Exercise 10 10 The following three situations involve the capitalization of interest Situation I On January 1, 2017, Waterway, Inc signed a fixed price contract to have Builder Associates construct a major plant facility at a cost of $4,443,000 It was estimated that it would take 3 years to complete the project Also on January 1, 2017, to finance the construction cost, Waterway borrowed $4,443,000 payable in 10 annual installments of $444,300, plus interest at the rate of 10 During 2017, Waterway made deposit and progress payments totaling $1,666,125 under the contract the weighted average amount of accumulated expenditures was $888,600 for the year The excess borrowed funds were invested in short term securities, from which Waterway realized investment income of $270,600 What amount should Waterway report as capitalized interest at December 31, 2017 Capitalized interest $ Situation II During 2017, Wildhorse Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities Interest Costs Incurred Warehouse constructed for Wildhorses own use $34,410 Special order machine for sale to unrelated customer, produced according to customers specifications 9,810 Inventories routinely manufactured, produced on a repetitive basis 8,630 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 Sheffield, Inc has a fiscal year ending April 30 On May 1, 2017, Sheffield borrowed $9,658,000 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 $6,760,600 These expenditures were incurred evenly throughout the year Interest earned on the unexpended portion of the loan amounted to $627,770 for the year How much should be shown as capitalized interest on Sheffields financial statements at April 30, 2018 Capitalized interest on Sheffields financial statements $

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Exercise 10-10 The following three situations involve the capitalization of interest. Situation I On January 1, 2017, Waterway, Inc. signed a fixed-price contract to have

Exercise 10-10

The following three situations involve the capitalization of interest. Situation I On January 1, 2017, Waterway, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,443,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2017, to finance the construction cost, Waterway borrowed $4,443,000 payable in 10 annual installments of $444,300, plus interest at the rate of 10%. During 2017, Waterway made deposit and progress payments totaling $1,666,125 under the contract; the weighted-average amount of accumulated expenditures was $888,600 for the year. The excess borrowed funds were invested in short-term securities, from which Waterway realized investment income of $270,600. What amount should Waterway report as capitalized interest at December 31, 2017?

Capitalized interest

Situation II During 2017, Wildhorse Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities.

		Interest Costs Incurred
Warehouse constructed for Wildhorses own use		$34,410
Special-order machine for sale to unrelated customer, produced according to customers specifications		9,810
Inventories routinely manufactured, produced on a repetitive basis		8,630

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 Sheffield, Inc. has a fiscal year ending April 30. On May 1, 2017, Sheffield borrowed $9,658,000 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 $6,760,600. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $627,770 for the year. How much should be shown as capitalized interest on Sheffields financial statements at April 30, 2018?

Capitalized interest on Sheffields financial statements