Agasse Industries began construction of a new facility and took out a $1,500,000
ID: 2487559 • Letter: A
Question
Agasse Industries began construction of a new facility and took out a $1,500,000, 8% construction loan on January 1, 2011. The construction is completed on September 30, 2011. Agasse made payments to the general contractor as follows:
$360,000 on January 1, 2011
$900,000 on June 1, 2011
$540,000 on August 1, 2011
Required:
(1) The capitalized interest for the new facility that Agasse will report in 2011 is $______
Hints: show the three steps -average accumulated expensiture for the construction, calculated capitalized interst, actual interest cost
(2) The acquisition costs for the new facility that Agassee will report in its balance sheet in 2011 is $______
Explanation / Answer
Average Accumulated Expenditure : Construction Period Jan 1-Sep 30 Payment Details Amount of payment Period months Weighted period % weighted Payment Payment of Jan 1. 360,000 9 100.00% 360,000 Payment of June 1 900,000 4 44.44% 400,000 Payment of Aug 1. 540,000 2 22.22% 120,000 1,800,000 880,000 Average Accumulated Expenditure : 880,000 Specific Loan amt =1,500,000 Interest Rate =8% Interest on weighted Accumulated expenditure= 52,800 Total Loan Interest = 90,000 1 So Interest to be capitalized =$52800 2 Acquisition cost of new facility = Total Payments 1,800,000 Capitalized interest= 52,800 Total acquisition cos to eb reported= 1,852,800