Question

On January 2, 2020, Oriole Company began construction of a new citrus processing plant. The automated...

On January 2, 2020, Oriole Company began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2021. Expenditures for the construction were as follows:

Oriole Company borrowed $3300000 on a construction loan at 10% interest on January 2, 2020. This loan was outstanding during the construction period. The company also had $13560000 in 7% bonds outstanding in 2020 and 2021.

The interest capitalized for 2020 was:

  1. $482340

  2. $158200

  3. $474600

  4. $120660

Answer:

January 2, 2020 $ 603000

September 1, 2020 1810800

December 31, 2020 1810800

March 31, 2021 1810800

September 30, 2021 1218000
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Answer #1
Answer:
Option D is correct. i.e $120660
Interest Capitalized for 2020
Date Expenditure Weight Average
02-Jan-20 603000 12/12 603000
01-Sep-20 1810800 4/12 603600
31-Dec-20 1810800 0/12                              -  
Accumulated   Expenditures 4224600 1206600
Interest Capitalized for 2020 = 1206600 x 10% = 120660
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