Problem 1: On January 2, 2011 the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2012. The Company borrowed $1,500,000 on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2011
$5,000,000 12% bonds
$3,000,000 8% long term note
Construction expenditures incurred during 2011 were as follows:
January 1 $600,000
March 31 $1,200,000
June 30 $800,000
September 30 $600,000
December 31 $400,000
Required:
Calculate the amount of interest capitalized for 2011 using the specific interest method
Problem 2: Delaware Company incurred the following research and development cost during 2011:
Salaries and wages for lab research $400,000
Materials used in R&D projects 200,000
Purchase of equipment 900,000
Fees paid to outsiders for R&D projects 320,000
Patent filing and legal costs for developed project 65,000
Salaries, wages, and supplies for R&D work performed
For another company under contract 350,000
Total $2,235,000
The equipment has a seven-year life and will be used for a number or research projects. Depreciation for 2011 is $120,000.
Required:
Calculate the amount of research and development expense that Delaware should report in its 2011 income statement.