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.

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