Exercise 10-9 (Part Level Submission)

On July 31, 2017, Sunland Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Sunland issued a $322,800, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $222,800 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Sunland made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdams only outstanding liability at December 31, 2017, is a $32,800, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31.

(a)

Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017.

Interest revenue(322,800-222,800)*.1/(12/3) =$2500

Weighted-average accumulated expenditures(222,800/(12/3)) =$ 55700

Avoidable interest(55,700*.12) =$ 6684On July 31, 2017, Sunland Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Sunland issued a $322,800, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $222,800 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Sunland made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdams only outstanding liability at December 31, 2017, is a $32,800, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31.

(a)

Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017.

Interest revenue(322,800-222,800)*.1/(12/3) =$2500

Weighted-average accumulated expenditures(222,800/(12/3)) =$ 55700

Avoidable interest(55,700*.12) =$ 6684

Interest capitalized $

Please show math

Intermediate Accounting

P11-2

Capitalization of Interest, Specific and General Debt, Computing Weighted Average Accumulated Expenditures, US GAAP. On January 1, 2104, Union Power and Light commenced construction of a new generating plant to serve the northeast corridor of the state. The total cost of the project is $4,100,000 and it will be completed on June 1, 2015. Scheduled payments to contractors are summarized in the following table.

Date Amount paid

Jan 1, 2014 $950,000

April 1, 2014 $300,000

July 1, 2014 $1,200,000

TOtal 2104 $1,450,000

Febuary 1, 2015 $1,150,000

April 1, 2015 $500,000

Total 2014 $1,650,000

Total expenditures $4,100,000

To finance the project, Union Power obtained a bank loan on Jan 1, 2014 for $1,800,000 at 10% interest. Unions ohter general or direct outstanding debt during 2014 and 2015 includes the following:

General Debt Amount

7% Note $1,000,000

9% Note $3,500,000

6% Bonds $2,000,000

Total $6,500,000

All debt was issued at par and is outstanding for the full year. Interest for all debt is paid on December 31.

REQUIRED:

A.) Determine the amount of interest to be capitalized and expensed by Union Power Company for both 2014 and 2015.

l journal entries required.

C) Determine the final valuation of the power plant.