Question

Please show how to get the answer as well!

On January 2, 2017, Oriole Company began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2018. Expenditures for the construction were as follows: January 2, 2017 September 1, 2017 December 31, 2017 March 31, 2018 September 30, 2018 603000 1810800 1810800 1810800 1218000 Oriole Company borrowed $3300000 on a construction loan at 10% nterest on January 2. 2017. This loan was outstanding during the construction period e c mpany als nad nss 0 % bonds outstanding in 2017 and 2018. The interest capitalized for 2017 was: $158200 $482340 $ 474600 $120660

Answer 1

	Actual interest expenditure incurred:
				Principal	Interest %	Interest expenditure
				1	2	1*2
	Loan at 10%-specific			3300000	10%	330000
	7% bond-General			13560000	7%	949200
						1279200
	Avoidable interest=Weighted average accumulated expenditure*interest rate=3000000*9%=270000
	Weighted average accumulated expenditure:
	Date	Expense	Capitalization period	Weight	Weighted expenditure
		A	B	C=B/12	A*C
	2-Jan	603000	12 months	1.00	603000
	1-Sep	1810800	4 months	0.33	603600
	31-Dec	1810800	0 months	0.00	0
					1206600
	Weighted average interest rate for general purpose notes=7%
	Here,weighted average expeenditure is much less than the principal amount of specific loan and general purpose note.So,entire weighted expenditure is applied towards specific loan.
	Avoidable interest:
				Principal	Interest %	Interest expenditure
	Loan at 10%-specific			1206600	10%	120660
	Interest to be capitalized=Lower of actual interest or avoidable interest=Lower of 1279200 or 120660=120660
	Answer is $ 120660