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, $500,000; March 31, $600,000; June 30, $400,000; October 30, $600,000. The company arranged a 7% loan on January 1 for $700,000. Assume the $700,000 loan is not specifically tied to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $3 million loan and a $5 million note with interest rates of 8% and 6%, 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 Expenditure $ $ $ 500,000 x 600,000 x 400,000 x 600,000 x 2,100,000 Amount 1,250,000 Weight 12/12 = 9/12 = 6/12 = 2/12 = Interest Rate % % = = $ $ $ Average Capitalized Interest $ 500,000 450,000 200,000 100,000 1,250,000 0 0 0
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, $500,000; March 31, $600,000; June 30, $400,000; October 30, $600,000. The company arranged a 7% loan on January 1 for $700,000. Assume the $700,000 loan is not specifically tied to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $3 million loan and a $5 million note with interest rates of 8% and 6%, 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 Expenditure $ $ $ 500,000 x 600,000 x 400,000 x 600,000 x 2,100,000 Amount 1,250,000 Weight 12/12 = 9/12 = 6/12 = 2/12 = Interest Rate % % = = $ $ $ Average Capitalized Interest $ 500,000 450,000 200,000 100,000 1,250,000 0 0 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
1
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, $500,000; March 31, $600,000; June 30, $400,000; October 30,
$600,000. The company arranged a 7% loan on January 1 for $700,000. Assume the $700,000 loan is not specifically tied
to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $3
million loan and a $5 million note with interest rates of 8% and 6%, 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
Expenditure
$
$
$
500,000 x
600,000 x
400,000 X
600,000 x
2,100,000
Amount
1,250,000
Weight
12/12 =
9/12 =
6/12 =
2/12 =
Interest Rate
%
%
=
=
$
$
$
Average
$
500,000
450,000
200,000
Capitalized
Interest
100,000
1,250,000
0
0
0
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