Rolling Blackout Power Company constructed a new power plant to supply energy to the Northeast Electrical Grid. The construction began on January 2 and ended on December 31 of the current year. On the date of completion, the plant had a total cost of S8,500,000. The weighted-average accumulated expenditures for the year were $4,250,000.

The company had the following debt outstanding for the entire year:

Required

a. Compute the amount of interest to be capitalized for the current year.

b. Compute the amount of interest to be expensed in the current year.

c. Prepare the journal entry to record the cash interest payments for the current year. Assume that all interest is paid at the end of the year and any interest capitalized is debited to the Construction in Progress account.

Transcribed Image Text:

Debt Instrument and Purpose Amount 8% Note Payable: Used to finance the power plant construction project $2,000,000 12% Bond Payable: Used to finance maintenance of local transmitters $1,800,000 13% Note Payable: Used to finance construction of corporate headquarters $4,200,000 Debt Instrument and Purpose Amount 8% Note Payable: Used to finance the power plant construction project $2,000,000 12% Bond Payable: Used to finance maintenance of local transmitters $1,800,000 13% Note Payable: Used to finance construction of corporate headquarters $4,200,000

Answer rating: 100% (QA)

Capitalization of Interest The value of interest that is required to pay for the funds used by the company for the construction of the longterm asset ... View the full answer