On January 2, 2013, Apple Valley Produce began construction of a new processing
ID: 2458545 • Letter: O
Question
On January 2, 2013, Apple Valley Produce began construction of a new processing plant. The plant was expected to be finished and ready for use on September 30, 2014. Expenditures for construction during 2013 were as follows: January 2, 2013, $500,000, July 1, 2013, $1,200,000, and December 31, 2013, $1,000,000. To fund this project, on January 2, 2013, Apple Valley borrowed $1,800,000 in 9% bonds outstanding in 2013. The interest capitalized for 2013 should be:
a) $110,000
b) $118,333
c) $99,000
d) $180,000
Explanation / Answer
ANSWER = C) $99,000
Expenditure for period ending dec31, 2013
January 2, 2013, $500,000 for 12Month = $ 500,000
July 1, 2013, $1,200,000,for 6 Month = 1,200,000 * 6/12 = $600,000
December 31, 2013, $1,000,000 for 0 month = 0
Total expenditure = $1100,000
Interest on bonds = $1,100,000 * 9% = $99000
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