Reference no: EM132979912
Question - Mira Co. is constructing a Production Complex that qualifies for interest capitalization. The following information is available:
Capitalization period: January 1, 2023 to June 30, 2024 (completion date is June 30, 2024).
Expenditures on the project:
January 1, 2023: $540,000
May 1, 2023: $465,000
October 1, 2023: $600,000
March 1, 2024: $1,500,000
May 1, 2024: $900,000
At the beginning of construction work, Mira Co. had the following debts outstanding:
1) Loan A: $1,000,000 with 12% interest rate, due to mature on December 31, 2026
2) Loan B: $3,000,000 with 14% interest rate, with a maturity date of December 31, 2025
3) Loan C: $6,000,000 with 8% interest rate, with a maturity date of December 31, 2023
Mira Co. uses the weighted-average interest rate of its outstanding debts to capitalize interest for the Production Complex.
Required -
a) Determine the amount of interest to be capitalized by Mira Co. for 2023.
b) Prepare the appropriate journal entries to record the interest capitalization for the Production complex during 2023.
c) Determine the amount of interest to be capitalized by Mira Co. for 2024.
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