Chapter 10 Capitalized Interest Solution MARVEL

Chapter 10 Capitalized Interest Solution MARVEL -...

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Capitalized Interest Solution: Marvel a. Computation of Weighted Average Expenditures Expenditures Capitalization Period = Weighted Average Accumulated Expenditures Date Amount 8/30 $ 200,000 x 3/12 $ 50,000 12/1 $ 400,000 x 0 -0- $ 50,000 Interest Revenue: $ 400,000 x 5% x 3/12 = $ 5,000 Avoidable Interest Weighted Average Accumulated Expenditures x Interest Rate = Avoidable Interest $ 50,000.00 x 12% = $ 6,000 x 3/12 = $ 1,500 Total Interest Incurred: $ 600,000 x 12% x 4/12 = $ 24,000 $ 60,000 x 9% = $ 5,400 Total $ 29,400 Interest to be capitalized: $ 1,500 b. 8/30 Cash $ 600,000 Notes Payable $ 600,000 Machine $ 200,000 Short-term investments $ 400,000 Cash $ 600,000 12/1 Cash $ 405,000 Short-term investments $ 400,000 Interest revenue $ 5,000 ($400,000 x 5% x 3/12) Machine $ 400,000 Cash $ 400,000 12/31 Machine $ 1,500 Interest Expense $ 27,900 * Cash ( $ 60,000x 9%) $ 5,400 Interest Payable $ 24,000 ($600,000 x 12% x 4/12) $ 29,400- $ 1,500 Examples of assets that qualify for interest capitalization are:
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Chapter 10 Capitalized Interest Solution MARVEL -...

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