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Interest During Construction Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available: Capitalization period: January 1, 2019,
Interest During Construction
Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:
- Capitalization period: January 1, 2019, to June 30, 2020
- Expenditures on project:
2019: January 1 $ 504,000 May 1 465,000 October 1 648,000 2020: March 1 1,404,000 June 30 648,000 - Amounts borrowed and outstanding: $1.4 million borrowed at 10%, specifically for the project $4 million borrowed on July 1, 2018, at 12% $19 million borrowed on January 1, 2017, at 6%
Required:
Note: Round all final numeric answers to two decimal places.
- Compute the amount of interest costs capitalized each year.
Capitalized interest, 2019 $ fill in the blank 1 Capitalized interest, 2020 $ fill in the blank 2 - If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.
$ fill in the blank 3
- Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report income than if it had not capitalized interest. In future periods, the same company will report income than if it had not capitalized interest.
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