On January 1, 2013, the Marjlee Company began construction of an office building
ID: 2419751 • Letter: O
Question
On January 1, 2013, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2014. Construction expenditures for 2013, which were incurred evenly throughout the year, totaled $7,200,000. Marjlee had the following debt obligations which were outstanding during all of 2013:
Calculate the amount of interest capitalized in 2013 for the building using the specific interest method.
Construction loan, 9% $ 1,580,000 Long-term note, 8% 2,400,000 Long-term note, 5% 4,800,000
Explanation / Answer
weightage average interest rate:
Amount interest
long term rate 8% 2,400,000 192000
long term rate 5% 4,800,000 240000
$7200000 432000
weightage average interest rate = $432000 / $7200000
= 6%
Average expenditure during the 2013 = $7,200,000 / 2(completed in 2 years from 2013 - 2014)
= 3600000
Interest to be capitalised :
Construction loan, 9% $1580000 142200
Remaining on expenditure 6% $2020000 121200
$3600000 $263400
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