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, $590,000; March 31, $690,000; June 30, $490,000; October 30, $870,000. The company arranged a 8% loan on January 1 for $880,000. Assume the $880,000 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 12% 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%). Answer is complete but not entirely correct. Date Expenditure Weight Average January 1 March 31 $ 590,000 12/12 |= $ 590,000 690,000 9/12 = 517,500 June 30 October 30 Accumulated expenditures 490,000 ( 6/12 = 245,000 870,000 2/12 145,000 $ 2,640,000 Amount $ 1,497,500 Interest Rate Capitalized Interest Average accumulated expenditures $ 1,497,500 |= Construction loan 880,000 8.00% = $ 70,400 Other loans (not construction) 617,500 9.00 % = 55,575 $ 125,975
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, $590,000; March 31, $690,000; June 30, $490,000; October 30, $870,000. The company arranged a 8% loan on January 1 for $880,000. Assume the $880,000 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 12% 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%). Answer is complete but not entirely correct. Date Expenditure Weight Average January 1 March 31 $ 590,000 12/12 |= $ 590,000 690,000 9/12 = 517,500 June 30 October 30 Accumulated expenditures 490,000 ( 6/12 = 245,000 870,000 2/12 145,000 $ 2,640,000 Amount $ 1,497,500 Interest Rate Capitalized Interest Average accumulated expenditures $ 1,497,500 |= Construction loan 880,000 8.00% = $ 70,400 Other loans (not construction) 617,500 9.00 % = 55,575 $ 125,975
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, $590,000; March 31, $690,000; June 30, $490,000; October 30, $870,000. The company
arranged a 8% loan on January 1 for $880,000. Assume the $880,000 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 12% 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%).
Answer is complete but not entirely correct.
Date
Expenditure
Weight
Average
January 1
March 31
$ 590,000 (
12/12 =
$
590,000
690,000
9/12
=
517,500
June 30
490,000
6/12
=
245,000
October 30
Accumulated expenditures
870,000 x
2/12
=
145,000
$ 2,640,000
$ 1,497,500
Amount
Interest Rate
Capitalized
Interest
Average accumulated expenditures
$ 1,497,500
=
Construction loan
Other loans (not construction)
880,000
8.00
%
=
$
70,400
617,500
9.00
%
|=
55,575
$
125,975
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