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:

Homework Answers

Answer #1
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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