The answer is B but I don’t understand from where they got 36Mn and specially from where they got the 6mn?please help clearly so that I can understand it. please explain in detail why other options are wrong ●MCQ-01866During the first quarter of the operating year, Computer Accessories Co. beganconstruction of its new world headquarters building at a cost of $60,000,000. The buildingwill be initially financed with 30% internal equity (9% cost of equity) with the remainder froma $30,000,000 construction loan (three annual $10,000,000 payments plus interest at 6%)and its general debt facilities (8% weighted average interest rate). Assuming that ComputerAccessories Co. incurred average accumulated expenses of $54,000,000 pertaining to thebuilding construction during the year and had actual borrowing costs of $2,440,000, whatamount of capitalized interest cost would be recognized by the company at year-end?A. $2,440,000$2,280,000C. $3,900,000D. $2,520,000B. ExplanationChoice "B" is correct. The scenario above indicates that internal equity of $18,000,000($60,000,000 × 30%) initially will be used to finance the construction, with the remaining$42,000,000 financed with debt borrowings. Because the company incurred $54,000,000 inaverage accumulated expenses to construct the building during the year, $36,000,000 ofborrowed funds were used, including $30,000,000 from the construction loan and$6,000,000 from the general debt facilities with capitalized interest as follows:AccumulatedExpenses$30,000,0006,000,000XApplicableInterest Rate6%8%Amount ofCapitalized Interest$1,800,000480,000Total capitalized interestChoice "A" is incorrect. This choice is the actual debt borrowing costs, which includesadditional interest costs beyond those associated with the construction of the building.$2,280,000Choice "C" is incorrect. This choice includes the cost of equity, which is not treated ascapitalized interest.Choice "D" is incorrect. This choice averages the interest costs of the construction loan andthe general debt facilities and then applies this rate to the average accumulated expenses.

When an entity takes a loan specifically for the construction of an asset then it is added to the…

MCQ-01866 During the first quarter of the operating year, Computer Accessories Co. began construction of its new world headquarters building at a cost of $60,000,000. The building will be initially financed with 30% internal equity (9% cost of equity) with the remainder from a $30,000,000 construction loan (three annual $10,000,000 payments plus interest at 6%) and its general debt facilities (8% weighted average interest rate). Assuming that Computer Accessories Co. incurred average accumulated expenses of $54,000,000 pertaining to the building construction during the year and had actual borrowing costs of $2,440,000, what amount of capitalized interest cost would be recognized by the company at year-end? A. $2,440,000 B. $2,280,000 C. $3,900,000 D. $2,520,000

MCQ-01866 During the first quarter of the operating year, Computer Accessories Co. began construction of its new world headquarters building at a cost of $60,000,000. The building will be initially financed with 30% internal equity (9% cost of equity) with the remainder from a $30,000,000 construction loan (three annual $10,000,000 payments plus interest at 6%) and its general debt facilities (8% weighted average interest rate). Assuming that Computer Accessories Co. incurred average accumulated expenses of $54,000,000 pertaining to the building construction during the year and had actual borrowing costs of $2,440,000, what amount of capitalized interest cost would be recognized by the company at year-end? A. $2,440,000 B. $2,280,000 C. $3,900,000 D. $2,520,000

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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