On January 3, 2010, Mercury Company Began Self-Constructing an Asset

question 35

Essay

On January 3, 2010, Mercury Company began self-constructing an asset that qualified for interest capitalization.On January 5, Mercury borrowed $300, 000 on an 8% construction loan.In addition, Mercury had $400, 000 of 6% notes payable and $700, 000 of 9% bonds payable outstanding.By December 31, expenditures (occurring evenly throughout the year)of $800, 000 had been made on the asset.Investment of unused funds during the year yielded $1, 200 of interest revenue.
Required:
Compute the amount of interest that should be capitalized during 2010.

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Definitions:

Agency Ends

The termination or conclusion of an agency relationship between principal and agent, which can occur through various means such as completion of the agency purpose, by mutual agreement, or by law.

Duty of Segregation

An obligation to keep different tasks and responsibilities separate to reduce conflicts of interest or the risk of fraud or error.

Fiduciary Duty

A legal obligation of one party to act in the best interest of another when entrusted with care of money, property, or confidential information.

Actual Authority

The express and implied powers a principal intentionally grants to an agent, allowing them to act on the principal's behalf.