Question

In January of 2018, the Falwell Company began construction of its own manufacturing facility. During 2018, $6,000,000 in costs were incurred evenly throughout the year. Falwell took out a $2,500,000, 10% construction loan at the beginning of the year. The company had no other interest-bearing debt. What amount of interest should Falwell capitalize in 2018?a. $600,000 b. $300,000 c. $250,000d. $0

Answer 1

c. $250,000

Step-by-step explanation:

Data given in the question

Cost incurred evenly throughout the year = $6,000,000

Took out value = $2,500,000

Interest = 10%

So by considering the above information, the amount of interest capitalize is

= Took out value × Interest

= $2,500,000 × 10%

= $250,000

By multiplying the took out value with the interest we can get the amount of interest that should be capitalized for the year 2018