On March 1, a firm paid $1,800,000 cash to purchase land on which to construct a new facility. Construction began the same day. Total expenditures incurred for construction were as follows: The new facility was finished and ready for use on July 1. To finance the building construction, the firm borrowed $2,400,000 on March 1 on a 9%, 3-year note payable. Other than the construction note, the firm's only other outstanding debt during the year was a $1 million, 12%, 6-year note payable dated January 1. If the weighted-average accumulated expenditures for the construction project were $2,900,000, then what amount of interest cost should the firm capitalize for the year?

Question

Hobbes

Business

7 April, 13:19

On March 1, a firm paid $1,800,000 cash to purchase land on which to construct a new facility. Construction began the same day. Total expenditures incurred for construction were as follows: The new facility was finished and ready for use on July 1. To finance the building construction, the firm borrowed $2,400,000 on March 1 on a 9%, 3-year note payable. Other than the construction note, the firm's only other outstanding debt during the year was a $1 million, 12%, 6-year note payable dated January 1. If the weighted-average accumulated expenditures for the construction project were $2,900,000, then what amount of interest cost should the firm capitalize for the year?

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Answers (1)

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Jordin Bradford · Answer 1

In total the firm will capitalize interest thorught building account for 560,000 dollars

Explanation:

From the weighted average accumulated of 2,900,000

we should first work with the interest incurred in specific borrowing:

2,400,000 x 9% = 216,000

then we subtract:

2,900,000 - 2,400,000 = 500,000

and forthis amount we apply the rate for the other debt outstanding

500,000 x 12% = 60,000

In total the firm will capitalize interest thorught building account for 560,000 dollars