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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: (1) assets that an enterprise constructs for its own use (such as facilities), and (2) assets intended for sale or lease that are constructed as discrete projects (ships, real estate). Interest can not be capitalized for inventories

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that are routinely manufactured or otherwise produced in large quanaties on a repetitive basis.
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Chapter 10 Capitalized Interest Solution MARVEL -...

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