Question

Sun Co. was constructing fixed assets that qualified for interest capitalization. Sun had the following outstanding debt issuances during the entire year of construction: $6,000,000 face value, 8% interest $8,000,000 face value, 9% interest None of the borrowings were specified for the construction of the qualified fixed asset. Average expenditures for the year were $1,000,000. What interest rate should Sun use to calculate capitalized interest on the construction

Answer 1

the interest rate that should be determined the capitalized interest is 8.57%

Step-by-step explanation:

The computation of the interest rate that should be determined the capitalized interest is shown below;

= $6,000,000 ÷ ($6,000,000 + $8,000,000) × 0.08 + $8,000,000 ÷ ($6,000,000 + $8,000,000) × 0.09

= 0.0857

= 8.57%

Hence, the interest rate that should be determined the capitalized interest is 8.57%

The same would be considered