Determine the amount of interest to be capitalized in 2010 in relation to the construction of the building.
Determine the amount of interest to be capitalized in 2010 in relation to the construction of the building.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On December 31, 2009, Hurston Inc. borrowed $4,000,000 at 10% payable annually to finance the construction of a new building. In 2010, the company made the following expenditures related to this building: March 1, $250,000; June 1, $500,000; July 1, $1,600,000; December 1, $1,100,000.
Additional information is provided as follows.
- Other debt outstanding
10-year, 11.5 % bond, December 31, 2003, interest payable annually on $6,000, 000
6-year, 12.5 % note, dated December 31, 2007, interest payable annually
on $5000, 000
- March 1, 2010, expenditure included land costs of $150,000
- Interest revenue earned in 2010 on funds related to specific borrowing $49,000
Instructions:
Determine the amount of interest to be capitalized in 2010 in relation to the construction of the building.
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