Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The following three situations involve the capitalization of interest. Situation I On January 1, 2017, Riverbed, Inc. signed a fixed-price contract to have Builder Associates
The following three situations involve the capitalization of interest. Situation I On January 1, 2017, Riverbed, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,491,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2017, to finance the construction cost, Riverbed borrowed $4,491,000 payable in 10 annual installments of $449,100, plus interest at the rate of 10% During 2017, Riverbed made deposit and progress payments totaling $1,684,125 under the contract; the weighted-average amount of accumulated expenditures was $898,200 for the year. The excess borrowed funds were invested in short-term securities, from which Riverbed realized investment income of $261,100. What amount should Riverbed report as capitalized interest at December 31, 2017? Capitalized interest s Situation II During 2017, Marin Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities. Interest Costs Incurred Warehouse constructed for Marin's own use Special-order machine for sale to unrelated customer, produced according to customer's specifications Inventories routinely manufactured, produced on a repetitive basis $31,110 9,640 8,640 Interest Costs Incurred Warehouse constructed for Marin's own use Special-order machine for sale to unrelated customer, produced according to customer's specifications Inventories routinely manufactured, produced on a repetitive basis $31,110 9,640 8,640 All of these assets required an extended period of time for completion. Assuming the effect of interest capitalization is material, what is the total amount of interest costs to be capitalized? The total amount of interest costs to be capitalized Situation III Headland, Inc. has a fiscal year ending April 30, on May 1, 2017, Headland borrowed $9,056,000 at 11% to finance construction of its own building. Repayments of the loan are to commence the month following completion of the building. During the year ended April 30, 2018, expenditures for the partially completed structure totaled $6,339,200. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $588,640 for the year. How much should be shown as capitalized interest on Headland's financial statements at April 30, 2018? Capitalized interest on Headland's financial statements
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started