Compute the amount of the avoidable interest

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Reference no: EM132119334

Question - Plant Assets

1. On July 1, 2018, Ingalls Impending Disaster Inc. purchased land and a factory building at a total cost of $9,200,000. Prior to the purchase, the land and factory building were appraised at values of $500,000 and $9,500,000, respectively.

During July, Ingalls Impending Disaster Inc. began construction on a warehouse on the land adjacent to the factory building. The company completed the new warehouse in November 2018 and incurred the following costs related to its construction:

Cost to remove debris from construction area - $12,000

Proceeds from scrap of debris material - 2,500

Cost to level and grade land in construction area - 16,600

Architect and design fees - 8,400

Construction materials and labor used - 575,000

Avoidable interest during construction period - 9,800

Actual interest during construction period - 8,100

Ingalls Impending Disaster Inc. also incurred $36,750 of costs during 2018 to construct new sidewalks, parking lots and roadways on the property.

Determine the historic costs of the land, factory building, warehouse, and land improvements recognized by Ingalls Impending Disaster Inc. during 2018.

2. In January 2018, Sugar Hill Confections began construction of an office building to relocates its corporate headquarters. The company made the following expenditures during 2018 for construction costs:

January 1 - $1,500,000

April 1 - 4,800,000

July 1- 3,200,000

October 1 - 2,000,000

December 31 - 1,750,000

Sugar Hill confections borrowed $5,000,000 on January 1, 2018 to finance the construction of the office building and issued a note bearing 6.5% interest. The company had $10,000,000 of 7.25% bonds outstanding at January 1 that was the company's only other interest-bearing debt during 2018.

a. What was the amount of the weighted-average accumulated expenditures on the project during 2018?

b. Compute the amount of the avoidable interest incurred on the project during 2018.

c. Compute the amount of the actual interest incurred during 2018.

d. Determine the amounts of capitalized interest on the project during 2018 and interest expense reported in the 2018 income statement.

e. What was the amount reported as Construction In=Progress at December 31, 2018?

Reference no: EM132119334

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