ACCOUNTING hapter 10 Homework Ques value 500 points A compan

ACCOUNTING hapter 10 Homework Ques value 5.00 points A company constructs a building for its own use. Construction began on January 1 and ended on 1, $620,000, March 31, December 30. The expenditures for construction were as follows: January S720,000, June 30, $520,000 October 30, $960,000 To help finance construction, the company arranged a 7% construction loan onJanuary 1 for$940.000 The company\' whole year, consisted of a $3 million loan and a $5 million note respectively s other borrowings, outstanding for the with interest rates of 8% and 6%. Assuming the company uses the specific interest method, calculate the amount of interest capitalized for the year (Do not round intermediate calculations. Round your percentage answers to 2 decimal places (Le, 0.1234 should be entered as 12.34%).) Date Expenditure Weight Average January 1 March 31 June 30 October 30 Accumulated expenditures S 620,000 720 520,000 960,000 212 9/12 6/12 620,000 540,000 260,000 160,000 1,580,00D S 2,820,000 Average Interest Rate Capitalized Average accumulated expenditures $1,580,000 Construction loan Other loans (not construction) 600| % |-| S 169.200 300,000 $ 469.200 5,000 References Book & Resources Worksheet

Solution

Calculation of weighted average interest rate on other borrowings Type of other borrowings Amount Annual Interest rate Annual Interest cost Loan $3,000,000.00 8% $240,000.00 Note Payable $5,000,000.00 6% $300,000.00 Total $8,000,000.00 $540,000.00 Weighted Average interest rate = Total Annual interest cost / Total borrowings = $540000 / $8000000 = 6.75% Weighted average accumulated expenditure (given) = $15,80,000 Calculation of interest capitalised for the year Use of borrowing amount Interest rate Interest Cost Specific Loan $940,000.00 7% $65,800.00 Other borrowings [$1580000 - $940000] $640,000.00 6.75% $43,200.00 Interest capitalised for the year $109,000.00