Question

On March 1, 2020, Swifty Corporation purchased land for an office site by paying $2660000 cash. Swifty began construction on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2020 $1750000 April 1, 2020 2480000 May 1, 2020 4530000 June 1, 2020 4710000 The office was completed and ready for occupancy on July 1. To help pay for construction, and purchase of land $3690000 was borrowed on March 1, 2020 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2020 was a $1470000, 12%, 6-year note payable dated January 1, 2020. The actual interest cost incurred during 2020 was

Answer 1

		Construction Begin	March1,2020
			Amount	Interest
		Specific borrowing	$3,690,000	9%
		Other Borrowing	$1,470,000	12%
			March1,2020	April,1	May,1	June,1
		Construction expenses	$1,750,000	$2,480,000	$4,530,000	$4,710,000
		Completion of construction	July,1, 2020
		Interest Cost to be capitalized
			Borrowing	Interest	Interest
			amount	Rate	Cost
			$1,750,000	9%	$13,125	(1750000*9%*(1/12)		Interest for March,2020	Specific Borrowing
					$13,125			Interest for April,2020	Specific Borrowing
		(3690000-1750000)	$1,940,000	9%	$14,550	(1940000*9%*(1/12)		Interest for April, 2020	Specific Borrowing
		(2480000-1940000)	$540,000	12%	$5,400	(540000*12%*(1/12)		Interest for April, 2020	Other borrowing
			$3,690,000	9%	$27,675	(3690000*9%*(1/12)		Interest for May 2020	Specific Borrowing
			$540,000	12%	$5,400	(540000*12%*(1/12)		Interest for May 2020	Other borrowing
		(1470000-540000)	$930,000	12%	$9,300	(930000*12%*(1/12)		Interest for May 2020	Other borrowing
			$3,690,000	9%	$27,675	(3690000*9%*(1/12)		Interest for June,2020	Specific Borrowing
			$1,470,000	12%	$14,700	(1470000*12%*(1/12)		Interest for June,2020	Other borrowing
			TOTAL INTEREST COST		$130,950
		Actual Interest Cost Incurred during 2020	$130,950