Question

On December 31, 2019, Metlock Inc. borrowed $3,300,000 at 13% payable annually to finance the construction of a new building, In 2020, the company made the following expenditures related to this building, March 1,5396,000, June 1.5660,000: July 1. $1,650,000: December 1, $1,650,000. The building was completed in February 2021. Additional information is provided as follows. 1. Other debt outstanding 10-year, 14% bond, December 31, 2013, interest payable annually 6-year, 11% note, dated December 31, 2017 interest payable annually March 1, 2020, expenditure included land costs of $165,000 Interest revenue earned in 2020 $4,400,000 $1.760,000 2. 3. $53.900 (a) Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building. The amount of interest S

Answer 1

Computation of amount of interest to be capitalized

Date	Expenditure (a)	Capitalization period (b)	(a) X (b)
March 1	$396000	10/12 months	$330000
June 1	$660000	7/12 months	$385000
July 1	$1650000	6/12 months	$825000
December 1	$1650000	1/12 month	$137500
			$1677500

Interest capitalized in relation to construction of building
=> ($1677500 X 13%)
=> $218075 (Ans)

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