Problem 10-7 (Part Level Submission)

Larkspur Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Larkspur since 2012. Larkspur original facility became obsolete by early 2017 because of the increased sales volume and the fact that Larkspur now carries CDs in addition to books.

On June 1, 2017, Larkspur contracted with Black Construction to have a new building constructed for $5,280,000 on land owned by Larkspur. The payments made by Larkspur to Black Construction are shown in the schedule below.

Date Amount July 30, 2017 $1,188,000

January 30, 2018 $1,980,000

May 30, 2018 $2,112,000

Total payments $5,280,000

Construction was completed and the building was ready for occupancy on May 27, 2018. Larkspur had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2018, the end of its fiscal year.

10%, 5-year note payable of $2,640,000, dated April 1, 2014, with interest payable annually on April 1. 12%, 10-year bond issue of $3,960,000 sold at par on June 30, 2010, with interest payable annually on June 30.

The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material.

Some interest cost of Larkspur Inc. is capitalized for the year ended May 31, 2018. Compute the amount of each items that must be disclosed in Larkspurs financial statements.

Total actual interest cost $ Total interest capitalized $ Total interest expensed $