Intermediate Accounting

P11-2

Capitalization of Interest, Specific and General Debt, Computing Weighted Average Accumulated Expenditures, US GAAP. On January 1, 2104, Union Power and Light commenced construction of a new generating plant to serve the northeast corridor of the state. The total cost of the project is $4,100,000 and it will be completed on June 1, 2015. Scheduled payments to contractors are summarized in the following table.

Date Amount paid

Jan 1, 2014 $950,000

April 1, 2014 $300,000

July 1, 2014 $1,200,000

TOtal 2104 $1,450,000

Febuary 1, 2015 $1,150,000

April 1, 2015 $500,000

Total 2014 $1,650,000

Total expenditures $4,100,000

To finance the project, Union Power obtained a bank loan on Jan 1, 2014 for $1,800,000 at 10% interest. Unions ohter general or direct outstanding debt during 2014 and 2015 includes the following:

General Debt Amount

7% Note $1,000,000

9% Note $3,500,000

6% Bonds $2,000,000

Total $6,500,000

All debt was issued at par and is outstanding for the full year. Interest for all debt is paid on December 31.

REQUIRED:

A.) Determine the amount of interest to be capitalized and expensed by Union Power Company for both 2014 and 2015.

B) Prepare all journal entries required.

C) Determine the final valuation of the power plant.