Exercise 10-23 Interest capitalization [LO10-7] On January 1, 2013, the Marjlee
ID: 2648514 • Letter: E
Question
Exercise 10-23 Interest capitalization [LO10-7]
On January 1, 2013, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2014. Construction expenditures for 2013, which were incurred evenly throughout the year, totaled $5,400,000. Marjlee had the following debt obligations which were outstanding during all of 2013:
Calculate the amount of interest capitalized in 2013 for the building using the specific interest method.
On January 1, 2013, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2014. Construction expenditures for 2013, which were incurred evenly throughout the year, totaled $5,400,000. Marjlee had the following debt obligations which were outstanding during all of 2013:
Explanation / Answer
Answer:
Calculation of the amount of interest capitalized in 2013:
Specific loan taken = Construction loan, 9% = $1,640,000
Hence interest on specific loan = 1640000*9% = $147600
Total Cost incurred in the year 2013 = $5,400,000
Less: Specific loan $1,640,000
Other No specific loan fund used = 5400000
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