Question

On December 31, 2016, Cheyenne Inc. borrowed $3,120,000 at 12% payable annually to finance the construction of a new building. In 2017, the company made the following expenditures related to this building: March 1, $374,400; June 1, $624,000; July 1, $1,560,000; December 1, $1,560,000. The building was completed in February 2018. Additional information is provided as follows. 1. Other debt outstanding 10-year, 13% bond, December 31, 2010, interest payable annually $4,160,000 6-year, 10% note, dated December 31, 2014, interest payable annually $1,664,000 2. March 1, 2017, expenditure included land costs of $156,000 3. Interest revenue earned in 2017 $50,960 Warning Don't show me this message again for the assignment Ok  Cancel   (a) Your answer is incorrect. Try again. Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building. The amount of interest $ 206180

Answer 1

Calculations of Weighted Average Accumulated Expenditure

Date	Working	Expenditure
Mar 1	$ 374,400 *10/12	$ 312, 000
Jun 1	$ 624,000 * 7/12	$ 364,000
July 1	$ 1,560,000 *6/12	$ 780,000
Dec 1	$ 1,560,000 *1/12	$ 130,000
Total		$1,586,000

Amount to be Capitalized = $ 1,586,000 × 12 % = $190,320

So the amount of Interest to be Capitalized in 2017 with respect

to the Constructions of Building is $ 190, 320