Question

On June 1, 2020, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2021. Expenditures on the project were as follows ($ in millions):

July 1, 2020	74
October 1, 2020	42
February 1, 2021	50
April 1, 2021	31
September 1, 2021	30
October 1, 2021	16

On July 1, 2020, Crocus obtained a $90 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2021. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2020 and 2021. The company's fiscal year-end is December 31.

In computing the capitalized interest for 2021, Crocus' average accumulated expenditures are:

Answer 1

Crocus' average accumulated expenditures = $193.15

Average expenditures for 2020: ($74 million x 6/6) + $42 million x 3/6) = $955 million. The interest is: $95 million x 6% x 6/12 = $2.85 million

Average expenditures for 2021:

Expenditures	Proportion of year	Average accumulated expenditures
118.85 (74+42+2.85)	10/10	118.85
50	9/10	45.00
31	7/10	21.70
30	2/10	6.00
16	1/10	1.60
		$193.15