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    Problem I.: Borrowing Cost - Exercises

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    jingyuu kim
    Milestone Company borrowed P2,000,000 at 10% interest to finance construction of a new building. Interest costs were P125,000 and interest earned on unspent funds was P20,000. Using the alternative treatment, the amount Milestone should capitalize as borrowing costs is P105,000. Victory Company made various borrowings to finance construction of a new warehouse. Using the alternative treatment, the amount of capitalizable borrowing cost for Victory Company is P149,400. Faith, Inc. borrowed P10,000,000 at 15% to finance construction of a new building. Expenditures for the partially completed structure were P6,000,000 for the year ended

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    Problem I.: Borrowing Cost - Exercises

    Uploaded by

    jingyuu kim
    575 views2 pages
    Milestone Company borrowed P2,000,000 at 10% interest to finance construction of a new building. Interest costs were P125,000 and interest earned on unspent funds was P20,000. Using the alternative treatment, the amount Milestone should capitalize as borrowing costs is P105,000. Victory Company made various borrowings to finance construction of a new warehouse. Using the alternative treatment, the amount of capitalizable borrowing cost for Victory Company is P149,400. Faith, Inc. borrowed P10,000,000 at 15% to finance construction of a new building. Expenditures for the partially completed structure were P6,000,000 for the year ended

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    Milestone Company borrowed P2,000,000 at 10% interest to finance construction of a new building. Interest costs were P125,000 and interest earned on unspent funds was P20,000. Using the alternative treatment, the amount Milestone should capitalize as borrowing costs is P105,000. Victory Company made various borrowings to finance construction of a new warehouse. Using the alternative treatment, the amount of capitalizable borrowing cost for Victory Company is P149,400. Faith, Inc. borrowed P10,000,000 at 15% to finance construction of a new building. Expenditures for the partially completed structure were P6,000,000 for the year ended

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    575 views2 pages

    Problem I.: Borrowing Cost - Exercises

    Uploaded by

    jingyuu kim
    Milestone Company borrowed P2,000,000 at 10% interest to finance construction of a new building. Interest costs were P125,000 and interest earned on unspent funds was P20,000. Using the alternative treatment, the amount Milestone should capitalize as borrowing costs is P105,000. Victory Company made various borrowings to finance construction of a new warehouse. Using the alternative treatment, the amount of capitalizable borrowing cost for Victory Company is P149,400. Faith, Inc. borrowed P10,000,000 at 15% to finance construction of a new building. Expenditures for the partially completed structure were P6,000,000 for the year ended

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    Borrowing Cost - Exercises

    Problem I.
    On January 1, 2020, Milestone Company was granted a loan of P2,000,000 at an interest rate of
    10% specifically to finance the construction of its new building. Availments from the loan were
    made quarterly in equal amounts. Total borrowing costs amounted to P125,000. Prior to their
    disbursements, the proceeds of the loan were temporarily placed in a special savings account
    and earned interest income amounting to P20,000. The building was completed on December
    31 of the same year.
    Using the alternative treatment, how much should Milestone Company capitalize as borrowing
    costs?
    a.105,000 b.125,000 c.195,000 d.200,000

    Problem 2.
    The following transactions pertain to the general borrowings made during 2020 by Victory
    Company in connection with the construction of the company’s new warehouse:
    Principal Borrowing Costs
    8% bank loan 2,400,000 192,000
    6% short-term note 1,600,000 96,000
    8% long-term note 2,000,000 160,000
    The construction started on January 1, 2020 and the warehouse was completed on December
    31, 2020. Expenditures on the warehouse was completed on December 31, 2020. Expenditures
    on the warehouse were as follows:
    January 1 400,000 September 30 1,000,000
    March 31 1,000,000 December 31 400,000
    June 30 1,200,000
    Using the alternative treatment, how much is the capitalizable borrowing cost of Victor
    Company?
    a. 0
    b. 149,400
    c. 298,600
    d. 448,000

    Problem 3.
    Faith, Inc. has a fiscal year ending April 30. On May 1, 2020, Faith borrowed P10,000,000 at 15%
    to finance construction of its own building. Repayments of the loan are to commence on the
    month following completion of the building. During the year ended, April 30, 2021,
    expenditures for the partially completed structure totaled 6,000,000. These expenditures were
    incurred evenly throughout the year. Interest earned on the unexpended portion of the loan
    amount to P400,000 for the year.
    How much should be shown as capitalized interest on Faith’s financial statements at April
    20,2021 under the alternative method?
    a.0 b.50,000 c.450,000 d1,100,000

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