Question

On January 1, 2018, the Mills Conveying Equipment Company began construction of a building to be used as its office headquarters. The building was completed on June 30, 2019. Expenditures on the project, mainly payments to subcontractors, were as follows:

January 1, 2018 $500,000

March 31, 2018 $400,000

September 30, 2018 $600,000

Accumulated expenditures at December 31, 2018 $1,500,000

(before interest capitalization)

January 31, 2019 $600,000

April 30, 2019 $300,000

On January 1, 2018, the company obtained a $1,000,000 construction loan with an 8% interest rate. The loan was outstanding during the entire construction period. The company's other interest-bearing debt included two long-term notes of $2,000,000 and $4,000,000 with interest rates of 6% and 12% respectively. Both notes were outstanding during the entire construction period.

Could you please baby step this problem for me and finish it. I've been on it for 2 and a half hrs. and the book doesn't explain it well at all. This is illustration 10-17 on page 540 of Intermediate Accounting 2 the 9th edition by Spiceland, Nelson, and Thomas. Step 1: weighted average expenditure

step 2: calculate interest with specific interest rate, and Weighted average interest rate

step 3: compare step 2 with actual interest and pick the smaller number to capitalize

at the end of 2018 the building should cost $1,576,000. Please baby step this. There are all kinds of grandiose numbers in the book!

Answer 1