A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $610,000; March 31, $710,000; June 30, $510,000; October 30, $930,000. The company arranged a 10% loan on January 1 for $920,000. Assume the $920,000 loan is not specifically tied to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $2 million loan and a $4 million note with interest rates of 12% and 9%, respectively. Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year. Note: Enter your answers in whole dollars and not in millions. Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%). Answer is complete but not entirely correct. Date Expenditure Weight Average January 1 March 31 610,000 12/12 S 610,000 710,000 9/12 532,500 June 30 October 30 Accumulated expenditures 510,000 6/12 255,000 930,000 2/12 = 155,000 $ 2,760,000 $ 1,552,500 Capitalized Amount Interest Rate Intorost Average accumulated expenditures $ 1,552,500 = Construction loan 920,000 10.00 % = S 92,000 Other loans (not construction) 632,500 10.00 % = 63,250 S 155,250
A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $610,000; March 31, $710,000; June 30, $510,000; October 30, $930,000. The company arranged a 10% loan on January 1 for $920,000. Assume the $920,000 loan is not specifically tied to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $2 million loan and a $4 million note with interest rates of 12% and 9%, respectively. Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year. Note: Enter your answers in whole dollars and not in millions. Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%). Answer is complete but not entirely correct. Date Expenditure Weight Average January 1 March 31 610,000 12/12 S 610,000 710,000 9/12 532,500 June 30 October 30 Accumulated expenditures 510,000 6/12 255,000 930,000 2/12 = 155,000 $ 2,760,000 $ 1,552,500 Capitalized Amount Interest Rate Intorost Average accumulated expenditures $ 1,552,500 = Construction loan 920,000 10.00 % = S 92,000 Other loans (not construction) 632,500 10.00 % = 63,250 S 155,250
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for
construction were as follows: January 1, $610,000; March 31, $710,000; June 30, $510,000; October 30, $930,000. The company
arranged a 10% loan on January 1 for $920,000. Assume the $920,000 loan is not specifically tied to the construction of the building.
The company's other borrowings, outstanding for the whole year, consisted of a $2 million loan and a $4 million note with interest
rates of 12% and 9%, respectively.
Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year.
Note: Enter your answers in whole dollars and not in millions. Do not round intermediate calculations. Round your percentage
answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%).
Answer is complete but not entirely correct.
Date
Expenditure
Weight
Average
January 1
March 31
610,000
12/12
S
610,000
710,000
9/12
532,500
June 30
October 30
Accumulated expenditures
510,000
6/12
255,000
930,000
2/12
=
155,000
$ 2,760,000
$ 1,552,500
Capitalized
Amount
Interest Rate
Intorost
Average accumulated expenditures
$ 1,552,500
=
Construction loan
920,000
10.00
%
=
S
92,000
Other loans (not construction)
632,500
10.00
%
=
63,250
S
155,250
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