Question

On January 2, 2020, Concord Corporation 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 $ 607000 September 1, 2020 1803600 December 31, 2020 1803600 March 31, 2021 1803600 September 30, 2021 1213000 Concord Corporation borrowed $3320000 on a construction loan at 10% interest on January 2, 2020. This loan was outstanding during the construction period. The company also had $11520000 in 7% bonds outstanding in 2020 and 2021. The interest capitalized for 2020 was:

Answer 1

$120,820

Step-by-step explanation:

The calculation of interest capitalized for 2020 is shown below:-

Date Expenditure Weight Average

02-Jan-20 $607,000 12 ÷ 12 $607,000

01-Sep-20 $1,803,600 4 ÷ 12 $601,200

31-Dec-20 $1,803,600 0 ÷ 12 $-

Accumulated

Expenditures $4,214,200 $1,208,200

Interest Capitalized for 2020 = Total Average × Percentage of construction loan

= $1,208,200 × 10%

= $120,820

So, for computing the interest capitalized for 2020 we simply multiply the total average with percentage of construction loan.