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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