Question1 On December 31, 2016, Ayayai Inc. borrowed $3,240,000 at 13% payable a

Question

Question1 On December 31, 2016, Ayayai Inc. borrowed $3,240,000 at 13% payable annually to finance the construction of a new building. In 2017, the company made the following expenditures related to this building: March 1, $388,800; June 1, $648,000; July 1, $1,620,000; December 1, $1,620,000. The building was completed in February 2018. Additional information is provided as follows. 1. Other debt outstanding 10-year, 14% bond, December 31, 2010, interest payable annually 6-year, 11% note, dated December 31, 2014, interest payable annually $4,320,000 $1,728,000 2. March 1, 2017, expenditure included land costs of $162,000 3. Interest revenue earned in 2017 $52,920 (a) Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building The amount of interest s

Explanation / Answer

Date Amount Time Weighted Average expenditure Mar-01 388800 10/12 324000 Jun-01 648000 7/12 378000 Jul-01 1620000 6/12 810000 Dec-01 1620000 1/12 135000 1647000 Amount of interest to be capitalized = 1647000*13%= 214110

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