Question

Crane Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions have contributed to an annual growth rate of 15% for Crane since 2012. Crane's original facility became obsolete by early 2017 because of the increased sales volume and the fact that Crane now carries CDs in addition to books.

On June 1, 2017, Crane contracted with Black Construction to have a new building constructed for $4,640,000 on land owned by Crane. The payments made by Crane to Black Construction are shown in the schedule below.

Date	Amount
July 30, 2017	$1,044,000
January 30, 2018	$1,740,000
May 30, 2018	$1,856,000
Total payments	$4,640,000

Construction was completed and the building was ready for occupancy on May 27, 2018. Crane had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2018, the end of its fiscal year.

- 10%, 5-year note payable of $2,320,000, dated April 1, 2014, with interest payable annually on April 1.

- 12%, 10-year bond issue of $3,480,000 sold at par on June 30, 2010, 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.

Required

1. Compute the weighted-average accumulated expenditures on Crane's new building during the capitalization period.

2. Compute the avoidable interest on Crane's new building.

3. Some interest cost of Crane Inc. is capitalized for the year ended May 31, 2018. Compute the amount of each item? that must be disclosed in Crane's financial statements.

Answer 1