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Interest During Construction

Tallman Company is constructing a production complex that qualifies for interest capitalization. The following information is available:

• Capitalization period: January 1, 2016, to June 30, 2017
• Expenditures on project:

  2016:
  	January 1	$ 516,000
  	May 1	405,000
  	October 1	708,000
  2017:
  	March 1	1,428,000
  	June 30	588,000

• Amounts borrowed and outstanding: $1.7 million borrowed at 12%, specifically for the project $4 million borrowed on July 1, 2015, at 14% $10 million borrowed on January 1, 2011, at 8%

Required:

Note: Round all final numeric answers to the nearest dollar.

1. Compute the amount of interest costs capitalized each year.

   Capitalized interest, 2016	$ fill in the blank 1
   Capitalized interest, 2017	$ fill in the blank 2

2. If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2017.

   $ fill in the blank 3

3. Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report

   higherlowerthe same amount ofhigher

   income than if it had not capitalized interest. In future periods, the same company will report

   higherlowerthe same amount oflower

   income than if it had not capitalized interest.

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