correct. Question 0.00 points On January 1, 2016, the Marlee Company began const

Question

correct. Question 0.00 points On January 1, 2016, the Marlee Company began construction of an corporate headquarters. The building was completed early in 2017 Construction expenditures for 2016, which were incurred evenly throughout the year, totaled $8,400,000 Manlee had the obigations which were outstanding during all of 2016 office building to be used as its following debr Construction loan, 11% $2.100000 Long-term note, 10%2,800,000 Long-term rote, 7% 5500,000 Calculate the amount of imerest capitalized in 2016 for the building using the specific interest method of imerest capitalized in 2016 for the bualding intorest method TOSHIBA 2 3 4 5 tab

Explanation / Answer

Step 1: Figure out your average cost of borrowing

Weighted-average rate of all other debt:
$ 2,800,000 * 10%= $ 280,000
$ 5,600,000 * 7%= $ 392,000
Weighted average debt = (280000+392000)/ (2800000+5600000)
= 672000 / $ 8,400,000= 8%

Step 2: Figure out average expenditure during year

Average accumulated expenditures: $8,400,000/2 = $4,200,000

Step 3: Capitalized interest first eats up the specific construction loan so
11%*2,100,000 = $231,000
Then the next 2,100,000 is at the average borrowing rate = 8 % *2,100,000 = $168,000

Total capitalized interest = $399,000

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