On December 31, 2013, Main Inc. borrowed $4,200,000 at 13% payable annually to f

Question

On December 31, 2013, Main Inc. borrowed $4,200,000 at 13% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: March 1, $504,000; June 1, $840,000; July 1, $2,100,000; December 1, $2,100,000. The building was completed in February 2015. Additional information is provided as follows Other debt outstanding 10-year, 12% bond, December 31, 2007, interest payable annually 6-year, 11% note, dated December 31, 2011, interest payable annually $5,600,000 $2,240,000 2. March 1, 2014, expenditure included land costs of $210,000 3. Interest revenue earned in 2014 $68,600 Your answer is incorrect. Try again. Determine the amount of interest to be capitalized in 2014 in relation to the construction of the building. (Round answer to 0 decimal places, e.g. 5,275 The amount of interest $1

Explanation / Answer

Amount of interest to be capitalised = $277,550

Expenditure Average Investment Mar-01      5,04,000 10/12                                                                     4,20,000 Jun-01      8,40,000 7/12                                                                     4,90,000 Jul-01    21,00,000 6/12                                                                   10,50,000 Dec-01    21,00,000 1/12                                                                     1,75,000 Total Expenditure                                                                   21,35,000 Loans Issued Actual int. cost 13% Finance construction 12/31/2013 42,00,000 4,200,000*13% = $546,000 12% Bond 2007 56,00,000 5,600,000*12% = $672,000 11% Bond 2011 22,40,000 2,240,000*11% = $246,400 $246,000+$672,000+$246,400 = $1,464,400

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