Question
Brief Exercise 10-14 (Static) Interest capitalization [LO10-7] A company constructs a building for its own use. Construction began on January 1 and ended on
Brief Exercise 10-14 (Static) Interest capitalization [LO10-7] A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $500,000; March 31, $600,000; June 30, $400,000: October 30, $600,000. To help finance construction, the company arranged a 7% construction loan on January 1 for $700,000. The company's other borrowings, outstanding for the whole year, consisted of a $3 million loan and a $5 million note with interest rates of 8% and 6%, respectively. Assuming the company uses the specific interest method, calculate the amount of interest capitalized for the year. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%).) Date Expenditure Weight Average January 1 $ 500,000 x 12/12 = $ 500,000 March 31 600,000 x 9/12 450,000 ences June 30 400.000 x 6/12 200,000 October 30 600,000 x 2/12 100,000 Accumulated expenditures $ 2,100,000 $ 1,250,000 Capitalized Interest Amount Interest Rate Average accumulated expenditures Other loans (not construction) Construction loan $ 1,250,000 700,000 7.00 % N S 49,000 0 10.00% = 0 $ 49,000
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