Question

Cole Co. began constructing a building for its own use in January 2016. During 2016, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during 2016 was $40,000. What amount of interest should Cole capitalize?

Answer 1

$40,000

Step-by-step explanation:

The accounting procedure involved in the above is that one picks the lower between the actual interest incurred and the interest computed on the weighted average amount of accumulated expenditures for PPE.

The actual interest incurred on specific construction debt and other borrowings

= $50,000 + $20,000

= $70,000

Since the interest computed on the weighted average amount of accumulated expenditure for the building is $40,000 , the lower between the actual interest incurred and interest on weighted average amount of accumulated expenditure is $40,000, hence will be the capitalized amount.