Cheshire Cat Company contracted with White Rabbit Construction to build a storag

Question

Cheshire Cat Company contracted with White Rabbit Construction to build a storage warehouse in 2015. Construction began on April 1^st at which time Cheshire Cat paid $60,000. Cheshire Cat then made additional payments as follows, based upon progress made toward completion of the construction: Cheshire Cat borrowed $100,000 specifically for this project at 8% interest. The company also had the following general purpose borrowings throughout the year: General Purpose Debt A: $1,000,000 at 8% General Purpose Debt B: $500,000 at 6% Assume that the building was completed on December 31, 2015. How much interest should be capitalized on this building What amount would be in the building account at the time the building was completed Suppose Cheshire Cat had no general purpose borrowings. How much interest would be capitalized then

Explanation / Answer

Solution.

$5,467 should be captilaised as an interest .

B.

Amount would be in the building account =

Capital expense = $315,000

Interest expense = $5,467

Total                   = $317,467.

3.

$9,667 should be captilaised as an interest .

Date Amount Rate Month Interest 1-Apr            60,000 8% 9        3,600.00 1-Jun            40,000 8% 7        1,867.00 Total        5,467.00

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