Sheffield Corp. is constructing a building. Construction began on January 1 and

Question

Sheffield Corp. is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $6400000 on March 1, $5290000 on June 1, and $8650000 on December 31. Sheffield Corp. borrowed $3160000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $6440000 note payable and an 11%, 4-year, $12950000 note payable.

What amount of interest should be charged to expense?

$2064500

Explanation / Answer

Amount of interest that should be charged to expense is:

So Interest expense is B. $1,507,347

Total Interest Exp 3,160,000*12% 379,200 6,440,000*10% 644,000 12,950,000*11% 1,424,500 Total Interest Expense 2,447,700 Capitalized Interest   3,160,000*12% (Loan for purpose of construction) 379,200 (8,419,167-3,160,000)*10.67% (Working Note 1) 561153.1 Weighted average rate for other loans (2,068,500/19,390,000) 10.67% So capitalized interest is 940,353 Interest expense is 1,507,347

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.