Question
Stellar Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements
Stellar 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 of15% for Stellar since 2012. Stellar' original facility became obsolete by early 2017 because of the increased sales volume and the fact that Stellar now carries CDs in addition to books.
On June 1, 2017, Stellar contracted with Black Construction to have a new building constructed for $5,040,000on land owned by Stellar. The payments made by Stellar to Black Construction are shown in the schedule below.
Date
Amount
July 30, 2017 - $1,134,000
January 30, 2018 - 1,890,000
May 30, 2018 - 2,016,000
Total payments - $5,040,000
Construction was completed and the building was ready for occupancy on May 27, 2018. Stellar 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 $2,520,000, dated April 1, 2014, with interest payable annually on April 1.12%,10-year bond issue of $3,780,000sold 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.
Compute the weighted-average accumulated expenditures on Stellar's new building during the capitalization period.
Weighted-Average Accumulated Expenditures - $
Compute the avoidable interest on Stellar's new building.(Round intermediate percentage calculation to 1 decimal place, e.g. 15.6% and final answer to 0 decimal places, e.g. 5,125.)
Avoidable Interest - $
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Some interest cost of Stellar Inc. is capitalized for the year ended May 31, 2018. Compute the amount of each items that must be disclosed in Stellar's financial statements.
Total actual interest cost - $
Total interest capitalized - $
Total interest expensed - $
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