Big Stop Corporation decided to expand and build a new manufacturing site in 2020.

The entity has three outstanding loans as of December 31, 2019, as follows:

P25,000,000 loan from PI Bank; 10% annual interest; due December 31, 2021.

P30,000,000 loan from PN Bank; 11% annual interest; due December 31, 2023.

P15,000,000 loan from DO Bank; 8.5% annual interest; due December 31, 2023.

Big Stop decided to use the cash financed by the general borrowings, and not to obtain

additional loans for the construction.

The construction started on January 5, 2020, and ended on December 31, 2020.

Presented below is the schedule of payments made by the entity during the construction:

January 5, 2020

2,400,000

April 2, 2020

4,800,000

June 1, 2020

5,500,000

August 31, 2020

8,400,000

September 30, 2020

900,000

December 1, 2020

1,200,000

December 31, 2020

450,000

Requirements:

6. How much is the capitalizable borrowing cost?

7. How much is the interest expense for the period?

8. What is the initial cost of the building?

Answer rating: 100% (QA)

To determine the capitalizable borrowing cost interest expense and initial cost of the building we n... View the full answer