Could you hepl with my questions? I don’t need the solution, I need an explanati
ID: 2555549 • Letter: C
Question
Could you hepl with my questions? I don’t need the solution, I need an explanation to my own questions. Why in one case they multiply it by the fraction of the time the projected was outstanding, but for second solution solved for the whole year?Please, take a look. Thank you! Use the following information for questions 78 through 80 On March 1, 2017, Newton Company purchased land for an office site by paying $2,700,000 cash. Newton began construction on the office building on March 1 The office was completed and ready for occupancy on July 1. To help pay for construction, and purchase of land $3,600,000 was borrowed on March 1, 2017 on a 996, 3-year note payable. Other than the construction note, the only debt outstanding during 2017 was a $1,500,000, 12% 6-year note payable dated January 1, 2017. The actual interest cost incurred during 2017 was a. $450,000. b. $504,000 C. $252,000. d. $420,000. 79. A $3,600,000 996 x 10/12) + ($1,500,000 x 12%) $450,000 Question: 10/12 because they started from March 1, right? Assume the weighted-average accumulated expenditures for the construction project are $4,350,000. The amount of interest cost to be capitalized during 2017 is a. $391,500. b. $414,000. c. $450,000 d. $504,000. 80. Ans ? ($3,600,000 x .09) + ($750,000x .12)-341 4,000 Question: Why in solution for #80 it's just multiplied by percentage and not multiplied by the fraction of time the project was outstanding as in the question #79? Like ($3,600,000%.09-10/12) + ($750,000 .12% 10/12)-$ . And the rest of the interest just record as an expense and not as the interest cost to be capitalized?
Explanation / Answer
Well, in question 79, they are asking with specified dates so, fraction of time is considered. but in the question no. 80, which is independent of question no. 79 and which specify that $4,350,000 is a weighted average accumulated expenditure. In the beginning they have used the word "assume" which signifies that its independent of question No. 79 with regards to dates mentioned therein. These wording are of special importance. Also see that they are asking for interest cost to be capitalised. In the question No. 79 period for interest capitalization is of only 4 months and by no means it can reach above $400000. So you have to interprete the word "assume" with weighted average accumulated expenditure and cost of interest to be capitalized.
Thank you