Question

A firm began the construction of its new manufacturing facility in January of 2015. The following expenditures were made on construction in that year: Jan. 1 $150,000 Apr.1 $200,000 Nov.1 $48,000 Debt outstanding the entire year: 5%, $200,000 construction loan 8%, $300,000 note payable not related to construction 10%, $200,000 note payable not related to construction. Compute interest to be capitalized using the specific method.
a. $15,400.
b. $17,450.
c. $19,504.
d. $22,060.

Answer 1

Answer:

c. $19,504.

Explanation:

Date        expenditures   weights   expenditure weighted

Jan-01  150,000.00  1                150,000.00

April-01  200,000.00  0.75        150,000.00

Nov-01  48,000.00  1/6                      8,000.00    

                                         308,000.00

especific borrowings

200,000  x 5% = 10,000.00    

non-specifit borrowings

308,000 - 200,000 = 108,000.00  

average rate for non-specific debt

principal rate interest

300,000 0.08 24000

200,000 0.1  20000

500,000   44000

total interest / total principal  0.088

interest from non-specifit

108,000.00    0.088  9,504.00    

 

total interest capitalized  

specific debt  10,000.00

non-specifit     9,504.00

total           19,504.00