View the step-by-step solution to:

Question 2 The following three situations involve the capitalization of interest. Situation I On January 1, 2017, Blossom, Inc.

Question 2

The following three situations involve the capitalization of interest.

Situation I

On January 1, 2017, Blossom, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,266,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2017, to finance the construction cost, Blossom borrowed $4,266,000 payable in 10 annual installments of $426,600, plus interest at the rate of 10%. During 2017, Blossom made deposit and progress payments totaling $1,599,750 under the contract; the weighted-average amount of accumulated expenditures was $853,200 for the year. The excess borrowed funds were invested in short-term securities, from which Blossom realized investment income of $258,200.

What amount should Blossom report as capitalized interest at December 31, 2017?

Capitalized interest $____________

Situation II

During 2017, Blue Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities.

Interest Costs Incurred

Warehouse constructed for Blue's own use$30,130Special-order machine for sale to unrelated customer, produced according

to customer's specifications8,710Inventories routinely manufactured, produced on a repetitive basis7,310

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

Kingbird, Inc. has a fiscal year ending April 30. On May 1, 2017, Kingbird borrowed $9,298,000 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 $6,508,600. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $604,370 for the year.

How much should be shown as capitalized interest on Kingbird's financial statements at April 30, 2018?

Capitalized interest on Kingbird's financial statements $___________

Top Answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.


Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online