Laserwords Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Laserwords since 2015. Laserwords’ original facility became obsolete by early 2020 because of the increased sales volume and the fact that Laserwords now carries CDs in addition to books. On June 1, 2020, Laserwords contracted with Black Construction to have a new building constructed for $4,000,000 on land owned by Laserwords. The payments made by Laserwords to Black Construction are shown in the schedule below. 00000Date00000 00Amount00 July 30, 2020 $00900,000 January 30, 2021 1,500,000 May 30, 2021 1,600,000 Total payments $4,000,000 Construction was completed and the building was ready for occupancy on May 27, 2021. Laserwords had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year. 10%, 5-year note payable of $2,000,000, dated April 1, 2017, with interest payable annually on April 1. 12%, 10-year bond issue of $3,000,000 sold at par on June 30, 2013, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material. Instructions a. Compute the weighted-average accumulated expenditures on Laserwords’ new building during the capitalization period. b. Compute the avoidable interest on Laserwords’ new building. (Round to one decimal place.) c. Some interest cost of Laserwords Inc. is capitalized for the year ended May 31, 2021. 1. Identify the items relating to interest costs that must be disclosed in Laserwords’ financial statements. 2. Compute the amount of each of the items that must be disclosed.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Laserwords Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Laserwords since 2015. Laserwords’ original facility became obsolete by early 2020 because of the increased sales volume and the fact that Laserwords now carries CDs in addition to books.
On June 1, 2020, Laserwords contracted with Black Construction to have a new building constructed for $4,000,000 on land owned by Laserwords. The payments made by Laserwords to Black Construction are shown in the schedule below.
| 00000Date00000 | 00Amount00 | |
| July 30, 2020 |
|
$00900,000
|
| January 30, 2021 |
|
1,500,000
|
| May 30, 2021 |
|
1,600,000
|
| Total payments |
|
$4,000,000
|
Construction was completed and the building was ready for occupancy on May 27, 2021. Laserwords had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year.
10%, 5-year note payable of $2,000,000, dated April 1, 2017, with interest payable annually on April 1.
12%, 10-year bond issue of $3,000,000 sold at par on June 30, 2013, with interest payable annually on June 30.
The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material.
Instructions
a. Compute the weighted-average accumulated expenditures on Laserwords’ new building during the capitalization period.
b. Compute the avoidable interest on Laserwords’ new building. (Round to one decimal place.)
c. Some interest cost of Laserwords Inc. is capitalized for the year ended May 31, 2021.
1. Identify the items relating to interest costs that must be disclosed in Laserwords’ financial statements.
2. Compute the amount of each of the items that must be disclosed.
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