FACTS: Chapter 9 discusses acquisition of property, plant and equipment and related issues. In 2020 , Tesla Motors, Inc. announced plans to build another Gigafactory dubbed "Gigafactory Texas" to manufacture its electric cars, more specifically the Model Y. As a recent hire in the accounting department, you have been tasked with determining the amount of interest that should be capitalized in 2020 related to construction of Gigafactory Texas. Your manager wants the information before lunch so she can include it in a presentation to the executive team. The executive team has provided the following information. Construction on Gigafactory Texas began July 1,2020 . By the end of the year, the following expenditures have been made towards completion of the $400M project. The entire project is expected to be completed in 2021. * In a multi-year project such as this one, interest to be capitalized each year is determined based on the Average Accumulated Expenditures (AAE) in that year multiplied by the appropriate interest rate. The denominator of the fraction used to multiply by remains 12. Assume Tesla has the following debt outstanding and makes annual interest payments. The $150M note is specific construction debt. - On May 1, 2019, issued $150M,2% convertible notes due May 1,2024 ; - On March 31, 2020, issued \$900M, 2.4\% convertible notes due March 1, 2025; and ** The term convertible notes simply means that the holders of a $1,000 note may choose to convert the debt into shares of Tesla Motors, Inc. stock. Assume none of the debt was converted to stock in 2020. FACTS: Chapter 9 discusses acquisition of property, plant and equipment and related issues. In 2020 , Tesla Motors, Inc. announced plans to build another Gigafactory dubbed "Gigafactory Texas" to manufacture its electric cars, more specifically the Model Y. As a recent hire in the accounting department, you have been tasked with determining the amount of interest that should be capitalized in 2020 related to construction of Gigafactory Texas. Your manager wants the information before lunch so she can include it in a presentation to the executive team. The executive team has provided the following information. Construction on Gigafactory Texas began July 1,2020 . By the end of the year, the following expenditures have been made towards completion of the $400M project. The entire project is expected to be completed in 2021. * In a multi-year project such as this one, interest to be capitalized each year is determined based on the Average Accumulated Expenditures (AAE) in that year multiplied by the appropriate interest rate. The denominator of the fraction used to multiply by remains 12. Assume Tesla has the following debt outstanding and makes annual interest payments. The $150M note is specific construction debt. - On May 1, 2019, issued $150M,2% convertible notes due May 1,2024 ; - On March 31, 2020, issued \$900M, 2.4\% convertible notes due March 1, 2025; and ** The term convertible notes simply means that the holders of a $1,000 note may choose to convert the debt into shares of Tesla Motors, Inc. stock. Assume none of the debt was converted to stock in 2020
