Question

4. arlington company is constructing a building. construction began on january 1 and was completed on december 31 of 2016. total costs/expenditures were $4,800,000 on march 1, $3,000,000 on june 1, and $6,000,000 on december 31. arlington company borrowed $2,400,000 on january 1 on a 5-year, 12% note to specifically help finance construction of the building. in addition, the company had outstanding all year a 10%, 3-year, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable. e. what should be the total original cost that is capitalized for the building (including all cost and capitalized interest)?

Answer 1

The total original cost that is capitalized for the building, including all costs and capitalized interest, can be calculated by adding up the total costs/expenditures, outstanding notes payables, and capitalized interest. The weighted average interest rate is used to determine the capitalized interest.

Step-by-step explanation:

To calculate the total original cost that is capitalized for the building, we need to include all costs and capitalized interest. In this case, the total costs/expenditures for the construction were $4,800,000 on March 1, $3,000,000 on June 1, and $6,000,000 on December 31.

Additionally, the company borrowed $2,400,000 on January 1 on a 5-year, 12% note to specifically help finance construction. The company also had outstanding notes payables throughout the year. By adding up all these costs and capitalized interest, the total original cost that is capitalized for the building would be the sum of all these amounts.

To calculate the capitalized interest, we need to determine the weighted average interest rate. This can be done by multiplying the outstanding balance of each note payable by its interest rate and duration, then adding up these amounts. Once we have the total capitalized interest, we can add it to the total costs to get the total original cost that is capitalized for the building.