Chapter 10 Examples of Capitaliized Interest and Nonmonetary Exchanges

# Chapter 10 Examples of Capitaliized Interest and Nonmonetary Exchanges

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During 2010, Barden Building Company constructed various assets at a total cost of The weighted average accumulated expenditures on assets qualifying for capitalization of int 2010 were \$5,600,000 The company had the following debt outstanding at December 31, 2 10% 5 year note to finanance construction of various assets, dated January 1, 2010, with interest payable annually on January 1 12% ten year bonds issued at par on December 31, 2004, with interest payable annually on December 31. 9% 3 -year note payable dated January 1, 2009 with interest payable annually on January 1. Compute the amount of avoidable interest for the year ended December 31, 2010. Weighted Average Accumulated Expenditures Amount Percentage Amount Amount Percentage Amount Amount Amount Computation of weighted average interest rate: Description Principal Interest Amount Amount Formula Amount Amount Formula Weighted average interest rate = Amount divided by Amount Actual interest cost during 2010 Description Amount Percent Amount Description Amount Percent Amount Description Amount Percent Amount Amount Amount to be capitalized is Applicable Interest Rate Applicable Interest Rate

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\$8,400,000.00 terest during 2010. \$3, 600,000 \$4,000,000 \$2,000,000
During 2010, Barden Building Company constructed various assets at a total cost of The weighted average accumulated expenditures on assets qualifying for capitalization of interest 2010 were \$5,600,000 The company had the following debt outstanding at December 31, 2010. 10% 5 year note to finanance construction of various assets, dated January 1, 2010, with interest payable annually on January 1 12% ten year bonds issued at par on December 31, 2004, with interest payable annually on December 31. 9% 3 -year note payable dated January 1, 2009 with interest payable annually on January 1. Compute the amount of avoidable interest for the year ended December 31, 2010. Weighted Average Accumulated Expenditures 3600000 10% 360,000 \$2,000,000 11% 220,000 5,600,000 580000 Computation of weighted average interest rate: Description Principal Interest 12% \$4,000,000 \$480,000 9% \$2,000,000 \$180,000 \$6,000,000 \$660,000 Weighted average interest rate = \$660,000 divided by \$6,000,000 Actual interest cost during 2010 Construction Note, \$3,600,000 x 10% 3,600,000 10% 360000 12% Ten-year bonds, \$ 4,000,000 x 12% \$4,000,000 12% \$480,000 9% three-year note, \$ 2,000,000 x 9% \$2,000,000 9% \$180,000 1020000 Amount to be capitalized is 580000 because the avoidable interest is less than the actual interest. Applicable Interest Rate Avoidable Interest

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\$8,400,000.00 during 3,600,000 \$4,000,000 \$2,000,000 0.11
Early in 2010, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete moderniza manufacturing facility. Construction was begun on June 1, 2010 and was completed on December 3 made the following payments to Kiner, Inc. during 2010. Date Amount 6/1/2010 \$3,600,000 8/31/2010 \$5,400,000 12/31/2010 \$4,500,000 In order to help finance the construction, Dobbs issued the following during 2010. \$3,000,000 10 year 9% bonds payable issued at par on May 31, 2010. Interest is pa 1,000,000 shares of no par common stock, issued at \$ 10 per share on October 1, 2010.

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