Question

On January 1, 2021, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 200,000 September 1, 2021 $ 300,000 December 31, 2021 $ 300,000 March 31, 2022 $ 300,000 September 30, 2022 $ 200,000 Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2021. This loan was outstanding throughout the construction period. The company had $4,500,000 in 9% bonds payable outstanding in 2021 and 2022. Interest (using the weighted-average method) capitalized for 2021 was:

Answer 1

Interest capitalized for 2021 was $ 36,000

Step-by-step explanation:

In order to calculate the Interest capitalized for 2021 we would have to calculate first the Average accumulated expenditures for 2021 as follows:

Average accumulated expenditures for 2021 = ($200,000 * 12/12) + ($300,000 * 4/12) + ($300,000 * 0/12)

= $200,000 + $100,000 + 0

= $300,000

Therefore, to calculate the Interest capitalized for 2021 we would have to make the following calculation:

Interest capitalized for 2021 = [($200,000 * 12/12) + ($300,000 * 4/12) + ($300,000 * 0/12)] * 12%

= [$300,000] * 12%

= $36,000

Interest capitalized for 2021 was $ 36,000