Question
Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31 of 2016. Total costs/expenditures were $4,800,000 on March
Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31 of 2016. Total costs/expenditures were $4,800,000 on March 1, $3,000,000 on June 1, and $6,000,000 on December 31. Arlington Company borrowed $2,400,000 on January 1 on a 5-year, 12% note to specifically help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable. a. What are the average accumulated expenditures?
b. What is the weighted-average interest rate for general loans used for interest capitalization purposes?
c. What is the avoidable interest and actual interest respectively for Arlington Company?
d. What amount of interest should be charged to expense?
e. What should be the total original cost that is capitalized for the building (including all cost and capitalized interest)?
f. If the company start to use the building on 1/1/2017 and expects to use the building for 30 years with a salvage value of $500,000. Calculate the depreciation amount under the straight-line method, double-declining balance method, and the sun of the years digits method.
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