Question
During 2020, Higgins Company constructed a huge warehouse for its own use at a total cost of $3,600,000, with expenditures of $900,000 being made at
During 2020, Higgins Company constructed a huge warehouse for its own use at a total cost of $3,600,000, with expenditures of $900,000 being made at the end of each quarter (i.e. Mar. 31, June 30, Sept. 30, and Dec. 31). The company had the following debts during 2020:
1. $1.2 million, 12% APR, 5-year note payable, dated 12/31/2019 with interest payable annually on Dec. 31 of each year. This is a construction loan directly tied to the warehouse project.
2. $3 million, 15% APR, 10-year bonds payable, issued at par on 12/31/16, with interest payable annually on Dec. 31. This purpose of this loan was to meet general long-term financing needs.
3. $1 million, 11% APR, 3-year note payable, dated 1/1/19, with interest payable annually on Jan. 1. The purpose of this loan was to meet general long-term financing needs.
Instructions:
1. Assuming construction of the warehouse qualifies for capitalization of interest, compute the interest to be capitalized during 2020. Show your work.
2. Calculate depreciation expense for the warehouse in 2021 using the straight-line method over 40 years (no salvage value). Show your work.
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