Question

On January 2, 2020, Bramble Corp. began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2021. Expenditures for the construction were as follows:
January 2, 2020 $ 612000
September 1, 2020 1810800
December 31, 2020 1810800
March 31, 2021 1810800
September 30, 2021 1211000
Bramble Corp. borrowed $3300000 on a construction loan at 10% interest on January 2, 2020. This loan was outstanding during the construction period. The company also had $12600000 in 7% bonds outstanding in 2020 and 2021.
The interest capitalized for 2020 was:____________.
a. $147000
b. $490440
c. $441000
d. $121560

Answer 1

Answer:

d. $121560

Explanation:

weighted accumulated expenditures 2020:

• January $612,000 x 12/12 = $612,000
• September $1,810,800 x 4/12 = $603,600
• total = $1,215,600

capitalizable interests = $1,215,600 x 10% (interest rate of construction loan) = $121,560

you will consider other interest rates only if expenses are higher than the specific construction