On January 1, 2016, the Marjlee Company began construction of an office building
ID: 2416349 • Letter: O
Question
On January 1, 2016, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2017. Construction expenditures for 2016, which were incurred evenly throughout the year, totaled $5,100,000. Marjlee had the following debt obligations which were outstanding during all of 2016:
Construction loan, 13% $ 1,275,000
Long-term note, 12% 1,700,000
Long-term note, 9% 3,400,000
Required: Calculate the amount of interest capitalized in 2016 for the building using the specific interest method.
Interest capitalized $ ?
Please provide calculate step by step and would appreciate if you could provide the answer asap.
Thanks,
Explanation / Answer
Average expenditure = 5,100,000/2 = 2,550,000
Weighted average rate:
1,700,000@12% = $204,000
3,400,000@9% = 306,000
$5,100,000 = $510,000
510,000/5,100,000 = 10%
interest capiralised
1,275,000 @ 13% = $165,750
1,275,000 @10% = 127,500
interest capitalised = $293,250