Question

On January 1, 2018, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The company borrowed $1,700,000 at 7% on January 1 to help finance the construction, in addition to the construction loan, Highlands had the following debt outstanding throughout 2018: $7,000,000, 12t bonds $3,000,000, 78 long-term note Construction expenditures incurred during 2018 were as follows: January 1 March 31 June 30 September 30 December 31 $ 740,000 1,340,000 968,000 740,000 540,000 Required: Calculate the amount of interest capitalized for 2018 using the specific interest method. (Do not round the intermediate calculations Round your percentage answers to i decimal place (i.e. 0.123 should be entered as 12.3%).) Date Wei January 1 March 31 June 30 September 30 December 31 Accumulated expenditure

Answer 1

Date	expenditure		Weight		Average
January 1	$740,000	×	12/12	=	$740,000
March 31	$1,340,000	×	9/12	=	$10,05,000
June 30	$968,000	×	6/12	=	$4,84,000
September 30	$740,000	×	3/12	=	$1,85,000
December 31	$540,000	×	0/12	=	0
Accumulated expenditure	$43,28,000				$24,14,000

	Average		Interest rate		Capitalized interest
Average accumulated expenditure	$24,14,000
Construction loan	$17,00,000	×	7%	=	$119,000
Other loan(not construction)	$7,14,000	×	10.5%	=	$74,970
					$1,93,970

Explanation:-

Weighted-average rate of all other debt:-

$7,000,000 × 12% = $840,000

$3,000,000 × 7% = $210,000

$100,00,000 $10,50,000

= 10,50,000/$100,00,000 = 10.5%