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Interest During Construction Jones Company is constructing a production complex that qualifies for interest capitalization. The following information is available: Capitalization period: January 1, 2016,
Interest During Construction
Jones Company is constructing a production complex that qualifies for interest capitalization. The following information is available:
- Capitalization period: January 1, 2016, to June 30, 2017
- Expenditures on project:
- 2016: January 1 $ 564,000 May 1 417,000 October 1 600,000 2017: March 1 1,464,000 June 30 612,000
- Amounts borrowed and outstanding:
- $1.4 million borrowed at 10%, specifically for the project
- $4 million borrowed on July 1, 2015, at 12%
- $12 million borrowed on January 1, 2011, at 6%
Required:
Note: Round all final numeric answers to the nearest dollar.
- Compute the amount of interest costs capitalized each year.
- Capitalized interest, 2016$
- Capitalized interest, 2017$
- If it is assumed that the production complex has an estimated life of 20 years and a residual value of $0, compute the straight-line depreciation in 2017.
- $
- 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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