Interest During Construction

Ventry 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 - 537,000

October 1 - 528,000

2017:

March 1 - $ 1,536,000

June 30 - 564,000

• Amounts borrowed and outstanding:

$1.7 million borrowed at 10%, specifically for the project

$4 million borrowed on July 1, 2015, at 12%

$16 million borrowed on January 1, 2011, at 6%

Required:

Note: Round all final numeric answers to the nearest dollar.

1. Compute the amount of interest costs capitalized each year.

Capitalized interest, 2016 - $___________

Capitalized interest, 2017 - $___________

2. 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.

$ ___________

3. Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report higher income than if it had not capitalized interest. In future periods, the same company will report lower income than if it had not capitalized interest.