Scribd
Upload
247 views12 pages

Borrowing Cost Answer Key

Mildred Company borrowed $5,200,000 at 10% interest to construct a new warehouse. The appropriate amount of interest to capitalize for the current year is $637,000. Jewelry Company had various loans to construct a new building from 2017-2018. The cost of the building was $15,480,000 on December 31, 2017 and $23,860,800 on June 30, 2018 after capitalizing interest costs.

Uploaded by

HAZELMAE JEMINEZ
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
247 views12 pages

Borrowing Cost Answer Key

Mildred Company borrowed $5,200,000 at 10% interest to construct a new warehouse. The appropriate amount of interest to capitalize for the current year is $637,000. Jewelry Company had various loans to construct a new building from 2017-2018. The cost of the building was $15,480,000 on December 31, 2017 and $23,860,800 on June 30, 2018 after capitalizing interest costs.

Uploaded by

HAZELMAE JEMINEZ
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 12

Borrowing Cost Answer

key
Mildred Company borrowed 5,200,000 on a 10% note
payable to finance a new warehouse which the entity is
constructing for own use. The only other debt of the
entity is a 7,800,000, 12% mortgage payable on an
office building. At the end of the current year, average
accumulated expenditures on the new warehouse
totalled 6,175,000.
What amount of interest should be capitalized for the
current year?
 520,000 b. 617,500 c. 637,000 d.
679,250
Answer
Solve: 5200,000*.10 =520,000
6175000-5200000=975,000*.12=117,000
637,000
 
On January 1, 2017, Sheena Company borrowed 2,800,000 at an
interest rate of 12% specifically for the construction of a new
building.
The actual interest cost on this specific borrowing was 336,000
but interest of 14,000 was earned from the temporary investment
of the borrowing proceeds.
Sheena company also had the following other loans in 2017 for
general purposes but the proceeds were used in part for the
construction of the building.
 Principal Interest
10% bank loan 4,200,000 420,000
12% long term loan 7,000,000 840,000
The construction began on January 1, 2017 and was completed on
December 31, 2017. The expenditures on the construction were
2,800,000 on Jan. 1, 1,400,000 on March 31 and 4,200,000 on
Sept.30.
Answer
Required: Compute the cost of the new building.
336,000-14000= 322,000
2800*12 =33,600,000
1,400,000*9 =12,600,000
4200,000*3 =12600,000
 58,800,000/12=4900,000-
2800,000=2100,000*.1125=236,250
1,260,000/11,200,000=.1125
= 2,800,000+1,400,000+4,200,000+ 322,000+
236,250=8,958,250
Milott Company had the following borrowings during
2017. The borrowings were made for general purposes
but the proceeds were used to finance the construction
of a new building.
Principal Interest
12% bank loan 3,900,000 468,000
14% long term loan 6,500,000 910,000
The construction began on January 1, 2017 and was
completed on Dec. 31, 2017. Expenditures on the
building were 2600,000 on June 30 and 1,300,000 on
December 31.
Answer
Compute the cost of the building.
1378000/10,400,000 = 13.25 * 1300,000 =
172,250
2600*6 = 15,600,000/12 = 1300,000
1300* =0
Answer= 172,250+2600,000+1300,000=4,072,250
Jewelry Company had the following outstanding loans during
2017 and 2018.
Specific construction loan 3,600,000 10%
General loan30,000,000 12%
The entity began the self-construction of a new building on
January 1, 2017 and the building was completed on June 30, 2018.
The following expenditures were made:
 
January 1, 2017 4,800,000
April 1, 2017 6,000,000
December 1, 2017 3,600,000
March 1, 2018 7,200,000
 
Required: Compute for the cost of the building on December 31,
2017 and on June 30, 2018.
cost of the building on December 31, 2017
December 31, 2017 = 14400,000+ 1,080,000=15,480,000
4800*12 = 57600,000
6000*9 = 54,000,000 SB 3600,000*.10=360,000
3600*1 = 3600,000
 115,200,000 /12
= 9600,000
- 3600,000
=6000,000*.12 = 720,000
 1,080,000
Compute for the cost of the building on
June 30, 2018
June 30, 2018 =
15480,000+7,200,000+1,180,800=23,860,800
15,480,000*6/6 =15,4800,000
7200,000*4/6 = 4800,000
 20,280,000less
3600,000=16,680,000*.12=2,001,600*6/12=1000,800
 SBC .10 *3600,000*6/12 = 180,000
 1180,800
Macy company had the following loans outstanding for
the entire year 2017.
Specific construction loan 2,000,000 10%
General Loan 40,000,000 12%
The entity began the self construction of a building on
January 1, 2017 and the building was completed on
Dec.31, 2017. The following expenditures were made
during the current year.
January 1 2,000,000
July 1 4,000,000
November 1 6,000,000
Total 12,000,000
Required: Compute the cost the new building.
Answer
2000*12 = 24,000,000
4,000*6 = 24,000,000
6000*2 = 12,000,00 = 60,000,000/12=5,000,000
(2000,000)
=3,000,000*.12=360,000+200,000
= 560,000
+12,000,000
= 12,560,000
 

You might also like