On December 31, 2009, Hurston Inc. borrowed $3,000,000 at 12% payable annually t

Question

On December 31, 2009, Hurston Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2010, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1, $1,200,000. Additional information is provided as follows. Determine the amount of weighted average accumulated expenditure in 2010 in relation to the construction of the building. Determine the amount of interest to be capitalized in 2010 in relation to the construction of the building. Determine the total actual interest expenses incurred in year 2010.

Explanation / Answer

Questions 14 15 16 Answers a a b Calculations are given below: 14) Weighted average accumulated expenditure Payment Amount Weight Weighted Date paid (no of months) Average ÷ accumultd 12 expenditr 1st mar 360000 0.833 300000 1st june 600000 0.583 350000 1st july 1500000 0.500 750000 1st dec 1200000 0.083 100000 1500000 15) Amount of interest to be capitalised Interest on specific loan on weighted average balance = 1500000*0.12= $ 180,000 16) Total actual interest incurred Specific loan 360000 at 12% for one year on 3000000 11% Bond 440000 at 11%          "    "                4000000 10% Note 160000 at 10%          "    "                1600000           960000

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