Question

During 2020, Crane Company constructed assets costing $3900000. The weighted-average accumulated expenditures on these assets during 2020 was $2300000. To help pay for construction, $1710000 was borrowed at 9% on January 1, 2020, and funds not needed for construction were temporarily invested in short-term securities, yielding $30000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a $1900000, 10-year, 8% note payable dated January 1, 2014. What is the amount of interest that should be capitalized by Crane during 2020

Answer 1

Answer: $207,000

Explanation:

Weighted average accumulated expenditure = $2,300,000

Construction fund borrowed = $1,710,000

Loan borrowed on January 1, 2020:

Amount = $1,710,000

Rate = 9%

Interest capitized = $1,710,000 × 0.09

Interest capitalized = $153,900

Accumulated expenditure - construction fund borrowed

$(2,300,000 - 1,710,000) = $590,000

(590,000 × 0.09) = $53,100

Interest that should be capitalized by crane during 2020;

$153,900 + $53,100 = $207,000