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Q1) On January 1, 2008, Jonathan Company started construction of new building to be used as its office headquarters. Building was finished and ready for use on September 30, 2009.

 

3-Jan-08

$1,000,000

1-Mar-08

600,000

30-Jun-08

800,000

1-Oct-08

600,000

31-Jan-09

270,000

30-Apr-09

585,000

31-Aug-09

900,00

 

Expenditures on construction were:

 

On January 2, 2008, company got a $3,000,000 construction loan with 10% interest rate.  The loan was outstanding all of 2008 and 2009. Company's other interest-bearing debt consisted of two long-term notes of $4,600,000 and $6,000,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding all of 2008 and 2009. Company's fiscal year end is December 31.

 

a. Compute amount of interest Jonathan should capitalize as part of cost of building in 2008 and 2009.

 

b. Determine the total cost of building?

 

Compute amount of interest expense which will appear on 2008 and 2009 income statements.

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  • Category:- Accounting Basics
  • Reference No.:- M916890

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