Hanson Company is constructing a building. Construction began on February 1 and

Question

Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,884,000 on March 1, $1,200,000 on June 1, and $3,066,400 on December 31. Hanson Company borrowed $1,089,200 on March 1 on a 5-year, 13% note to help finance construction of the building. In addition, the company had outstanding all year a 9%, 5-year, $2,127,700 note payable and an 10%, 4-year, $3,808,900 note payable. Compute the weighted-average interest rate used for interest capitalization purposes. How do I figure out how much is interest and how much is principal?

Explanation / Answer

Date Actual Expenditures Capitalization Period Calculation for Capitalization period Weighted Average Accumulated Expenditures 1-Mar $1,800,000.00 10/11 0.91 $1,636,363.64 1-Jun $1,200,000.00 7/11 0.64 $763,636.36 31-Dec $3,000,000.00 0/11 0 $0.00 $6,000,000.00 $2,400,000.00

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