Thank you in advance for your explanation ! Use the following information for qu

Question

Thank you in advance for your explanation ! Use the following information for questions 78 through 80. On March 1, 2017, Newton Company purchased land for an office site by paying $2,700,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction: Date March 1, 2017 April 1, 2017 May 1, 2017 June 1, 2017 Expenditures $ 1,800,000 2,520,000 ,500,000 4,800,000 The office was completed and ready for occupancy on July 1. To help pay for construction, and purchase of land $3,600,000 was borrowed on March 1, 2017 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2017 was a $1,500,000, 12%, 6-year note payable dated January 1, 2017 79. The actual interest cost incurred during 2017 was a. $450,000. b. $504,000 c. $252,000. d. $420,000 Arsa ($3,600,000 x 996 x 10/12) + ($1,500,000 x 12%)-$450,000. 80. Assume the weighted-average accumulated expenditures for the construction project are $4,350,000. The amount of interest cost to be capitalized during 2017 is a. $391,500 b. $414,000. c. $450,000 d. $504,000. Ars B, ($3,600,000 × .09) + ($750,000 × .12) = $414,000. The Question IS: Why for the question # 80 we compute a ($3,600,000 , 09) + (S 750,000 x .12) = $414,000 (Interest for the whole year, even though $3,600,000 was borrowed on March 1, 2017) As for example we did in #79? BUT not as ($3,600,000% 9%-10/12) + ($750,000 × 12%-1012,-s

Explanation / Answer

Ans: Because we are computing the interested based on the weighted average accumlated expenditure so the sum is to be considered for full year and not partial period.

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