The Jacob Co. required additional warehouse space to house a new line of product

Question

The Jacob Co. required additional warehouse space to house a new line of products and began construction on January 1, 2017. The estimated cost of construction is $4,500,000. Jacob Co. issued a $2,000,000 10%, 10 year bond for the construction on January 1, 2017, Expenditures during 2017 were as follows: 180,000 $960,000 $1,500,000 460,000 $ 610,000 *January 1, 2017 .February 1, 2017 May 1, 2017 Septermber 1, 2017 November 1, 2017 The project was completed on December 31, 2017 Jacob also had other debt obligations as of December 31, 2017 as follows: $ 700,000, 10%, 5 year long term note due December 31, 2019 $ 1,200,000,996, 20 year bond due June 1, 2020. $ 300,000, 8%, short term note due March 31, 2018. * * Required 1) 2) 3) 4) 5) Determine the capitalization period. Calculate the weighted average of accumulated expenditures. Calculate the avoidable interest. Calculate total actual interest in 2017 What is the interest to be capitalized? a. Prepare the entry to record the capitalized interest and the interest expense.

Explanation / Answer

1. The capitalisation period is from january,2017 to december ,2017 i.e of 12 months.

2.Weighted average of accumulated expenditure is as follows:

Total = $15,44,166 is the weighted average expenditure.

Interest on Other debt obligations -

70,000+1,08,000+24,000=2,02,000

out of 20,00,000 10% bond the interest which shall be capitaised will be 15,44,166

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