Question 2 (Borrowing cost to be capitalized) ABC, Is a construction company borrows 1,500,000 British pounds () on January 1. Year 1, at an interest rate of 4 percent to finance the construction of a new office building Construction is expected to take six months and cost 1,500,000 ABC Company temporarily invests the borrowed British pounds. Interest earned in the first quarter of Year 1 is 5,000 During the first quarter of Year 1, expenditures of 500,000 are incurred; The weighted average expenditures are 300,000. ABC will repay the borrowing plus interest on June 30, Year 1, by converting U.S. dollars into British pounds. Notes: The U.S. dollar/British pound exchange rate was $2.00 on January 1, Year 1, and $2.10 on March 31, Year 1. Required: Calculate the amount of borrowing costs (in U.S. dollars) that ABC should include in the cost of the new office building at March 31, Year 1. To determine the borrowing cost to be capitalized at 3/31/Y1

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