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Early in 2015, Menan Corporation engaged Roberts, Inc. to design and construct a complete modernization of...

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Accounting

Early in 2015, Menan Corporation engaged Roberts, Inc. to designand construct a complete modernization of Menan's manufacturingfacility. Construction was begun on May 1, 2015. Menan made thefollowing payments to Roberts, Inc. during 2015:

DatePayment
May 1, 2015$34,000,000
August 31, 2015$56,000,000
December 31, 2015$31,000,000

In order to help finance the construction, Nolan issued thefollowing during 2015:

1. $12,000,000 of 10-year, 9% bonds payable, issued at par onMay 1, 2015, with interest payable annually on May 1.

2. 20,000,000 shares of no-par common stock, issued at $10 pershare on May 1, 2015.

In addition to the 9% bonds payable, the only other debtoutstanding during 2015 was an $8,000,000, 12% note payable datedJanuary 1, 2012 and due January 1, 2022, with interest payableannually on January 1.

What is the total amount to be debited to the 'ManufacturingFacility' account during the year 2015?

Answer & Explanation Solved by verified expert
4.3 Ratings (610 Votes)

Weighted-average accumulated expenditures qualifying for capitalization of interest cost.
Date Capitalization Expenditures Period Weighted-Average Accumulated Expenditures
May 1, 2015 $ 34,000,000 8/12 $ 22,666,667
August 31, 2015 $ 56,000,000 4/12 $ 18,666,667
December 31, 2015 $ 31,000,000 0 $ 0
$ 41,333,333
Avoidable interest incurred during 2015
Weighted-Average Accumulated Expenditures Appropriate Interest Rate Avoidable Interest
12000000 9% 1,080,000.00
$ 29,333,333 12% 3,520,000.00
$ 41,333,333 4,600,000.00
Actual interest incurred during 2015:
9% bonds payable, $12,000,000*9%*8/12                              720,000.00
12% note payable, $8,000,000*12%                              960,000.00
                          1,680,000.00
Total amount to be debited to the 'Manufacturing Facility' account during the year 2015
Avoidable interest incurred during 2015 4,600,000.00
Less: Actual interest incurred during 2015: -1,680,000
2,920,000.00

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