Question

Question 8 (1 point) On January 1, 2018, Kendall Inc, began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2019. Expenditures on the project were as follows: January 1, 2018 $200,000 September 1, 2018 $300,000 December 31, 2018 $300,000 March 31, 2019 $300,000 September 30, 2019 $200,000 Kendall borrowed $750,000 on a construction loan at 12% interest on January 1 2018. This loan was outstanding throughout the construction period. The company had $4,500,000 in 9% bonds payable outstanding in 2018 and 2019. Interest capitalized for 2018 was: $48.000 $42.000 $60,000 $36.000

Answer 1

Since expense incurred during 2018 is less than the specific loan taken for construction activity.
Hence, the interest which could be capitalized is taken on the construction loan.
Expense incurred date	Amount	Interest	Period in months	Interest	Interest
1-Jan-18	$    200,000	12%	12	200000*12%*12/12	$      24,000
1-Sep-18	$    300,000	12%	4	300000*12%*4/12	$      12,000
				Total interest	$      36,000
Hence option D is correct.