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6. The 2008 annual report of Bessemer Steel disclosed the following information relating to the companys construction projects, debt, and interest cost (in thousands of
6. The 2008 annual report of Bessemer Steel disclosed the following information relating to the companys construction projects, debt, and interest cost (in thousands of dollars):
Construction in progress (relating to a component of property, plant, and equipment increased from P63,889 to P80,876 in 2008.
Interest capitalized in 2008 of P5,674 was disclosed in the footnotes of the companies financial statements.
Interest-bearing debt outstanding at the end of 2007: P190,000 of 9.5 percent notes, P135,000 of 11.125 percent notes, and P32,350 relating to a line of credit with an interest rate of 9%.
Required:
Based on the information provided in the annual report, estimate the amount of interest to be capitalized in 2008. Give reasons why your estimate differs from the amount reported by the company. Assume that the construction payments were made uniformly during the year.
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