Problem solving: On January 1, 2012, a man expenditures were incurredbegan const

Question

Problem solving: On January 1, 2012, a man expenditures were incurredbegan construction on the office building. The following Date March 1, 2012 April 1, 2012 May 1, 2012 June 1, 2012 $ 360,000 504,000 450,000 720,000 The office was completed and ready for occupancy on December 31st. To help pay for construction, $720,000 was borrowed on January 1, 2007 on a 9%, 1-year note payable. than the construction note, the only debt outstanding during 2012 was a $300,000, 12%6-year note payable dated January 1, 2012 1. The weighted-average accumulated expenditures on the construction project during 2012 were. 30c oo 360 000 x 3o00o0 : 420 ooo 2. The avoidable Interest cost during 2012 was 1360 61R 3. The actual interest cost incurred during 2012 was 4. What amount of interest should be charged to expense

Explanation / Answer

1) weighted average accumulated exp.

2) Avoidable interest cost

out of total 1398000, 720000 is from specific loantaken for construction while remaining amount 678000 is from general borriowing.

3) Actual interest

4) interest expense

Interest can be capitalized only to the extent of avoidable interest. since avoidable interest is more than the actual interest. full interest of 100800 will be capitalized hence no amount will be written off in profit and loss as expense.

Particulars Amount March (360000*10/12) 300000 April (504000*9/12) 378000 May(450000*8/12) 300000 June (720000*7/12) 420000 Total 1398000

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