Reference no: EM132532726
Question - Cinnamon Corporation decided to expand and build a new manufacturing site in 2018. The entity has three outstanding loans as of December 31, 2017, as follows:
P30,000,000 loan from Bank 1; 11.00% annual interest payable every December 31; due date June 30, 2018.
P25,000,000 loan from Bank 2; 12.55% annual interest payable every December 31; due date May 31, 2019.
P35,000,000 loan from Bank 3; 7.75% annual interest payable every December 31; due date December 31, 2021.
Cinnamon decided to use the cash financed by the general borrowings, and not to obtain additional loans for the construction.
The construction started on January 2 and ended on December 31, 2018. Presented below is the schedule of payments made by the entity during the construction:
Date - Amount
January 2, 2018 - P9,550,000
April 2, 2018 - 7,000,000
June 1, 2018 - 5,400,000
August 31, 2018 - 3,600,000
September 30, 2018 - 3,000,000
December 1, 2018 - 1,200,000
December 31, 2018 - 250,000
The entity capitalized the building equal to the cash payments during the construction. All interest payments related to the borrowings are recorded as expense. Interest income from the temporary investment of unused proceeds from the loans was recorded by the client as interest income for the year amounting to P250,000.
Required -
1. How much is the capitalizable borrowing cost?
2. What is the initial cost of the building?
3. How much is the interest expense for the period?
4. How much is the interest income during the period?
5. Provide the adjusting journal entries for 2018.