On January 1, 2011, the Mills Conveying Equipment Company began construction of

Question

On January 1, 2011, the Mills Conveying Equipment Company began construction of a building to be used as its office headquarters. The building was completed on June 30, 2012. Expenditures on the project, mainly payments to subcontractors, were as follows:

January 3, 2011 $500,000
March 31, 2011 400,000
September 30, 2011 600,000
Accumulated Expenditures at December 31, 2011 $1,500,000
(before interest capitalization)

January 31, 2012 $600,000
April 30, 2012 300,000

On January 2, 2011, the company obtained a $1,000,000 construction loan with an 8% interest rate. The loan was outstanding during the entire construction period. The company’s other interest-bearing debt included two long-term notes of $2,000,000 and $4,000,000 with interest rates of 6% and 12%, respectively. Both notes were outstanding during the entire construction period.

Explanation / Answer

On January 1, 2011, the Mills Conveying Equipment Company began construction of a building to be used as its office headquarters. The building was completed on June 30, 2012. Expenditures on the project, mainly payments to subcontractors, were as follows:

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