Question

On January 1, 2018, ABC Company began construction of a building to be used as its...

On January 1, 2018, ABC Company began construction of a building to be used as its warehouse. The building was completed on November 1, 2019. Expenditures for the project during 2018 were as follows:

January 1, 2018

900,000

April 1, 2018

700,000

July 1, 2018

650,000

October 1, 2018

840,000

On January 1, 2018, ABC Company obtained a $4,000,000 construction loan with 9% interest rate payable in 5 years. The Company’s other debts included a note of $1,000,000 at 11% interest rate for 3 years and a bond of $5,000,000 at 7% interest rate for 10 years.

Instructions:

Calculate the weighted average amount of accumulated expenditures for the building at December 31, 2018.

Calculate the amount of interest that ABC Company should capitalize in 2018.

Homework Answers

Answer #1

Required details as computed below:

Interest Capitalized
Months outstanding Average Investment
Jan-01 900,000 10 750,000
Apr-01 700,000 7 408,333
Jul-01 650,000 4 216,667
Oct-01 840,000 1 70,000
Weighted average amount of accumulated expenditures 1,445,000
Total Interest Exp
4,000,000*9% 360000
1,000,000*11% 110000
5,000,000*7% 350000
Total Interest Expense 820,000
Capitalized Interest (1,445,000*9%) 130,050
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