Question - Mardel corporation borrowed $300,000 at 10% interest from American bank on January 1, 2004, for the specific purpose of constructing a special purpose equipment to be used in its operations. Construction on the equipment began on January 1, 2004, and the following expenditures were prior to the projects completion on December 31, 2004
Expenditure made in 2004
January 1 $200,000
April 30 $300,000
November 1 $600,000
December 1 $300,000
Total expenditure $1,400,000
Other general debt existing on January 1, 2004 and issued in 2004 at par was $500,000, 14% 10-year bonds payable and $300,000 10% 5-year notes payable.
a. Does this asset qualify for interest capitalization? Why or why not? Give detailed explanation based n GAAP.
b. Compute the weighted average accumulated expenditure.
c. Compute the avoidable interest and actual interest. What interest is capitalized? Provide journal entry for interest capitalization.