Exercise 10 10 The following three situations involve the capitalization of interest Situation I On January 1, 2017, Martinez, Inc signed a fixed price contract to have Builder Associates construct a major plant facility at a cost of $4,400,000 It was estimated that it would take 3 years to complete the project Also on January 1, 2017, to finance the construction cost, Martinez borrowed $4,400,000 payable in 10 annual installments of $440,000, plus interest at the rate of 10 During 2017, Martinez made deposit and progress payments totaling $1,650,000 under the contract the weighted average amount of accumulated expenditures was $880,000 for the year The excess borrowed funds were invested in short term securities, from which Martinez realized investment income of $251,900 (a) What amount should Martinez report as capitalized interest at December 31, 2017 Capitalized Interest $ Situation II During 2017, Sandhill Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities Interest Costs Incurred Warehouse constructed for Sandhills own use $30,840 Special order machine for sale to unrelated customer, produced according to customers specifications 8,650 Inventories routinely manufactured, produced on a repetitive basis 7,360 All of these assets required an extended period of time for completion (B) 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 Teal, Inc has a fiscal year ending April 30 On May 1, 2017, Teal borrowed $10,424,000 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 $7,296,800 These expenditures were incurred evenly throughout the year Interest earned on the unexpended portion of the loan amounted to $677,560 for the year (C) How much should be shown as capitalized interest on Teals financial statements at April 30, 2018 Capitalized interest on Teals financial statements $

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Exercise 10-10 The following three situations involve the capitalization of interest. Situation I On January 1, 2017, Martinez, 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, Martinez, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,400,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2017, to finance the construction cost, Martinez borrowed $4,400,000 payable in 10 annual installments of $440,000, plus interest at the rate of 10%. During 2017, Martinez made deposit and progress payments totaling $1,650,000 under the contract; the weighted-average amount of accumulated expenditures was $880,000 for the year. The excess borrowed funds were invested in short-term securities, from which Martinez realized investment income of $251,900. (a) What amount should Martinez report as capitalized interest at December 31, 2017?

Capitalized Interest $______________

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

		Interest Costs Incurred
Warehouse constructed for Sandhills own use		$30,840
Special-order machine for sale to unrelated customer, produced according to customers specifications		8,650
Inventories routinely manufactured, produced on a repetitive basis		7,360

All of these assets required an extended period of time for completion. (B) 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 Teal, Inc. has a fiscal year ending April 30. On May 1, 2017, Teal borrowed $10,424,000 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 $7,296,800. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $677,560 for the year. (C) How much should be shown as capitalized interest on Teals financial statements at April 30, 2018?

Capitalized interest on Teals financial statements $____________