Question

2. On March 1, 2017, Newton Company purchased land for an office site by paying $2,700,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction: Date March 1, 2017 April 1, 2017 May 1, 2017 June 1, 2017 $ 1,800,000 2,520,000 4,500,000 4,800,000 The office was completed and ready for occupancy on July 1. To help pay for construction, and purchase of land $3,600,000 was borrowed on March 1, 2017 on a 990, 3-year note payable. Other than the construction note, the only debt outstanding during 2017 was a $1,500,000, 12%, 6-year note payable dated January 1, 2017. The actual interest cost incurred during 2017 was A) $450,000. B) $504,000. C) $252,000. D) $420,000

Answer 1

SOLUTION:-

2.) OPTION "A" IS A CORRECT ANSWER

ACTUAL INTEREST COST INCURRED DURING 2017 IS $450,000

($3,600,000 * 9% * 10/12) + ($1500,000 *12%) = $450,000

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