On March 1, Faye Co. began construction of a small building. The following expen

Question

On March 1, Faye Co. began construction of a small building. The following expenditures were incurred for construction:

                                March 1 $ 75,000       April 1    $ 74,000

                                May 1      180,000       June 1   270,000

                                July 1      100,000

         The building was completed and occupied on July 1. To help pay for construction $50,000 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a $500,000, 10% note issued two years ago.

         REQUIRED:

1) Calculate the weighted-average accumulated expenditures.

2) Calculate the actual interest cost.

3) Calculate the amount of interest to be capitalized.

Explanation / Answer

Faye Company All Amounts in $ 1) Weighted Average Accumulated Expenditure Date Amount Weight Weighted Amount 01-Mar 75000 0.333 25000 01-Apr 74000 0.25 18500 01-May 180000 0.167 30000 01-Jun 270000 0.083 22500 01-Jul 100000 1 100000 699000 196000 2) Actual Interest Cost On note issued two years ago 25000 On amount borrowed on March 1 2000 27000 3) Amount of interest to be capitalised From note issued two years ago 14286 From March 1 to June 30 On amount borrowed on March 1 2000 From March 1 to June 30 16286

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