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Question 6 On December 31, 2019, Sunland Inc. borrowed $3,120,000 at 12% payable annually to finance...

Question 6

On December 31, 2019, Sunland Inc. borrowed $3,120,000 at 12% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $374,400; June 1, $624,000; July 1, $1,560,000; December 1, $1,560,000. The building was completed in February 2021. Additional information is provided as follows.
1. Other debt outstanding
10-year, 13% bond, December 31, 2013, interest payable annually $4,160,000
6-year, 10% note, dated December 31, 2017, interest payable annually $1,664,000
2. March 1, 2020, expenditure included land costs of $156,000
3. Interest revenue earned in 2020 $50,960

(a)

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Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building.
The amount of interest $

Homework Answers

Answer #1

ANSWER

Weighted-Average accumulated expenditure and interest capitalized
Date Amount Capitalization period Weighted Average Accumulated Expenditures
01-Mar $3,74,400 10/12 $3,12,000
01-Jun $6,24,000 7/12 $3,64,000
01-Jul $15,60,000 6/12 $7,80,000
01-Dec $15,60,000 1/12 $1,30,000
Total $41,18,400 $15,86,000
*Interest rate 12%
Interest capitalized in 2020 $1,90,320

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