Question

Problem 10-7 (Part Level Submission) Blue Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Blue since 2012. Blue' original facility became obsolete by early 2017 because of the increased sales volume and the fact that Blue now carries CDs in addition to books. On June 1, 2017, Blue contracted with Black Construction to have a new building constructed for $4,560,000 on land owned by Blue. The payments made by Blue to Black Construction are shown in the schedule below. Date July 30, 2017 January 30, 2018 May 30, 2018 Total payments Amount $1,026,000 1,710,000 1,824,000 $4,560,000 Construction was completed and the building was ready for occupancy on May 27, 2018. Blue had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2018, the end of its fiscal year. 10%, 5-year note payable of $2,280,000, dated April 1, 2014, with interest payable annually on April 1. 12%, 10-year bond issue of $3,420,000 sold at par on June 30, 2010, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material. (a) Your answer is correct. Compute the weighted average accumulated expenditures on Blue's new building during the capitalization period. Weighted-Average Accumulated Expenditures 1425000
Please show all work.

Answer 1

Solution c:

Total actual interest cost = $2280000*10% + $3420000*12% = $638,400

Total interest capitalized = $159,600

Tota interest expensed = total interest cost - interst capitalized = $638400 - 159600 = $478,800