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Exercise 2 (14 points) Capitalization of interest. In mid-2020, Asheville Corporation engaged Greensboro, Inc. to design and construct a complete modemization of Asheville's manufacturing facility.
Exercise 2 (14 points) Capitalization of interest. In mid-2020, Asheville Corporation engaged Greensboro, Inc. to design and construct a complete modemization of Asheville's manufacturing facility. Construction was begun on June 30, 2020 and was completed on December 31, 2020. Asheville made the following payments to Greensboro, Inc. during 2020: Date Payment June 30, 2020 $600 ,000 August 31, 2020 900,000 December 31, 2020 750,000 To help finance the construction, on May 31, 2020, Asheville issued at par, a $500,000 of 2- year, 12% bonds payable, with interest payable annually, on June 1st. In addition to the 12% bonds payable mentioned above, the only other debts outstanding during 2020 were a $250,000, 12% note payable dated January 1, 2012 and due January 1, 2022, with interest payable annually on January 1, and a $750,000, 8% note payable dated January 1, 2017 and due on January 1, 2022, with interest payable annually on January 1. Instructions 1. Compute weighted-average accumulated expenditures (WAAE) qualifying for capitalization of interest in 2020. (4 points) 2. Determine the avoidable interest in 2020. (4 points) 3. Determine the actual interest incurred during 2020. (3 points) 4. Prepare the journal entries necessary to record the capitalization of interest on December 31st, 2020. (3 points)
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