Bam199 Borrowing Cost Activity

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School

University of Pangasinan**We aren't endorsed by this school

Course

BAM 26

Subject

Accounting

Date

Dec 16, 2024

Pages

Uploaded by SargentHeronMaster187

Answer Key (v1.3) CHAPTER 22 - BORROWING COSTS True or False 1. False 6. True 2. False 7. False 3. True 8. False 4. True 9. True 5. False 10. False Multiple Choice - Theories 1. D 6.B 116 2. C 7.E 12.E 3D 8.C 13.B 4. A 9.D 14.A 5 B 10.C 15.C Straight Problems 1. SANTANDER Company 2023 2024 Actual specific borrowing costs P420,000 P420,000 Less: Interest earned (140,000) (60,000) Capitalized borrowing costs P280,000 P360,000 Add: Beginning CA of warehouse 0 4,280,000 Add: Construction costs for the year 4,000,000 2,000,000 Ending CA of warehouse P4,280,000 P6,640,000 2. OSLOB Company (Please change the requirement (b) to initial capitalizable cost of the office building) Actual specific borrowing costs during construction period, 2023 P480,000 Less: Investment earned (50,000) Capitalizable borrowing costs, 2023 P430,000 Actual specific borrowing costs during construction period, 2024 P600,000 Less: Investment earned (28,000) Capitalizable borrowing costs, 2024 P572,000 Total construction costs (P3M + P9M) P12,000,000 Capitalizable borrowing costs, 2023 430,000 Capitalizable borrowing costs, 2024 572,000 Total initial capitalizable cost of the building P13,002,000 29 Scanned with CamScanner

Answer Key (v1.3) 3. BANTAYAN Company January 1 to April 30 (P4M x 12% x 4/12) P160,000 May 1 to August 31 (P1.5M x 12% x 4/12) 60,000 September 1 to December 31 (POM x 12% x 4/12) 0 Total interest earned, 2023 P220,000 Total construction costs P7,000,000 Capitalizable borrowing costs, 2023 (P7M x 9%) - 220K 410,000 Total initial capitalizable cost of the factory P7,410,000 4. LAVAZARES Company Actual Interest Borrowing Borrowings Amount Rate Costs Bond payable P4,000,000 13.75% P550,000 Loan payable 8,000,000 10% 800,000 Totals P12,000,000 P1,350,000 Divide by: Total General Borrowings 12,000,000 Capitalization Rate, 2023 11.25% Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2023 P2,000,000 12 P2,000,000 May 1, 2023 2,400,000 8 1,600,000 August 1, 2023 1,500,000 5 625,000 Total, 2023 P5,900,000 P4,225,000 Multiply: Capitalization rate 11.25% Capitalizable borrowing costs P475,313 Total construction costs P5,900,000 Capitalizable borrowing costs, 2023 475,313 Total initial capitalizable cost of the office building P6,375,313 Total interest expense = P1,350,000 - P475,313 = P874,687 5. MARAVILLA Company 30 Scanned with CamScanner

Answer Key (v1.3) Actual Interest Borrowing Borrowings Amount Rate Costs Loan payable P4,000,000 8.50% P340,000 Loan payable 2,000,000 10% 200,000 Totals P6,000,000 P540,000 Divide by: Total General Borrowings 6,000,000 Capitalization Rate, 2023 9% Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2023 P1,900,000 12 P1,900,000 May 1, 2023 1,200,000 8 800,000 July 31,2023 900,000 5 375,000 October 31, 2023 1,500,000 2 250,000 Total, 2023 P5,500,000 P3,325,000 Multiply: Capitalization rate 9% Capitalizable borrowing costs, 2023 P299,250 Total construction costs P5,500,000 Capitalizable borrowing costs, 2023 299,250 Carrying amount of factory building, 12/31/23 P5,799,250 Total actual borrowing costs P540,000 Capitalizable borrowing costs, 2023 (299,250) Interest to be expensed, 2023 P240,750 Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2024 P5,799,250 12 P5,799,250 April 1, 2024 1,000,000 9 750,000 June 30, 2024 800,000 6 400,000 August 1, 2024 700,000 5 291,667 Total, 2024 P8,299,250 P7,240,917 Multiply: Capitalization rate 9% Possible capitalizable borrowing costs, 2024 P651,683 Total actual borrowing costs P540,000 Possible capitalizable borrowing costs, 2024 651,683 Lower, capitalizable borrowing costs, 2024 P540,000 31 Scanned with CamScanner

