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KATRIN_1 [288]
3 years ago
10

On January 1, 2018, the Highlands Company began construction on a new manufacturing facility for its own use. The building was c

ompleted in 2019. The company borrowed $2,350,000 at 9% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2018: $7,000,000, 14% bonds $3,000,000, 9% long-term note Construction expenditures incurred during 2018 were as follows: January 1 $ 960,000 March 31 1,560,000 June 30 1,232,000 September 30 960,000 December 31 760,000 Required: Calculate the amount of interest capitalized for 2018 using the specific interest method. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).)
Business
1 answer:
nalin [4]3 years ago
8 0

Answer:

Highlands Company

The interest capitalized for 2018 using the specific interest method is:

= $268,740.

Explanation:

a) Data and Calculations:

Amount borrowed on January 1, 2018 = $2,350,000

Rate of interest for the construction loan = 9%

Outstanding debts throughout 2018:

$7,000,000, 14% bonds

$3,000,000, 9% long-term note

Construction Expenditures incurred during 2018:

Date                    Expenditure     Weight       Weighted Average

January 1             $ 960,000         12/12           $960,000

March 31              1,560,000           9/12            1,170,000

June 30               1,232,000           6/12              616,000

September 30      960,000            3/12             240,000

December 31        760,000            0/12                         0

Total accumulated weighted-average expenditure = $2,986,000

Interest capitalized for 2018 using the specific interest method:

= $268,740 ($2,986,000 * 9%)

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The company should stop production because the losses are over fixed cost and this tells us that the company is not even able to recover the variable costs and because the variable costs are not at least recovered, there would be no point for the company to continue in the business as it would keep on making a loss and the logic might be wrong regarding sunk costs but the decision must be taken in favour where production should be stopped.

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On July 1, Hartford Construction purchases a bulldozer for $228,000. The equipment has a 9-year life with a residual value of $1
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Answer:

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= $8 per hour

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Third year depreciation:

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Journal entries

Date                    Account Title                                    Debit                 Credit

June 30, Year 1 Depreciation                                     $10,000

                          Accumulated Depreciation                                       $10,000

Date                       Account Title                                   Debit                 Credit

June 30, Year 2     Depreciation                                 $22,040

                              Accumulated Depreciation                                  $22,040

Date                       Account Title                                   Debit                 Credit

June 30, Year 3     Depreciation                                 $9,800

                              Accumulated Depreciation                                  $9,800

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Answer:

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