On January 1, 2014, Union Power and Light commenced construction of a new generating plant to serve the northeast corridor of the state. The total cost of the project is $ 4,100,000, and it will be completed on June 1, 2015. Scheduled payments to contractors are summarized in the following table.
Date Amount Paid
January 1, 2014……………………………. $ 950,000
April 1, 2014 ……………………………… 300,000
July 1, 2014 …………………………..…… 1,200,000
Total 2014 ………………………………… $ 2,450,000
February 1, 2015…………………………… $ 1,150,000
April 1, 2015 …………………………… 500,000
Total 2015 $ 1,650,000 Total expenditures $ 4,100,000 To finance the project, Union Power obtained a bank loan on January 1, 2014, for $ 1,800,000 at 10% interest. Union’s other general (or indirect) outstanding debt during 2014 and 2015 includes the following:
General Debt Amount
7% Note $ 1,000,000
9% Note 3,500,000
6% Bonds 2,000,000
Total $ 6,500,000
All debt was issued at par and is outstanding for the full year. Interest for all debt is paid on December 31.
Required
a. Determine the amount of interest to be capitalized and expensed by Union Power Company for both 2014 and 2015.
b. Prepare all journal entries required.
c. Determine the final valuation of the power plant.