nterest During ConstructionAlta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:Capitalization period: January 1, 2019, to June 30, 2020Expenditures on project:2019: January 1$ 492,000 May 1441,000 October 1648,0002020: March 11,392,000 June 30708,000Amounts borrowed and outstanding: $1.7 million borrowed at 10%, specifically for the project $5 million borrowed on July 1, 2018, at 12% $12 million borrowed on January 1, 2017, at 6%Required:Note: Round all final numeric answers to two decimal places.Compute the amount of interest costs capitalized each year.Capitalized interest, 2019$ fill in the blank 1Capitalized interest, 2020$ fill in the blank 2If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.$ fill in the blank 3Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report income than if it had not capitalized interest. In future periods, the same company will report income than if it had not capitalized interest.

It is the amount of reduction in the value of a tangible fixed asset due to tear and wear,…

Answered: nterest During Construction Alta…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter10: Property, Plant And Equipment: Acquisition And Subsequent Investments

Section: Chapter Questions

Problem 9P

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nterest During Construction

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:
- Capitalization period: January 1, 2019, to June 30, 2020
- Expenditures on project:
  
  2019:
  
  January 1 $ 492,000
  
  May 1 441,000
  
  October 1 648,000
  
  2020:
  
  March 1 1,392,000
  
  June 30 708,000
- Amounts borrowed and outstanding:
     $1.7 million borrowed at 10%, specifically for the project
     $5 million borrowed on July 1, 2018, at 12%
     $12 million borrowed on January 1, 2017, at 6%
Required:

Note: Round all final numeric answers to two decimal places.
1. Compute the amount of interest costs capitalized each year.
  
  Capitalized interest, 2019 $ fill in the blank 1
  
  Capitalized interest, 2020 $ fill in the blank 2
2. If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.
  
  $ fill in the blank 3
3. Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report
  
  income than if it had not capitalized interest. In future periods, the same company will report
  
  income than if it had not capitalized interest.

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2019:
	January 1	$ 492,000
	May 1	441,000
	October 1	648,000
2020:
	March 1	1,392,000
	June 30	708,000

Capitalized interest, 2019	$ fill in the blank 1
Capitalized interest, 2020	$ fill in the blank 2