As during eighth year, Clark Company spent $2,400,000 on equipment for its own use. The project took a whole year to complete, and all expenditures were spread out evenly over the year. Clark was able to borrow $1,500,000 at 6% interest at the start of the term for the procurement of materials and the fabrication of the equipment. On December 31, year 8, the whole debt, including interest, was redeemed and replaced with a long-term loan. Clark Company has an extra debt of $1,000,000 in year 8, with a weighted average interest rate of 7%. What will Clark Corporation report as interest cost in year 8 if it capitalises the maximum amount of interest allowed under GAAP?
As during eighth year, Clark Company spent $2,400,000 on equipment for its own use. The project took a whole year to complete, and all expenditures were spread out evenly over the year. Clark was able to borrow $1,500,000 at 6% interest at the start of the term for the procurement of materials and the fabrication of the equipment. On December 31, year 8, the whole debt, including interest, was redeemed and replaced with a long-term loan. Clark Company has an extra debt of $1,000,000 in year 8, with a weighted average interest rate of 7%. What will Clark Corporation report as interest cost in year 8 if it capitalises the maximum amount of interest allowed under GAAP?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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As during eighth year, Clark Company spent $2,400,000 on equipment for its own use. The project took a whole year to complete, and all expenditures were spread out evenly over the year. Clark was able to borrow $1,500,000 at 6% interest at the start of the term for the procurement of materials and the fabrication of the equipment. On December 31, year 8, the whole debt, including interest, was redeemed and replaced with a long-term loan. Clark Company has an extra debt of $1,000,000 in year 8, with a weighted average interest rate of 7%.
What will Clark Corporation report as interest cost in year 8 if it capitalises the maximum amount of interest allowed under GAAP?
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