On January 1,2018, the Marjlee Company began construction of an office building

Question

On January 1,2018, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2019. Construction expenditures for 2018, which were incurred evenly throughout the year, totaled $5,700,000. Marjlee had the following debt obligations which were outstanding during all of 2018: construction loan, 12% Long-term note, 11% Long-term note, 8% $1,425,000 1,900,000 3,800,000 Required Calculate the amount of interest capitalized in 2018 for the building using the specific interest method nterest capitalized

Explanation / Answer

CALCULATION OF INTEREST ON SPECIFIED BORROWINGS Specified Borrowing Amount Interest Rate Interest Cost Construction Loan $             14,25,000 12% 171000 Common Pool Borrowing Total Expenses on Construction = $             57,00,000 Expenses done from common Borrowings $             42,75,000 Common Borrowing: Long Term Note - 11% $             19,00,000 Long Term Note - 8% $             38,00,000 $             57,00,000 Used in Construction = 0.75 ($ 42,75,000 / $ 57,00,000) CALCULATION OF INTEREST COST ON COMMON POOL BORROWINGS Amount Borrowed Interest Cost Interest Cost (75%) Long Term Note - 11% $             19,00,000 $              2,09,000 $             1,56,750 ($ 19,00,000 * 11%) Long Term Note - 8% $             38,00,000 $              3,42,000 $             2,56,500 ($ 38,00,000 * 8%) CALCULATION OF INTEREST CAPITALIZATION ON CONTSTRUCITON On Specified Borrowings = $               1,71,000 On Common Pool Long Term Note - 11% $               1,56,750 Long Term Note - 8% $               2,56,500 Total Interest Cost Capitalize = $                    5,84,250

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---