Question

Question 4 On December 31, 2019, Pronghorn Inc. borrowed $3,180,000 at 12% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $381,600; June 1, $636,000; July 1, $1,590,000; December 1, $1,590,000. The building was completed in February 2021. Additional information is provided as follows. 1. Other debt outstanding 10-year, 13% bond, December 31, 2013, interest payable annually 6-year, 10% note, dated December 31, 2017, interest payable annually 2. March 1, 2020, expenditure included land costs of $159,000 3. Interest revenue earned in 2020 $4,240,000 $1,696,000 $51,940 x Your answer is incorrect. Try again. Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building. The amount of interest

Answer 1

Expenditure for 2017	Amount	Multiply: Time factor		Weighted Average
Mar 1	$            381,600	10/12 =	0.83333333	$         318,000
June 1	$            636,000	7/12 =	0.58333333	$         371,000
July 1	$        1,590,000	6/12 =	0.50000000	$         795,000
Dec 1	$        1,590,000	1/12 =	0.08333333	$         132,500
Accumulated capital Expenditure before interest capitalized	$        4,197,600
Average Accumulated capital Expenditure				$      1,616,500

	Amount	Multiply: rate	Interest
For construction loan	$        1,616,500	12.0000%	$        193,980
Other debt (not required)
Avoidable interest			$        193,980
Actual interest paid
	Amount of debt	Multiply: Rate	Interest
For construction loan	$        3,180,000	12%	$        381,600
Other debt 1	$        4,240,000	13%	$        551,200
Other debt 1	$        1,696,000	6%	$        101,760
Actual interest paid			$     1,034,560

Avoidable Interest			$        193,980
Actual interest incurred			$     1,034,560
Interest cost to be capitalized (Whichever is lower)			$        193,980
Amount of interest to be capitalised in relation to the construction of the building			$        193,980