Question

During 2014, Kimmel Co. incurred weighted-average accumulated expenditures of $800,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2014 was a $1,000,000, 10%, 5-year note payable dated January 1, 2012. What is the amount of interest that should be capitalized by Kimmel during 2014?

Answer 1

Kimmel Co. should capitalize $80,000 in interest for 2014, which is calculated based on the weighted-average accumulated expenditures of $800,000 against the 10% interest on the $1,000,000 note payable.

Step-by-step explanation:

The amount of interest that should be capitalized by Kimmel Co. during 2014 can be calculated by using the weighted-average accumulated expenditures and the interest rate of the debt. Kimmel Co. has a $1,000,000 note payable at a 10% annual interest rate, leading to an annual interest expense of $100,000.

Given that the accumulated expenditures are $800,000 and they are lower than the total debt, the entire interest expense can be capitalized.

Thus, the interest to be capitalized for Kimmel Co. in 2014 is $80,000.