020, Pharoah made deposit and progress payments totaling $1,592,250 under the contract; the weighted-average amount of accumulated expenditures was $849,200 for the year. The excess borrowed funds were invested in short-term securities, from which Pharoah realized investment income of $260,100. What amount should Pharoah report as capitalized interest at December 31, 2020?

b. During 2020, Novak Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities.

	Interest Costs Incurred
Warehouse constructed for Novaks own use		$33,320
Special-order machine for sale to unrelated customer, produced according to customers specifications		9,080
Inventories routinely manufactured, produced on a repetitive basis		7,370

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?

c. Splish, Inc. has a fiscal year ending April 30. On May 1, 2020, Splish borrowed $9,292,000 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, 2021, expenditures for the partially completed structure totaled $6,504,400. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $603,980 for the year. How much should be shown as capitalized interest on Splishs financial statements at April 30, 2021?