Exercise 10-22 (Static) Interest capitalization [LO10-7]

On January 1, 2021, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2022. Construction expenditures for 2021, which were incurred evenly throughout the year, totaled $6,000,000. Marjlee had the following debt obligations which were outstanding during all of 2021:

Construction loan, 10%$1,500,000Long-term note, 9%2,000,000Long-term note, 6%4,000,000

Required:

Calculate the amount of interest capitalized in 2021 for the building using the specific interest method.

my answer an solution

average

(6,000,000/2)=3,000,000

weighted average =4%

(2,000,000*9%)+(4,000,000*6%)

(420000/2,000,000+4,000,000)

Interest capitalized

(1,500,000*10%)

=150,000

balance

(3,000,000-1,500,000)*4%=60,000

total

(150,000+60,000) = 210,000