Asked by Terriona Hamilton on Jun 17, 2024
Verified
Cooper, Inc.is constructing a building that qualifies for interest capitalization.The following information is available:
Capitalization period: January 1, 2010-December 31, 2011 Expenditures on project (incurred evenly):
2010$20,0002011$60,000\begin{array}{ll}2010 & \$ 20,000 \\2011 & \$ 60,000\end{array}20102011$20,000$60,000 Amounts borrowed and outstanding (all debt incurred January 1, 2010):
$10,000 at 10% (specifically for the construction project) $18,000 at 12% (general debt) $30,000 at 14% (general debt) \begin{array}{ll}\$ 10,000 & \text { at } 10 \% \text { (specifically for the construction project) } \\\$ 18,000 & \text { at } 12 \% \text { (general debt) } \\\$ 30,000 & \text { at } 14 \% \text { (general debt) }\end{array}$10,000$18,000$30,000 at 10% (specifically for the construction project) at 12% (general debt) at 14% (general debt) Required:
a. Compute the amount of interest that should be capitalized in 2010 and 2011 . (Round interest rates to the ne arest hundredths e.g., 07.62% 07.62 \% 07.62% .)
b. Assume that in 2010 umused borowed funds were invested and eaned interest revemue amounting to $600 \$ 600 $600 . How much interest should be capitalized to the asset account in 2011 ?
Interest Capitalization
The process of adding interest that has accumulated on a loan to the principal balance of the loan, effectively increasing the total amount owed.
Borrowed
Refers to funds or resources obtained through a loan or credit that must be repaid in the future, often with interest.
- Determine and grasp the notion of accruing interest.
Verified Answer
AE
Ashlie ElizabethJun 23, 2024
Final Answer :
a.2010: $1,000 \$ 1,000 $1,000 , as computed below.
2011: $6,433 \$ 6,433 $6,433 , as compute d below.
b. $1,0000\quad \$ 1,0000$1,0000
2011: $6,433 \$ 6,433 $6,433 , as compute d below.
b. $1,0000\quad \$ 1,0000$1,0000
Learning Objectives
- Determine and grasp the notion of accruing interest.
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