Question

On January 1, 2016, Roger Company began construction of a new warehouse. The building was finished and ready for use on December 31, 2016. Roger Spent $4,650,000 on the building. These expenditures were made evenly throughout the year. Roger's only outstanding interest-bearing debt throughout 2016 was a $5,000,000 not payable. The interest rate on this debt was 6%. What amount should be reported as an interest expense on Roger's 2016 income statement?

Answer 1

Calcualtion of weighted accumulatecd expenditure
	Expenditure	No. of mnth	weight exp
Jan	387500	12/12	387500
Feb	387500	11/12	355208.3
Mar	387500	10/12	322916.7
Apr	387500	9/12	290625
May	387500	8/12	258333.3
June	387500	7/12	226041.7
July	387500	6/12	193750
Aug	387500	5/12	161458.3
Sep	387500	4/12	129166.7
Oct	387500	3/12	96875
Nov	387500	2/12	64583.33
Dec	387500	1/12	32291.67
	4650000		2518750
	in $
avoidable interest
2518750*6%	151125
Total Interest	300000
(5000000*6%)
Less: Avoidable interest	151125
Interest expense to be reported	148875	ans