Answered

Westonci.ca is your trusted source for finding answers to a wide range of questions, backed by a knowledgeable community. Experience the ease of finding accurate answers to your questions from a knowledgeable community of professionals. Discover in-depth answers to your questions from a wide network of professionals on our user-friendly Q&A platform.

A building was constructed last year for Agro Co. for use as a production facility. Construction began on January 1 and was completed on December 31. The payments to the contractor were as follows.
Date Payment
1/1 $300,000
4/1   620,000
8/1   460,000
10/1   300,000
To finance construction of the building, a $750,000, 10% construction loan was taken out on January 1. The loan was repaid on December 31. The firm had two sources of general debt: $400,000 note payable, 9% annual interest, and $500,000 par value bonds, 7.5% annual interest.
Determine the amount of interest to be capitalized.

Sagot :

anthougo

Answer:

Agro Co.

The amount of interest to be capitalized is:

= $92,850.

Explanation:

a) Data and Calculations:

Date Payment     Weight        Weighted Average

1/1    $300,000     12/12                  $300,000

4/1     620,000      9/12                    465,000

8/1     460,000      5/12                      191,667

10/1   300,000      3/12                       75,000

Weighted-average accumulated expenditure = $1,031,667

Sources debt:

$750,000 construction loan, 10% annual interest = $75,000

$400,000 note payable, 9% annual interest         =   36,000

$500,000 par value bonds, 7.5% annual interest =   37,500

Total debt = $1,650,000                 Total interest = $148,500

Weighted-average interest rate = $148,500/$1,650,000 * 100 = 9%

Interest to be capitalized = Weighted-average accumulated expenditure * Weighted-average interest rate

= $1,031,667 * 9%

= $92,850

We appreciate your time. Please come back anytime for the latest information and answers to your questions. Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. Westonci.ca is committed to providing accurate answers. Come back soon for more trustworthy information.