Please show how to get the answer as well On January 2 2017

Please show how to get the answer as well!

On January 2, 2017, Oriole Company began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2018. Expenditures for the construction were as follows: January 2, 2017 September 1, 2017 December 31, 2017 March 31, 2018 September 30, 2018 603000 1810800 1810800 1810800 1218000 Oriole Company borrowed $3300000 on a construction loan at 10% nterest on January 2. 2017. This loan was outstanding during the construction period e c mpany als nad nss 0 % bonds outstanding in 2017 and 2018. The interest capitalized for 2017 was: $158200 $482340 $ 474600 $120660

Solution

Actual interest expenditure incurred: Principal Interest % Interest expenditure 1 2 1*2 Loan at 10%-specific 3300000 10% 330000 7% bond-General 13560000 7% 949200 1279200 Avoidable interest=Weighted average accumulated expenditure*interest rate=3000000*9%=270000 Weighted average accumulated expenditure: Date Expense Capitalization period Weight Weighted expenditure A B C=B/12 A*C 2-Jan 603000 12 months 1.00 603000 1-Sep 1810800 4 months 0.33 603600 31-Dec 1810800 0 months 0.00 0 1206600 Weighted average interest rate for general purpose notes=7% Here,weighted average expeenditure is much less than the principal amount of specific loan and general purpose note.So,entire weighted expenditure is applied towards specific loan. Avoidable interest: Principal Interest % Interest expenditure Loan at 10%-specific 1206600 10% 120660 Interest to be capitalized=Lower of actual interest or avoidable interest=Lower of 1279200 or 120660=120660 Answer is $ 120660