Question

# On June 1, 2020, the Crocus Company began construction of a new manufacturing plant. The plant...

On June 1, 2020, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2021. Expenditures on the project were as follows (\$ in millions):

 July 1, 2020 72 October 1, 2020 40 February 1, 2021 48 April 1, 2021 30 September 1, 2021 29 October 1, 2021 15

On July 1, 2020, Crocus obtained a \$88 million construction loan with a 10% interest rate. The loan was outstanding through the end of October, 2021. The company's only other interest-bearing debt was a long-term note for \$100 million with an interest rate of 12%. This note was outstanding during all of 2020 and 2021. The company's fiscal year-end is December 31.

In computing the capitalized interest for 2021, Crocus' average accumulated expenditures are:

 Date Expenditures ( in millions) Proportion Average Accumulated Expenditures July 1 ,2020 \$ 72 6 / 6 \$ 72 October 1, 2020 \$ 40 3 / 6 \$ 20 Total \$ 92 Total interest For 2020 = \$ 92 milion x 10% x 6 /12 = \$ 4.6 million Date Expenditures ( in millions) Proportion Average Accumulated Expenditures January 1, 2021 \$ 116.60 ( \$ 72 + \$ 40 + \$ 4.6) 10 / 10 \$ 116.60 February 1, 2021 \$ 48 9 / 10 \$ 43.20 April 1, 2021 \$ 30 7 / 10 \$ 21 September 1, 2021 \$ 29 2 / 10 \$ 5.80 October 1, 2021 \$ 15 1 / 10 \$ 1.50 Average Accumulated Expenditures for 2021 \$ 188.10

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