Interest During Construction

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:

• Capitalization period: January 1, 2019, to June 30, 2020
• Expenditures on project:

  2019:
  	January 1	$ 492,000
  	May 1	501,000
  	October 1	492,000
  2020:
  	March 1	1,524,000
  	June 30	612,000

• Amounts borrowed and outstanding: $1.6 million borrowed at 12%, specifically for the project $5 million borrowed on July 1, 2018, at 14% $17 million borrowed on January 1, 2017, at 8%

Required:

Note: Round all final numeric answers to two decimal places.

1. Compute the amount of interest costs capitalized each year.

   Capitalized interest, 2019
   Capitalized interest, 2020

2. If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.

3. Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report

   (higher/lower/the same amount of)

   income than if it had not capitalized interest. In future periods, the same company will report

   (higher/lower/the same amount of)

   income than if it had not capitalized interest.