Timmy Taxes is constructing a new building. Construction costs during the construction period totaled $40,000,000. While no debt was incurred to directly finance the construction. Timmy had an outstanding loan from ABC Bank for $10,000,000 (loan 1) that was borrowed two years before the property was acquired. Timmy also borrowed $2,000,000 (loan 2) when construction began to ensure he had adequate working capital available even though none of the funds were directly used for the construction. Timmy has no other outstanding debt. Assume interest charged during the construction period was $1,000,000 on loan 1 and $200,000 on loan 2. How much of the interest, if any, must be capitalized?
Timmy Taxes is constructing a new building. Construction costs during the construction period totaled $40,000,000. While no debt was incurred to directly finance the construction. Timmy had an outstanding loan from ABC Bank for $10,000,000 (loan 1) that was borrowed two years before the property was acquired. Timmy also borrowed $2,000,000 (loan 2) when construction began to ensure he had adequate
a. $200,000
b. $360,000
c. $840,000
d. $1,000,000
e. $1,200,000
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