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 is in millions) July 1, 2020 October 1, 2020 February 1.2021 April 1. 2021 September 1, 2021 October 1.2021 On July 1, 2020. Crocus obtained a $106 million construction loan with a 10% 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 11% This note was outstanding during all of 2020 and 2021. The company's fiscal year- endis December 31 in computing the capitalized interest for 2021 Crocus average accumulated expenditures are: 5250 65 million $172.70 million 5229 94 million $248 70 millon

Answer 1

The answer is the 1st option i.e. $250.65 million

Computation:

The amount of interest that will be capitalized in 2020 = 90*6/6 + 58*3/6

= 119. Thus interest is 119 * 10% * 6/12 = 5.95

Thus avg. accumulated expenses are: (90+58+5.95)*10/10 + 66*9/10 + 39*7/10 + 38*2/10 + 24*1/10

= $250.65 million