A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $500,000; March 31, $600,000; June 30, $400,000; October 30, $600,000. The company arranged a 7% loan on January 1 for $700,000. Assume the $700,000 loan is not specifically tied to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $3 million loan and a $5 million note with interest rates of 8% and 6%, respectively. Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year. Note: Enter your answers in whole dollars and not in millions. Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%). Date January 1 March 31 June 30 October 30 Accumulated expenditures Average accumulated expenditures Construction loan Other loans (not construction) X Expenditure $ 500,000 X 600,000 X 400,000✔ X 600,000 X $ 2,100,000 Amount $ 1,250,000 700,000 X 550,000 Weight 12/12 = 9/12✔ 6/12 = 2/12✓ = Interest Rate 7.00 X % 6.75 % = = $ = 49,000 37,125 $ 86,125 *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted. Average $ 500,000✔ 450,000✔ 200,000✔ 100,000✔ $ 1,250,000 Capitalized Interest
A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $500,000; March 31, $600,000; June 30, $400,000; October 30, $600,000. The company arranged a 7% loan on January 1 for $700,000. Assume the $700,000 loan is not specifically tied to the construction of the building. The company's other borrowings, outstanding for the whole year, consisted of a $3 million loan and a $5 million note with interest rates of 8% and 6%, respectively. Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year. Note: Enter your answers in whole dollars and not in millions. Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%). Date January 1 March 31 June 30 October 30 Accumulated expenditures Average accumulated expenditures Construction loan Other loans (not construction) X Expenditure $ 500,000 X 600,000 X 400,000✔ X 600,000 X $ 2,100,000 Amount $ 1,250,000 700,000 X 550,000 Weight 12/12 = 9/12✔ 6/12 = 2/12✓ = Interest Rate 7.00 X % 6.75 % = = $ = 49,000 37,125 $ 86,125 *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted. Average $ 500,000✔ 450,000✔ 200,000✔ 100,000✔ $ 1,250,000 Capitalized Interest
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures
for construction were as follows: January 1, $500,000; March 31, $600,000; June 30, $400,000; October 30, $600,000. The
company arranged a 7% loan on January 1 for $700,000. Assume the $700,000 loan is not specifically tied to the construction of
the building. The company's other borrowings, outstanding for the whole year, consisted of a $3 million loan and a $5 million note
with interest rates of 8% and 6%, respectively.
Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year.
Note: Enter your answers in whole dollars and not in millions. Do not round intermediate calculations. Round your percentage
answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34%).
Date
January 1
March 31
June 30
October 30
Accumulated expenditures
Average accumulated expenditures
Construction loan
Other loans (not construction)
Expenditure
$
500,000 X
600,000
400,000 X
600,000
$ 2,100,000
Amount
$ 1,250,000
700,000
550,000
X
X
Weight
12/12
9/12
6/12
2/12
Interest Rate
7.00 X %
6.75
%
=
$
=
49,000
37,125
$
86,125
*Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted.
Average
500,000
450,000
200,000
100,000
$ 1,250,000
Capitalized
Interest
$
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