Answer Key (v1.3) Since the amount of capitalizable borrowing costs is equal to the amount of actual borrowing costs, interest expense for 2024 is zero. Carrying amount of factory building, 12/31/23 P5,799,250 Total construction costs, 2024 (P1M + P800K + P700K) 2,500,000 Capitalizable borrowing costs, 2024 540,000 Carrying amount of factory building, 12/31/24 P8,839,250 6. MARAVILLA Company (part 2) Actual Interest Borrowing Borrowings Amount Rate Costs Loan payable P4,000,000 8.50% P340,000 Loan payable 2,000,000 10% 200,000 Totals P6,000,000 P540,000 Divide by: Total General Borrowings __ 6,000,000 Capitalization Rate, 2023 9% Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2023 P1,900,000 12 P1,900,000 May 1, 2023 1,200,000 8 800,000 July 31,2023 900,000 5 375,000 October 31, 2023 1,500,000 2 250,000 Total, 2023 P5,500,000 P3,325,000 Multiply: Capitalization rate 9% Capitalizable borrowing costs, 2023 P299,250 Total construction costs P5,500,000 Capitalizable borrowing costs, 2023 299,250 Carrying amount of factory building, 12/31/23 P5,799,250 Total actual borrowing costs P540,000 Capitalizable borrowing costs, 2023 (299,250) Interest to be expensed, 2023 P240,750 Months Weighted Date incurred Amount Until9/1 Amount January 1, 2024 P5,799,250 8 P5,799,250 April 1,2024 1,000,000 5 625,000 June 30, 2024 800,000 2 200,000 August 1, 2024 700,000 1 87,500 Total, 2024 P8,299,250 P6,711,750 Multiply: Capitalization rate 9% x8/12 Possible capitalizable borrowing costs, 2024 P402,705 32 Scanned with CamScanner

Answer Key (v1.3) Total actual borrowing costs during construction period P360,000 Possible capitalizable borrowing costs, 2024 402,705 Lower, capitalizable borrowing costs, 2024 P360,000 Total actual borrowing costs, 2024 P540,000 Capitalizable borrowing costs, 2024 (360,000) Interest to be expensed, 2024 P180,000 Carrying amount of factory building, 12/31/23 P5,799,250 Total construction costs, 2024 (P1M + P800K + P700K) 2,500,000 Capitalizable borrowing costs, 2024 360,000 Carrying amount of factory building, 12/31/24 P8,659,250 7. CATARMAN Company Actual Interest Borrowing Borrowings Amount Rate Costs Loan payable P3,000,000 11% P330,000 Loan payable 4,000,000 13% 520,000 Loan payable 1,000,000 15% 150,000 Totals P8,000,000 P1,000,000 Divide by: Total General Borrowings _ 8,000,000 Capitalization Rate for Gen. Borrowings, 2023 12.50% Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2023 P3,500,000 12 P3,500,000 April 1,2023 1,000,000 9 750,000 July 1, 2023 2,000,000 6 1,000,000 Total, 2023 P6,500,000 P5,250,000 Less: Amount of specific borrowings _ (3,000,000) Amount attributable to general borrowings P2,250,000 Multiply: Capitalization rate 12.50% Capitalizable general borrowing costs, 2023 P281,250 Capitalizable specific borrowing costs, 2023 (P3M x 9%) P270,000 Capitalizable general borrowing costs, 2023 281,250 Total capitalizable borrowing costs, 2023 P551,250 Total actual general borrowing costs, 2023 P1,000,000 Less: Capitalizable general borrowing costs, 2023 (281,250) Interest to be expensed, 2023 P718,750 33 Scanned with CamScanner

Answer Key (v1.3) Total construction costs P6,500,000 Capitalizable borrowing costs, 2023 551,250 Carrying amount of factory building, 12/31/23 P7,051,250 Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2024 P7,051,250 12 P7,051,250 February 1, 2024 1,800,000 11 1,650,000 May 1, 2024 1,500,000 8 1,000,000 September 30, 2024 1,100,000 3 275,000 Total, 2024 P6,500,000 P9,976,250 Less: Amount of specific borrowings _ (3,000,000) Amount attributable to general borrowings P6,976,250 Multiply: Capitalization rate 12.50% Capitalizable general borrowing costs, 2024 P872,031 Capitalizable specific borrowing costs, 2024 (P3M x 9%) P270,000 Capitalizable general borrowing costs, 2024 872,031 Total capitalizable borrowing costs, 2024 P1,142,031 Total actual general borrowing costs, 2024 P1,000,000 Less: Capitalizable general borrowing costs, 2024 (872,031) Interest to be expensed, 2024 P127,969 Carrying amount of factory building, 12/31/23 P7,051,250 Total construction costs, 2024 (P1.8M + P1.5M + P1.1M) 4,400,000 Capitalizable borrowing costs, 2024 1,142,031 Carrying amount of factory building, 12/31/24 P12,593,281 8. CALBAYOG Company Actual Interest Borrowing Borrowings Amount Rate Costs Loan payable P3,000,000 10% P300,000 Loan payable 2,000,000 9% 180,000 Loan payable 2,000,000 7.5% 150,000 Totals P7,000,000 P630,000 Divide by: Total General Borrowings 7,000,000 Capitalization Rate for Gen. Borrowings, 2023 9% 34 Scanned with CamScanner

