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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, $650,000; March 31, $750,000; June 30, $550,000; October 30, $1,050,000. To help finance construction, the company arranged a 10% construction loan on January 1 for $1,000,000. 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 11%, respectively. Assuming the company uses the specific interest method, calculate the amount of interest capitalized for the year.

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, $650,000; March 31, $750,000; June 30, $550,000; October 30, $1,050,000. To help finance construction, the company arranged a 10% construction loan on January 1 for $1,000,000. 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 11%, respectively. Assuming the company uses the specific interest method, calculate the amount of interest capitalized for the year.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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, $650,000; March 31, $750,000; June 30, $550,000; October 30, $1,050,000. To help finance construction, the company arranged a 10% construction loan on January 1 for $1,000,000. 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 11%, respectively. Assuming the company uses the specific interest 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 Construction loan Other loans (not construction) X Answer is complete but not entirely correct. Expenditure $ 650,000 X 750,000 550,000 X 1,050,000 X $ 3,000,000 Amount $ 1,662,500 1,000,000 10,000,000 X X Weight 12/12 9/12 6/12 2/12 Interest Rate 10.00 11.80 % % = = = = = = Average $ 650,000 562,500 275,000 175,000 $ 1,662,500 Capitalized Interest $ 100,000 1,180,000 $ 1,280,000
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, $650,000; March 31, $750,000; June 30, $550,000; October 30, $1,050,000. To help finance construction, the company arranged a 10% construction loan on January 1 for $1,000,000. 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 11%, respectively. Assuming the company uses the specific interest 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 Construction loan Other loans (not construction) X Answer is complete but not entirely correct. Expenditure $ 650,000 X 750,000 550,000 X 1,050,000 X $ 3,000,000 Amount $ 1,662,500 1,000,000 10,000,000 X X Weight 12/12 9/12 6/12 2/12 Interest Rate 10.00 11.80 % % = = = = = = Average $ 650,000 562,500 275,000 175,000 $ 1,662,500 Capitalized Interest $ 100,000 1,180,000 $ 1,280,000
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