Question: Lodi Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed

Lodi Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed for construction. Management has decided to correct its policy and desires to include interest as part of the cost of a new store just being completed. Based on the following information, compute amount of interest that would be added to the cost of the store (1) in 2008 and (2) in 2009?

Total construction expenditures:

January 2, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 600,000

May 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000

November 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000

March 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000

September 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000

December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000

$3,300,000

Outstanding company debt:

Mortgage related directly to new store; interest rate, 12%; term,

5 years from beginning of construction . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000

General bond liability:

Bonds issued just prior to construction of store; interest rate,

10% for 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000

Bonds issued prior to construction; interest rate,

8%, mature in 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000

Estimated cost of equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14%

Step by Step Solution

★★★★★

3.47 Rating (177 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

1 Computation of the amount of interest to be capitalized for 2008 is as follows Interest Fraction Capitalization of the Year Capitalized Expenditure ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (2 attachments)

105-B-A-I (1297).xlsx

300 KBs Excel File

105-B-A-I (1297).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

As part of a decision regarding a new product launch, you want to test whether or not a large enough percentage (10% or more) of the community would be interested in purchasing it. You will launch...

The indicator methyl orange has been added to both of these solutions. Based on the colors, classify each statement as true or false: (a) The pH of solution A is definitely less than 7.00. (b) The pH...

As part of a manufacturing process, a plastic container is supposed to be filled with 46 ounces of saltwater solution. The plant has three machines that fill the containers. Managers are concerned...

Carver Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed for construction. Management has decided to correct...

Please show how you get answers and add formulas ? Carver Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed for...

I am having problems getting the last half of this problem. Please see attachment. Can you help with what I am doing wrong. Carver Department Stores, Inc., constructs its own stores. In the past, no...

Hi tutors! Please explain to me these questions. The choices are removed to be enable to be provided with correct step by step computation. Thank you in advance 9. Which of the following indicates...

Accounting Department has developed the following information: Sales Variable expenses as a percentage of sales Traceable fixed expenses East $ 250,000 52% $ 160,000 Division Central $ 400,000 30% $...

Determine the value of a for which the following system has (a) no solution(b) exactly one solution. x+2y+z=2 2x - 2y +32 = 1 x+2y-az = a

a. Moto International Inc. received $4,600,000 of gross income, including $20,000 of interest income from tax-exempt municipal bonds. Moto International reported $3,600,000 of deductible business...

Net income for the company for the year was $300,000, and 100,000 shares of common stock were outstanding during the year. The income tax rate is 30%. For each of the following potentially dilutive...

Refer to Practice 1810. Assume that the convertible bonds were issued on October 1. Compute diluted earnings per share, assuming that (1) Each bond was convertible into 100 shares of common stock and...

On September 1, 2014, Winans Corporation acquired Aumont Enterprises for a cash payment of $700,000. At the time of purchase, Aumont's balance sheet showed assets of $620,000, liabilities of...

The company had 50,000 shares of common stock outstanding throughout the year. In addition, as of January 1, the company had issued 100 convertible bonds ($1,000 face value, 10%). The company has no...

Refer to Practice 188. Assume that the convertible preferred stock was issued on February 1. Also assume that the issuance agreement stipulates that the preferred stockholders are entitled to their...

2. What is working capital?

On January 1, 2011, Primavera Corporation had 55,000 shares of common stock outstanding that did not change during 2011. In 2010, Primavera granted options to certain executives to purchase 12,000...

Barone Company has employee stock options outstanding to purchase 40,000 common shares at $14 per share. All options were outstanding during the entire year. The ending price of the companys common...

On January 2, 2011, McGregor Co. issued at par $45,000 of 9% bonds convertible in total into 4,000 shares of McGregors common stock . No bonds were converted during 2011. Throughout 2011, McGregor...

Cherry Custom Cabinetry, a small, publicly held company, issued a bond which has 12 years remaining to maturity (round to the nearest whole number if necessary). It pays coupon interest at an annual...

(no other info given, assign this to someone else if you do not know about this) You have been given the following information concerning Ben and Jerrys capital structure. 1 million common shares...

Report Explanation about the reasons to select the stocks Description about the timing Remarks or implications HISTORY SYMBOL ACAD ABTX AAPL ABTX ABTX AAPL ACAD ABTX ABTX ACAD Prev Page PENDING...