Help 10 or, On January 1, 2018, the Marjlee Company began construction of an bui

Question

Help 10 or, On January 1, 2018, the Marjlee Company began construction of an building was completed early in 2019. Constru $6,000,000. Marjlee had the following debt obligations which were outstanding during all of 2018 ction expenditures for 2018, which were incurred 10 points evenly throughout the year, totaled Construction loan, 11 long-term note, 10% $1,500,000 2,000,000 4,000,000 term note, 7% Required: Calculate the amount of interest capitalized in 2018 for the building using the specific interest method. Prev 10 of 14m Next >

Explanation / Answer

Average Accumulated Expenditures = $6,000,000 / 2 Average Accumulated Expenditures = $3,000,000 Weighted Average Rate: Loan Interest Rate Interest Long Term Note      2,000,000.00 10%    200,000.00 Long Term Note      4,000,000.00 7%    280,000.00 Total      6,000,000.00    480,000.00 Weighted Average Rate = $480,000 / $6,000,000 = 8% Interest Capitalized: Loan Interest Rate Interest Construction Loan      1,500,000.00 11%    165,000.00 Other Loan      1,500,000.00 8%    120,000.00 Total      3,000,000.00    285,000.00 Total Interest Capitalized = $285,000

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