On January 1, 2016 the Shadow Company began construction on a new building for i
ID: 2493007 • Letter: O
Question
On January 1, 2016 the Shadow Company began construction on a new building for
its own use. The building was completed December 31, 2016. The Company borrowed
$1,200,000 at 9% on January 1, 2016 to help finance construction. In addition to this
construction loan, Shadow has the following debt outstanding during the entire year
of 2016.
$4,000,000 12% bonds
$3,000,000 8% bonds
Construction expenditures for the year 2016 are as follows:
January 1
$600,000
March 1
$1,500,000
July 1
$1,200,000
November 1
$1,200,000
Required:
Caluculate the amount of interest capitalized for the construction of the building.
Show all work to determine the capitalized interest.
On January 1, 2016 the Shadow Company began construction on a new building for
its own use. The building was completed December 31, 2016. The Company borrowed
$1,200,000 at 9% on January 1, 2016 to help finance construction. In addition to this
construction loan, Shadow has the following debt outstanding during the entire year
of 2016.
$4,000,000 12% bonds
$3,000,000 8% bonds
Construction expenditures for the year 2016 are as follows:
January 1
$600,000
March 1
$1,500,000
July 1
$1,200,000
November 1
$1,200,000
Required:
Caluculate the amount of interest capitalized for the construction of the building.
Show all work to determine the capitalized interest.
Explanation / Answer
Ans: Amount($) Rate Specific borrowing 1200000 9 108000 Amount($) Rate Int. Cost Other borrowing 4000000 12 480000 Other borrowing 3000000 8 240000 Total 7000000 *10.28 720000 *Weighted avg interest rate= 720000/7000000*100=10.28% Costruction exp Date Amount Int Int amount Jan-01 600000 9% 108000 Mar-01 1500000 10.28% 154200 Jul-01 1200000 10.28% 123360 Nov-01 1200000 10.28% 123360
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