Question

On January 2, 2020, Sheffield Corp. began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2021. Expenditures for the construction were as follows:

January 2, 2020 $ 600,000
September 1, 2020 1,800,000
December 31, 2020 1,800,000
March 31, 2021 1,800,000
September 30, 2021 1,200,000
Indian River Groves borrowed $3,300,000 on a construction loan at 12% interest on January 2, 2020. This loan was outstanding during the construction period. The company also had $12,000,000 in 9% bonds outstanding in 2020 and 2021.
1. What were the weighted-average accumulated expenditures for 2020?
a. $1,600,000
b. $1,500,000
c. $1,200,000
d. $3,000,000
2. The interest capitalized for 2020 was:
a. $540,000
b. $144,000
c. $456,000
d. $180,000
3. What were the weighted-average accumulated expenditures for 2021 by the end of the construction period?
a. $1,170,000
b. $4,905,000
c. $5,958,000
d. $4,158,000
4. The interest capitalized for 2021 was:
a. $374,220
b. $354,915
c. $ 77,220
d. $297,000

Answer 1

1. What were the weighted-average accumulated expenditures for 2020?

• c. $1,200,000

$600,000 x 12/12 (from January to December) = $600,000

$1,800,000 x 4/12 (from October to December) = $600,000

total $1,200,000

2. The interest capitalized for 2020 was:

• b. $144,000

$1,200,000 x 12% = $144,000

3. What were the weighted-average accumulated expenditures for 2021 by the end of the construction period?

• d. $4,158,000

$600,000 x 9/12 (from January to September) = $450,000

$1,800,000 x 9/12 (from January to September) = $1,350,000

$1,800,000 x 9/12 (from January to September) = $1,350,000

$144,000 x 9/12 (from October to December) = $108,000

$1,800,000 x 6/12 (from April to September) = $900,000

total $4,158,000

4. The interest capitalized for 2021 was:

• b. $354,915

$3,300,000 x 12% x 9/12 = $297,000

($4,158,000 - $3,300,000) x 9% x 9/12 = $57,915

total $354,915