Question

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

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 % =

 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