On January 1, 2015 smith research signed a contract to have Jameson builders con

Question

On January 1, 2015 smith research signed a contract to have Jameson builders construct a laboratory building at a cost of $20,000,000. It was estimated that it would take four years to complete the project. Also on January 1, 2016 to finance the construction cost, Jefferson borrowed $20,000,000 payable in five annual installments of $4,000,000 plus interest at the rate of 7% during 2016, Jefferson made following construction-related expenditures: 3/1 $600,000 7/1 $700,000 1 $900,000 hat amount should Jefferson report as capitalized interest at December 20162

Explanation / Answer

Date Amount Spent Outstanding Weighted Expenditure 1/3 600000 0.83 500000 1/7 700000 0.50 350000 1/11 900000 0.17 150000 Total 1000000 Avoidable Interest Amount Rate Total 4000000 7% 280000 3000000(4000000-1000000) 7% 210000 490000 Ans

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