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Ford engaged with an Construction Co. to design and construct a manufacturing facility for its...

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Accounting

Ford engaged with an Construction Co. to design and construct a manufacturing facility for its car . Construction started on January 2 and was completed on December 31 of the current year. During the year, Ford paid the following amounts .

Jan. 2 $2m

Aug. 1 $2m

Oct. 1 $4m

Dec. 1 $1m

Total payments = 9m

Ford had outstanding borrowings that were unrelated to the project throughout the year as follows:

$6m of bonds payable with a 6% interest rate

$2m note payable with a 9% interest rate

Ford borrowed $3m from the bank to finance the project. This debt is due in 3 years and has an interest rate of 5%.

1- Compute the amount of interest that needs to be capitalized

2- Compute the amount of interest that would be reported as interest expense for the year.

Assume the specific interest method for both.

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