Question

This window shows your responses and what was marked correct and incorrect from your previous attempt A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $550,000, March 31, $650,000: June 30, $450.000: October 30, $750,000. To help finance construction, the company arranged a 8% construction loan on January 1 for $800,000. The company's other borrowings, outstanding for the whole year, consisted of a S4 million loan and a $6 million note with interest rates of 13 and 10%, respectively Assuming the company uses the specific interest method, calculate the amount of interest capitalized for the year. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places (ie. 0.1234 should be entered as 12.34%).) Date January 1 March 31 June 30 October 30 Accumulated expenditures - - Expenditure 550,000 650,000 450.000 750,000 $ 2.400.000 Weight 12/12 9/12 6/12 2/12 Average $ 550,000 487,500 225,000 125.000 $ 1,387,500 - Average Interest Rate Capitalized Interest Average accumulated expendtures Construction loan Other loans (not construction) 1.387 500 800.000 1.387.500 800 11025 64.000 152.903 216,903 $

Answer 1

Solution:

Weighted average interest rate on general borrowings = 13%*4/10 + 10%*6/10 = 11.2%

Particulars	Average		Interest rate		Capitalized interest
Average accumulated expenditure	$1,387,500.00
Construction loan	$800,000.00	*	8.00%	=	$64,000.00
Other loans	$587,500.00	*	11.20%	=	$65,800.00
					$129,800.00