Asked by Charol Pelagio on May 09, 2024
Verified
On January 3, 2010, Mercury Company began self-constructing an asset that qualified for interest capitalization.On January 5, Mercury borrowed $300, 000 on an 8% construction loan.In addition, Mercury had $400, 000 of 6% notes payable and $700, 000 of 9% bonds payable outstanding.By December 31, expenditures (occurring evenly throughout the year)of $800, 000 had been made on the asset.Investment of unused funds during the year yielded $1, 200 of interest revenue.
Required:
Compute the amount of interest that should be capitalized during 2010.
Interest Capitalization
The process of adding accrued interest to the principal balance of a loan, thereby increasing the total amount of interest to be paid over the life of the loan.
Construction Loan
A short-term loan used to finance the building of a property or real estate project, usually converting to a long-term loan after completion.
Notes Payable
Financial obligations or loans represented by a promissory note that a company needs to pay back.
- Ascertain and understand the idea behind interest capitalization.
Verified Answer
Learning Objectives
- Ascertain and understand the idea behind interest capitalization.
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