On February 28th, 2014, Kimmel Inc. started to construct an addition to their facilities (an expansion to the auditorium). Kimmel Inc. hired Fallon Corp. to construct the new addition. Construction began on February 1st, 2014 and the project was completed on December 31st, 2014. To help finance the construction project, Kimmel Inc. borrowed $650,000 from Myers State Bank on March 1st. The interest on this note was stated at 6.0% and the note is due on March 1st, 2019. The interest is payable each March 1st to Myers State Bank. Kimmel Inc. used $325,000 of the proceeds to pay Fallon Corp. on March 1st. Kimmel Inc. decided to temporarily invest the remaining proceeds on March 1st into a short-term marketable security fund that earns 3.5%. The company sells the investment on December 31st. During the year, Kimmel Inc. paid construction costs to Fallon Corp.
These payments were made on:
May 1st (paid $600,000)
August 1st (paid $375,000)
December 31st (paid $710,000)
Other than the note to Myers State Bank, Kimmel Inc. had two outstanding liabilities during 2014: (1) a $820,000, 5%, 10-year note payable, dated January 1, 2010, on which interest is payable January 1st of each year and
(2) a $475,000, 3.5%, 5-year note payable, dated January 1, 2012, on which interest is payable January 1st of each year. The notes were issued by Letterman National Bank.
Instructions: (Round all computations to the nearest dollar.)
Calculate the interest revenue.
Calculate the weighted-average accumulated expenditures.
Calculate the avoidable interest.
Calculate the total actual interest.
Determine the amount of interest cost to be capitalized during 2014.
Prepare the journal entries needed on the books of Kimmel Inc. at each of the following dates.
March 1st, 2014
May 1st, 2014
August 1st, 2014
December 31st, 2014