Question

On January 1, 2018, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The company borrowed $2,050,000 at 11% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2018:

$6,000,000, 16% bonds

$4,000,000, 11% long-term note

Construction expenditures incurred during 2018 were as follows:

January 1	$	840,000
March 31		1,440,000
June 30		1,088,000
September 30		840,000
December 31		640,000

Required:
Calculate the amount of interest capitalized for 2018 using the specific interest method. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).)

Date	Expenditure		Weight			Average
January 1		x			=
March 31		x			=
June 30		x			=
September 30		x			=
December 31		x			=
Accumulated expenditure
	Average		Interest Rate			Capitalized Interest
Average accumulated expenditures
		x		%	=
		x		%	=

Answer 1

Date	Expenditure		Weight			Average
1-Jan	840,000	x	12/12	=		840000
31-Mar	1,440,000	x	9/12	=		1080000
30-Jun	1,088,000	x	6/12	=		544000
30-Sep	840,000	x	3/12	=		210000
31-Dec	640,000	x	0	=		0
Accumulated expenditure						2674000
	Average		Interest Rate			Capitalized Interest
Average accumulated expenditures
	2050000	x	11	%	=	225500
	(2674000 - 2050000)	x	14	%	=	87360
	Amount to be capitalized					312860
	* 6000000*16%		960000
	4000000*11%		440000
			1400000
	1400000/ (6000000+4000000)		14.00