Microsoft engaged with Mikes Construction Co. to design and construct a manufacturing facility. Construction started...
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Accounting
Microsoft engaged with Mikes Construction Co. to design and construct a manufacturing facility. Construction started on January 2 and was completed on December 31 of the current year. During the year, Microsoft paid the following amounts to mike :
Jan. 2 - 2.4m
Aug. 1 - 1.8m
Oct. 1- 3.6m
Dec. 1- 1.2m
Total payments
$9.0m
Microsoft had outstanding borrowings that were unrelated to the project throughout the year as follows:
$5m of bonds payable with a 6% interest rate
$1m note payable with a 9% interest rate.
In addition, Microsoft borrowed $2.8m from America Capital specifically to finance the project. This debt is due in 3 years and has an interest rate of 5%.
Required:
Compute the amount of interest that needs to be capitalized and the amount of interest that would be reported as interest expense for the year. Assume the specific interest method.
What would be the amount of depreciation recorded in the first year of use of the facility assuming an estimated residual value of $1m, an estimated useful life of 25 years, and assuming Microsoft used
Straight-line depreciation
150% declining-balance depreciation?
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