Question
On January 1, 2019, Northsmith Co. began construction of a building to be used as its office headquarters. The building is expected to be completed
On January 1, 2019, Northsmith Co. began construction of a building to be used as its office headquarters. The building is expected to be completed on December 31, 2019. Expenditures on this project during 2019 were as follows:
January 1st $ 120,000
April 1st 260,000
June 1st 240,000
October 31st 360,000
On Jan. 1,2019, the company obtained a $450,000 loan with a 7% interest rate for the specific purpose of constructing the building. The loan was outstanding during the entire construction period. The companys other interest-bearing debts included two long-term notes of $400,000 and $700,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during the entire construction period.
Instruction:
- Determine the amount of interest capitalized for 2019. Please show your work (i.e. WA accumulated expenditure, actual interest, WA interest rate and avoidable interest) to support your final answer. Please round the WA interest rate to four decimal places when necessary.
Answer: The amount of interest capitalized for 2019 is ____________? .
- Regardless your answer in (a), determine the amount of avoidable interest for 2019 assuming that the WA accumulated expenditure is $380,000 (other things being equal).
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