Capitalization of Interest (30 points) Early in 2017, ABC Corporation engaged XYZ Inc. to design...
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Capitalization of Interest (30 points) Early in 2017, ABC Corporation engaged XYZ Inc. to design and construct a new building. Construction started on January 1, 2017 and was completed on December 31, 2017. ABC made the following payments to XYZ Inc. during 2017: Date January 1, 2017 May 31, 2017 December 31, 2017 Payment $ $ $ 200 200 50 In order to help finance the construction, ABC borrowed, on January 1, 2017, the following amount at 9% payable annually: $ 250 In addition, the company had two loans outstanding all year, as follows: Note Payable #1 $ 55 3-year, 10% note payable Note Payable #2 $ 25 4-year, 7% note payable Instructions Compute the amounts of each of the following (show computations and clearly label your answer to each item): 1. Weighted-average accumulated expenditures qualifying for capitalization of interest cost (7 points) 2. Actual interest incurred during 2017 (10 points) 3. Weighted-average interest rate (round to two decimal places, for example: 5.45%) (3 points) 4. Avoidable interest incurred during 2017 (7 points) 5. Total amount of interest cost to be capitalized during 2017 (1 point) 6. Prepare the journal entry for capitalization of interest (2 points)
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