Flounder Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Flounder since 2015. Flounder' original facility became obsolete by early 2020 because of the increased sales volume and the fact that Flounder now carries CDs in addition to books. On June 1, 2020, Flounder contracted with Black Construction to have a new building constructed for $5,600,000 on land owned by Flounder. The payments made by Flounder to Black Construction are shown in the schedule below. Date July 30, 2020 January 30, 2021 May 30, 2021 Total payments Amount $1,260,000 2,100,000 2.240,000 $5,600,000 Construction was completed and the building was ready for occupancy on May 27, 2021. Flounder had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year. 10%, 5-year note payable of $2,800,000, dated April 1, 2017, with interest payable annually on April 1. 12%, 10-year bond issue of $4,200,000 sold at par on June 30, 2013, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material. (a) Compute the weighted-average accumulated expenditures on Flounder's new building during the capitalization period. Weighted-Average Accumulated Expenditures S
Flounder Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Flounder since 2015. Flounder' original facility became obsolete by early 2020 because of the increased sales volume and the fact that Flounder now carries CDs in addition to books. On June 1, 2020, Flounder contracted with Black Construction to have a new building constructed for $5,600,000 on land owned by Flounder. The payments made by Flounder to Black Construction are shown in the schedule below. Date July 30, 2020 January 30, 2021 May 30, 2021 Total payments Amount $1,260,000 2,100,000 2.240,000 $5,600,000 Construction was completed and the building was ready for occupancy on May 27, 2021. Flounder had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year. 10%, 5-year note payable of $2,800,000, dated April 1, 2017, with interest payable annually on April 1. 12%, 10-year bond issue of $4,200,000 sold at par on June 30, 2013, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material. (a) Compute the weighted-average accumulated expenditures on Flounder's new building during the capitalization period. Weighted-Average Accumulated Expenditures S
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Flounder Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and
continuing education requirements in several professions has contributed to an annual growth rate of 15% for Flounder since 2015.
Flounder' original facility became obsolete by early 2020 because of the increased sales volume and the fact that Flounder now
carries CDs in addition to books.
On June 1, 2020, Flounder contracted with Black Construction to have a new building constructed for $5,600,000 on land owned by
Flounder. The payments made by Flounder to Black Construction are shown in the schedule below.
Date
July 30, 2020
January 30, 2021
May 30, 2021
Total payments
Amount
$1,260,000
(a)
2,100,000
2.240,000
$5.600.000
Construction was completed and the building was ready for occupancy on May 27, 2021. Flounder had no new borrowings directly
associated with the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year.
10%, 5-year note payable of $2,800,000, dated April 1, 2017, with interest payable annually on April 1.
12%, 10-year bond issue of $4,200,000 sold at par on June 30, 2013, with interest payable annually on June 30.
The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the
effect of expensing the interest, is material.
Compute the weighted-average accumulated expenditures on Flounder's new building during the capitalization period.
Weighted-Average Accumulated Expenditures $
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Transcribed Image Text:(b)
Compute the avoidable interest on Flounder's new building. (Round intermediate percentage calculation to 1 decimal place, e.g. 15.6%
and final answer to O decimal places, e.g. 5,125.)
Avoidable Interest $
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