A. Interest During Construction Hart began construction of a new building last y

Question

A. Interest During Construction Hart began construction of a new building last year on July 1, 2013. On the day construction was started, the land was appraised at $350,000. It had been purchased 2 years earlier for $200,000. By Dec. 31, 2013 it had spent $900,000 on construction and correctly paid and capitalized interest in the amount of $40,000 on annualized expenditures of $600,000. The following added expenditures were made in 2014 prior to completion of the building on September 1, 2014: Date Amount Feb. 1, 2014 840,000 Aug.1, 2014 360,000 The following 7% annual interest rate construction loans existed in 2014: Originated Repaid Amount July 1, 2013 Nov. 1, 2014 480,000 Feb. 1, 2014 Nov. 1, 2014 700,000 There were $500,000 of other general (annualized) loans outstanding during 2013 and 2014 at an average annual interest rate of 5%. Calculate the annualized construction expenditures for 2014: Calculate the capitalized interest for 2014: Indicate the following account balances on December 31, 2014 Land _______________ Building _______________

Explanation / Answer

Answer: Calculation of the annualized construction expenditures for 2014:

Dec. 31, 2013 $900000*12/12=$900000

Feb. 1, 2014 $840000*11/12=$770000

Aug.1, 2014 $360000*5/12=$150000

Total Expenditure=$1820000

Answer: Capitalized interest:

1820000*7%=127400

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