During 2012, Bass Corporation constructed assets costing $2,000,000. The weighte

Question

During 2012, Bass Corporation constructed assets costing $2,000,000. The weighted-average accumulated expenditures on these assets during 2012 was $600,000. To help pay for construction, $880,000 was borrowed at 10% on January 1, 2012, and funds not needed for construction were temporarily invested in short-term securities, yielding $18,000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a $1,200,000, 10-year, 9% note payable dated January 1, 2006. What is the amount of interest that should be capitalized by Bass during 2012?

Explanation / Answer

The amount of interest that should be capitalized by Bass during 2012 is:

($880,000*10%) + ($320,000*9%) = 116800

They amount of $320,000 to calculate the amount of interest is shown below

On $600,000*10% =$60,000

=$880,000-$600,000-$60,000

=$220,000+$1,000,000/10

=$320,000

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