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    CHAPTER 16: Borrowing Cost: Problem 1

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    Mark Ilano
    Dunkin Donut Company took out general borrowings in 2018 totaling $48 million at interest rates between 6-7% to fund a new plant construction project that was completed in September 2015 at a cost of $18 million. The appropriate amount of borrowing costs to capitalize to the plant asset is $911,250. JCO Company took a $24 million loan at 10% interest on January 1, 2018 to renovate a building. Renovation was substantially complete by October 31, 2018. The appropriate amount of borrowing costs to include in the cost of the building is $2,000,000. Krispy Kreme Company obtained a $4 million loan at 10% interest in

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    CHAPTER 16: Borrowing Cost: Problem 1

    Uploaded by

    Mark Ilano
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    Dunkin Donut Company took out general borrowings in 2018 totaling $48 million at interest rates between 6-7% to fund a new plant construction project that was completed in September 2015 at a cost of $18 million. The appropriate amount of borrowing costs to capitalize to the plant asset is $911,250. JCO Company took a $24 million loan at 10% interest on January 1, 2018 to renovate a building. Renovation was substantially complete by October 31, 2018. The appropriate amount of borrowing costs to include in the cost of the building is $2,000,000. Krispy Kreme Company obtained a $4 million loan at 10% interest in

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    Borrowing Cost

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    Dunkin Donut Company took out general borrowings in 2018 totaling $48 million at interest rates between 6-7% to fund a new plant construction project that was completed in September 2015 at a cost of $18 million. The appropriate amount of borrowing costs to capitalize to the plant asset is $911,250. JCO Company took a $24 million loan at 10% interest on January 1, 2018 to renovate a building. Renovation was substantially complete by October 31, 2018. The appropriate amount of borrowing costs to include in the cost of the building is $2,000,000. Krispy Kreme Company obtained a $4 million loan at 10% interest in

    Copyright:

    © All Rights Reserved
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    29 views2 pages

    CHAPTER 16: Borrowing Cost: Problem 1

    Uploaded by

    Mark Ilano
    Dunkin Donut Company took out general borrowings in 2018 totaling $48 million at interest rates between 6-7% to fund a new plant construction project that was completed in September 2015 at a cost of $18 million. The appropriate amount of borrowing costs to capitalize to the plant asset is $911,250. JCO Company took a $24 million loan at 10% interest on January 1, 2018 to renovate a building. Renovation was substantially complete by October 31, 2018. The appropriate amount of borrowing costs to include in the cost of the building is $2,000,000. Krispy Kreme Company obtained a $4 million loan at 10% interest in

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    CHAPTER 16: Borrowing Cost

    Problem 1
    Dunkin Donut Company commenced construction of a new plant on February 1, 2018. The cost
    of P18,000,000 was paid in full to the contractor on February 1, 2015 and was funded from
    existing general borrowings. The construction was completed on September 30, 2015.
    The borrowings during 2018 comprised the following:
    Bank A – 6% 8,000,000
    Bank B – 6.6% 10,000,000
    Bank C – 7% 30,000,000

    What is the amount of borrowing cost that should be capitalized in relation to the plant?

    a. 1,215,000
    b. 810,000
    c. 911,250
    d. 0

    Problem 2
    On January 1, 2018, JCO Company took out a loan of P24,000,000 in order to finance
    specifically the renovation of a building. The renovation work started on the same date. The loan
    carried annual interest at 10%. Work on the building is substantially complete on October 31,
    2018. The loan was repaid on December 31, 2018 and P200,000 investment income was
    earned in the period to October 31 on the proceeds of the loan not yet used for the renovation.
    What is the amount of borrowing cost to be included in the cost of the building?
    a. 2,400,000
    b. 2,200,000
    c. 2,000,000
    d. 1,800,000

    Problem 3

    At the beginning of 2018, Krispy Kreme Company obtained a loan of P4,000,000 at an interest
    rate of 10%, specifically to finance the construction of a new building. The building was
    completed at the current year-end.

    Availments from the loan were made quarterly in equal amounts. Total borrowing cost incurred
    amounted P250,000 for the current year. Prior to their disbursement, the proceeds of the
    borrowing were temporarily invested and earned interest income of P40,000.
    How much should be capitalized as borrowing cost?

    a. 210,000
    b. 290,000
    c. 400,000
    d. 440,000

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