Question

A firm began the construction of its new manufacturing facility in January of 20x2. The following expenditures were made on construction in that year: Jan. 1 $40,000 Mar. 1 120,000 Oct. 31 96,000 Debt outstanding the entire year: 6%, $60,000 construction loan 4%, $90,000 note payable not related to construction 6%, $90,000 note payable not related to construction Compute interest to be capitalized using the weighted average method.

a. $6,720
b. $12,600
c. $8,400
d. $8,190

Answer 1

d. $8,190

Step-by-step explanation:

Firstly, average accumulated expenditures is ;

= $40,000 + $120,000 ( 10/12) + $960,000 (2/12)

= $156,000

The rate

= ($3,600 + $3,600 + $5,400) / $240,000

= 0.0525

Therefore, Interest capitalized is

= (0.0525) × $156,000

= 8,190