(Capitalization of Interest) On December 31, 2009, Hurston Inc. borrowed $3,000,
ID: 2493775 • Letter: #
Question
(Capitalization of Interest) 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.
1. Other debt outstanding
10-year, 11% bond, December 31, 2003, interest payable annually $4,000,000
6-year, 10% note, dated December 31, 2007, interest payable annually $1,600,000
2. March 1 expenditure included land costs of $150,000
Hint: Expenditure for land can be included in calculating weighted average accumulated expenditures
14. Determine the amount of weighted average accumulated expenditure in 2010 in relation to the construction of the building.
a. 1,500,000 b. 3,660,000 c. 1,600,000
15. Determine the amount of interest to be capitalized in 2010 in relation to the construction of the building.
a.180,000 b. 960,000 c. 780,000
16. Determine the total actual interest expenses incurred in year 2010.
a.180,000 b. 960,000 c. 780,000
Explanation / Answer
14.
amount of weighted average accumulated expenditure in 2010 in relation to the construction of the building = 360,000*(10/12) + 600,000*(7/12) + 1,500,000*(6/12) + 1,200,000*(1/12) = 1,500,000
15.
Amount of Interest to be capitalized in 2010 in relation to the construction of the building= weighted average accumulated expenditure * Interest Rate on loan specific for operation
= 1,500,000 * 0.12 = 180,000
16.
Actual Interest Expense = 3,000,000 * 0.12 + 4,000,000 * 0.11 + 1,600,000 * 0.10 = 960,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.