Question: Wordcrafters Inc. is a book distributor that
Wordcrafters Inc. is a book distributor that had been operating in its original facility since 1991. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Wordcrafters since 2014. Wordcrafters' original facility became obsolete by early 2020 because of the increased sales volume and the fact that Wordcrafters now carries audio books and e-texts in addition to hard-copy books. On June 1, 2020, Wordcrafters contracted with Favre Construction to have a new building constructed for $5 million on land owned by Word crafters. Word crafters made the following payments to Favre Construction:
Construction was completed and the building was ready for occupancy on May 27, 2021. Word crafters 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: 141/2%, five-year note payable of $2 million, dated April l, 2017, with interest payable annually on April 1 12%, 10-year bond issue of $3 million sold at par on June 30, 2013, with interest payable annually on June 30
The company is an international distributor and prepares financi al statements in accordance with IFRS.
Instructions
a. Calculate the weighted-average accumulated expenditures on Word crafters' new building during the capitalization period.
b. Calculate the avoidable interest on Word crafters' new building.
c. Word crafters capitalized some of its interest costs for the year ended May 31, 2021:
1. Identify the item(s) relating to interest costs that must be disclosed in Word crafters' financial statements.
2. Calculate the amount of the item(s) that must be disclosed.
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