E10-9B (Capitalization of Interest) On July 31, 2014, Robinson Company engaged Parrish Tooling Company to construct a special-purpose piece of factory machinery.

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E10-9B (Capitalization of Interest) On July 31, 2014, Robinson Company engaged Parrish Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2014. To help finance construction, on July 31 Robinson issued a $450,000, 3-year, 10% note payable at Randazzo National Bank, on which interest is payable each July 31. Robinson paid $300,000 of the proceeds of the note to Parrish on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities at 8% until November 1. On November 1, Robinson made a final $150,000 payment to Parrish. Other than the note to Randazzo, Robinson’s only outstanding liability at December 31, 2014, is a $45,000, 6%, 6-year note payable, dated January 1, 2011, on which interest is payable each December 31.

Instructions

(a) Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest,

and total interest cost to be capitalized during 2014. Round all computations to the nearest dollar.

(b) Prepare the journal entries needed on the books of Robinson Company at each of the following dates.

(1) July 31, 2014.

(2) November 1, 2014.

(3) December 31, 2014.

    • 7 years ago
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