Asked by jennifer ocampo on Apr 28, 2024
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On January 1, 2010, Rong Company signed a contract to have Rozy Associates construct a manufacturing facility at a cost of $14, 000, 000.It was estimated that it would take three years to complete the project.Also on January 1, 2010, to finance the construction cost, Rong borrowed $14, 000, 000 payable in seven annual installments of $2, 000, 000 plus interest at the rate of 9%.During 2010, Rong made progress payments totaling $5, 000, 000 under the contract, and the average amount of accumulated expenditures was $3, 000, 000 for the year.The excess borrowed funds were invested in short-term securities, from which Rong realized investment income of $330, 000.What amount should Rong report as capitalized interest at December 31, 2010?
A) $ 0
B) $ 270, 000
C) $ 510, 000
D) $1, 260, 000
Capitalized Interest
Interest expense that is included in the cost of a constructed asset, allowing the interest to be depreciated over the life of the asset.
Progress Payments
Progress payments are partial payments made during the production or construction of goods or completion of a project, typically after certain milestones are reached.
Accumulated Expenditures
The total amount of expenses incurred over time for a specific purpose, such as the construction of an asset.
- Grasp the concept of capitalized interest and its practical application.
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Learning Objectives
- Grasp the concept of capitalized interest and its practical application.
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