Capitalized Interest Multuple-Year Computation The company had the following loa

Question

Capitalized Interest Multuple-Year Computation The company had the following loans outstanding for the entire year: The company began the self-construction of a building or January 1. The following expenditures were made during the year: Assume that construction was not completed on December 31 of Year 1. Also assume that the same loans were outstanding for all of Year 2. Final construction was completed on December 31 of Year 2. Compute the amount of interest capitalized during Year 2. Compute the recorded cost of the building at the end of Year 2.

Explanation / Answer

1. Interest Cost to be capitalized in year 2 = $68,080

2. Recorded cost of building at end of year 2 = $652,080

Weighted Avg Interest Rate Amount Interest Rate Annual Interest Cost Specific Borrowing $100,000 10% $10,000 General loan $2,000,000 12% $240,000 Weighted Avg Interest Rate $240,000/$2,000,000 12%

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