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, $630,000; March 31, $730,000; June 30, $530,000; October 30, $990,000. The company arranged a 8% loan on January 1 for $960,000. Assume the $960,000 loan is not specifically tied to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $4 million loan and a $6 million note with interest rates of 13% and 7%, 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%). Date January 1 March 31 June 30 October 30 Accumulated expenditures Average accumulated expenditures All loans Answer is complete but not entirely correct. Expenditure $ 630,000 730,000 530,000 X 990,000 X $ 2,880,000 Amount $ 1,607,500 4,000,000 X X X Weight 12/12 = $ 9/12✔ 6/12 = 2/12 Interest Rate 19.00 9.40 % % = = = = 630,000 547,500 265,000 165,000 $ 1,607,500 Capitalized Interest $ Average $ 760,000 760,000
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, $630,000; March 31, $730,000; June 30, $530,000; October 30, $990,000. The company arranged a 8% loan on January 1 for $960,000. Assume the $960,000 loan is not specifically tied to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $4 million loan and a $6 million note with interest rates of 13% and 7%, 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%). Date January 1 March 31 June 30 October 30 Accumulated expenditures Average accumulated expenditures All loans Answer is complete but not entirely correct. Expenditure $ 630,000 730,000 530,000 X 990,000 X $ 2,880,000 Amount $ 1,607,500 4,000,000 X X X Weight 12/12 = $ 9/12✔ 6/12 = 2/12 Interest Rate 19.00 9.40 % % = = = = 630,000 547,500 265,000 165,000 $ 1,607,500 Capitalized Interest $ Average $ 760,000 760,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Sagar
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, $630,000; March 31, $730,000; June 30, $530,000; October 30, $990,000. The company
arranged a 8% loan on January 1 for $960,000. Assume the $960,000 loan is not specifically tied to the construction of the building.
The company's other borrowings, outstanding for the whole year, consisted of a $4 million loan and a $6 million note with interest
rates of 13% and 7%, 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%).
Date
January 1
March 31
June 30
October 30
Accumulated expenditures
Average accumulated expenditures
All loans
> Answer is complete but not entirely correct.
Expenditure
$
630,000 X
730,000
530,000
990,000 X
$ 2,880,000
Amount
$ 1,607,500
4,000,000 X
X
X
Weight
12/12
9/12
6/12
2/12
Interest Rate
19.00 %
9.40 X %
=
=
=
=
=
=
Average
$ 630,000
547,500
265,000
165,000
$ 1,607,500
Capitalized
Interest
$
$
760,000
0
760,000
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