Question

A company constructs a building for its own use. construction began on january 1 and ended on december 30. the expenditures for construction were as follows: january 1, $500,000; march 31, $600,000; june 30, $400,000; october 30, $600,000. the company arranged a 7% loan on january 1 for $700,000. assume the $700,000 loan is not specifically tied to the construction of the building. the company’s other borrowings, outstanding for the whole year, consisted of a $3 million loan and a $5 million note with interest rates of 8% and 6%, respectively. assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year.

Answer 1

The question asks for the calculation of capitalized interest using the weighted-average method, but does not provide sufficient details to compute the exact figure. Typically, a company would apply a weighted-average interest rate to accumulated expenditures on the construction project.

Step-by-step explanation:

The question revolves around calculating the amount of interest capitalized for the construction of a building using the weighted-average method. The expenditures for construction and the details of the loans are given, and this information is crucial to answer the question. However, as the question does not provide enough information on the specific dates when the interest on the various loans should be calculated and given that none of the provided references apply to the problem presented by the student, a precise calculation cannot be provided.

Typically, the weighted-average capitalization rate would be applied to the average amount of accumulated expenditures for the asset during the accounting period, and interest would be capitalized accordingly. To determine the interest rate to use, the company would generally reference its outstanding debt and compute a weighted-average rate from the interest rates on its loans.