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:

        

a) Calculate the weighted-average accumulated expenditures.

b) Calculate the actual interest cost.

c) Calculate the amount of interest to be capitalized.

Explanation / Answer

Solution -

(a)Calculate the weighted-average accumulated expenditures.

(b) Calculate the actual interest cost.

(C) Calculate the amount of interest to be capitalized.

Date Expenditure Capitalization Period Weighted Average Expenditure 1st March $ 75000 4/12 $ 25,000 1st April $ 74000 3/12 $ 18,500 1st May $ 180,000 2/12 $ 30,000 1st June $ 270,000 1/12 $ 22,500 1st July $ 100,000 0 $ 0 Total $ 96,000

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