Question

Matrix Inc. borrowed $1,000,000 at 8% to finance the construction of a new building for its...

Matrix Inc. borrowed $1,000,000 at 8% to finance the construction of a new building for its own use. Construction began on January 1, 2016, and was completed on October 31, 2016. Expenditures related to this building were: January 1 $258,000 (includes cost of purchasing land of $150,000) May 1 310,000 July 1 420,000 October 31 275,000 In addition, Matrix had additional debt (unrelated to the construction) of $500,000 at 9% and $800,000 at 10%. All debt was outstanding for the entire year.

Required: Compute the amount of interest capitalized related to the construction of the building.

If the expenditures are assumed to have been incurred evenly throughout the year: Compute weighted average accumulated expenditures

Compute the amount of interest capitalized on the building.

Homework Answers

Answer #1

Solution :

Construction of Building - Matrix Inc.
Schedule of Weighted-Average accumulated expenditure
Date Expenditure Capitalization Period Weighted Average Accumulated Expenditures
1-Jan $258,000.00 10/12 $215,000
1-May $310,000.00 6/12 $155,000
1-Jul $420,000.00 4/12 $140,000
1-Oct $275,000.00 1/12 $22,917
$1,263,000.00 $532,917

Specific loan outstanding during the year = $1,000,000

Therefore amount of interest capitalized = $532,917 * 8% = $42,633

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