Answer Key (v1.3) Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2023 P2,600,000 12 P2,600,000 March 1, 2023 1,200,000 10 1,000,000 May 1, 2023 1,800,000 8 1,200,000 July 31, 2023 1,500,000 5 625,000 October 1, 2023 800,000 3 200,000 Total, 2023 P7,900,000 P5,625,000 Less: Amount of specific borrowings _ (2,000,000) Amount attributable to general borrowings P3,625,000 Multiply: Capitalization rate 9% Capitalizable general borrowing costs, 2023 P326,250 Capitalizable specific borrowing costs, 2023 (P2M x 8%) P160,000 Capitalizable general borrowing costs, 2023 326,250 Total capitalizable borrowing costs, 2023 P486,250 Total actual general borrowing costs, 2023 630,000 Less: Capitalizable general borrowing costs, 2023 (326,250) Interest to be expensed, 2023 P303,750 Total construction costs P7,900,000 Capitalizable borrowing costs, 2023 486,250 Carrying amount of factory building, 12/31/23 P8,386,250 Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2024 P8,386,250 12 P8,386,250 February 1, 2024 2,400,000 11 2,200,000 April 1,2024 900,000 9 675,000 June 30, 2024 1,400,000 6 700,000 Total, 2024 P13,086,250 P11,961,250 Less: Amount of specific borrowings _ (2,000,000) Amount attributable to general borrowings ~ P9,961,250 Multiply: Capitalization rate 9% Possible capitalizable general B.C., 2024 P896,513 Total actual borrowing costs during construction period P630,000 Possible capitalizable borrowing costs, 2024 896,513 Lower, capitalizable borrowing costs, 2024 P630,000 35 Scanned with CamScanner

Answer Key (v1.3) Capitalizable specific borrowing costs, 2024 (P2M x 8%) P160,000 Capitalizable general borrowing costs, 2024 630,000 Total capitalizable borrowing costs, 2024 P790,000 Total actual general borrowing costs, 2024 P630,000 Less: Capitalizable general borrowing costs, 2024 (630,000) Interest to be expensed, 2024 PO Carrying amount of factory building, 12/31/23 P8,386,250 Total construction costs, 2024 4,700,000 Capitalizable borrowing costs, 2024 790,000 Carrying amount of factory building, 12/31/24 P13,876,250 9. DALUPIRI Company Scenario 1: Capitalizable borrowing costs (from January 1 to March 31 and from August 1 December 31) = P6,000,000 x 6% x 8/12 = P240,000 Scenario 2: Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2023 P2,000,000 8 P1,333,333 April 1, 2023 1,000,000 5 416,667 October 1,2023 1,200,000 3 300,000 P4,200,000 P2,050,000 Multiply: Capitalization rate 6% Capitalizable borrowing costs P123,000 10.MONDRAGON Company Actual Interest Borrowing Borrowings Amount Rate Costs Loan payable P3,000,000 8.5% P255,000 Bonds payable 5,000,000 10% 500,000 Totals 8,000,000 P755,000 Divide by: Total General Borrowings _ 8,000,000 Capitalization Rate for Gen. Borrowings, 2023 9.4375% 36 Scanned with CamScanner

Answer Key (v1.3) Weighting Period in Weighted Date incurred Amount Months Amount January 1, 2023 P2,000,000 12 P2,000,000 March 31, 2023 1,000,000 9 750,000 May 1, 2023 900,000 8 600,000 July 1,2023 500,000 6 250,000 July 31, 2023 1,200,000 5 500,000 September 30, 2023 700,000 3 175,000 October 31, 2023 2,400,000 2 400,000 P8,700,000 P4,675,000 Multiply: Capitalization rate 9.4375% Capitalizable borrowing costs P441,203 Total actual borrowing costs, 2023 P755,000 Less: Capitalizable borrowing costs, 2023 (441,203) Interest to be expensed, 2023 P313,797 Total construction costs, 2023 P8,700,000 Capitalizable borrowing costs, 2023 441,203 Carrying amount of factory building, 12/31/23 P9,141,203 Multiple Choice - Problems 1 GG 2. B 3. D;A 4. B;A;D Scanned with CamScanner