Question

On January 1, 2020, UML Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on December 31, 2021. Expenditures on the project were as follows: January 1, 2020 $ 500,000 July 1, 2020 $ 300,000 December 1, 2020 $ 600,000 March 31, 2021 $ 300,000 September 30, 2021 $ 200,000 UML borrowed $600,000 on a construction loan at 8% interest on January 1, 2020. This loan was outstanding throughout the construction period. The company had $2,000,000 in 5% bonds payable outstanding in 2020 and 2021. UML used the specific interest method. Interest capitalized for 2020 was: Multiple Choice $53,000. $56,000. $70,000. $112,000.

Answer 1

UML Inc.

The interest capitalized for 2020 was:

= $70,000

Step-by-step explanation:

a) Data and Calculations:

Date Amount Weight Weighted Average

January 1, 2020 $ 500,000 24/24 $500,000

July 1, 2020 $ 300,000 18/24 225,000

December 1, 2020 $ 600,000 13/24 325,000 $1,050,000

March 31, 2021 $ 300,000 9/24 112,500

September 30, 2021 $ 200,000 3/24 25,000

Total accumulated weighted-average expenditure for 2020 = $1,050,000

Interest capitalized

Construction loan = $600,000 * 8% = $48,000

Part from the bond= $450,000 * 5% = 22,500

= $70,500