Capitalization of Interest and Depreciation During 2017, Mercator Company borrow

Question

Capitalization of Interest and Depreciation During 2017, Mercator Company borrowed $80,000 from a local bank for the construction of a new corporate office building. Mercator used an actonal $120,000 cash for the construction. Based on average accumulated expenditures, the amount of interest capitalized during 2017 was $8,000. Construction was completed, and the building was occupied on January 1, 2018. Required: 1. Determine the acquisition cost of the new building 2. The building has an estimated useful life of 20 years and a $5,000 salvage value. Assuming that Mercator uses the straight-line basis to depreciate its operating assets, determine the amount of depreciation expense for 2017 and 2018. If an amount is zero, enter .?. Year Straight-Line Depreciation 2017 2018

Explanation / Answer

1 Acquisition cost of the Building=80000+120000+8000 = $208000 2 Depreciation 2017 10150 =(208000-5000)/20 2018 10150 =(208000-5000)/20

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