Question

# On January 1, 2018, the Shagri Company began construction on a new manufacturing facility for its...

On January 1, 2018, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The only interest-bearing debt the company had outstanding during 2018 was long-term bonds with a book value of \$11,500,000 and an effective interest rate of 10%. Construction expenditures incurred during 2018 were as follows:

January 1 \$ 650,000
March 1 690,000
July 31 570,000
September 30 750,000
December 31 450,000
 Date Expenditure Weight Average January 1 x = March 1 x = July 31 x = September 30 x = December 31 x = Accumulated expenditure \$0 \$0 Average Interest Rate Capitalized Interest Average accumulated expenditures \$0 x % = \$0

 Date Expenditure X Weight = Average Jan-01 \$     6,50,000 X 12/12 = \$    6,50,000 Mar-01 \$     6,90,000 X 10/12 = \$    5,75,000 Jul-31 \$     5,70,000 X 5/12 = \$    2,37,500 Sep-30 \$     7,50,000 X 3/12 = \$    1,87,500 Dec-31 \$     4,50,000 X 0/12 = \$ - Accumulated expenditure \$ 31,10,000 \$ 16,50,000 Average X Interest rate = Capitalized interest Average accumulated expenditure \$ 16,50,000 X 10% = \$    1,65,000

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