Alta Company is constructing a production complex that for interest capitalization. The following information is available:
• Capitalization period: January 1, 2016, to June 30, 2017
• Expenditures on project:
2016:
January 1.........$ 540,000
May 1...........465,000
October 1........600,000
2017:
March 1........1,500,000
June 30.........600,000
•amounts borrowed outstanding:
$1.5 million borrowed at 12%, specifically for the project
$6 million borrowed on july 1, 2015, at 14%
$14 million borrowed on January 1, 2011, at 8%
Required:
1. Compute the amount of interest costs capitalized each year.
2. If it is assumed that the production complex has an estimated life of 20 years and a residual value of $0, Compute the straight-line depreciation in 2017.
3. Next Level Explain the effects of the interest capitalization on the financial statements for both value of $0, income taxes.