Answered

Westonci.ca offers quick and accurate answers to your questions. Join our community and get the insights you need today. Get the answers you need quickly and accurately from a dedicated community of experts on our Q&A platform. Our platform provides a seamless experience for finding reliable answers from a network of experienced professionals.

A building was constructed last year for Agro Co. for use as a production facility. Construction began on January 1 and was completed on December 31. The payments to the contractor were as follows.
Date Payment
1/1 $300,000
4/1   620,000
8/1   460,000
10/1   300,000
To finance construction of the building, a $750,000, 10% construction loan was taken out on January 1. The loan was repaid on December 31. The firm had two sources of general debt: $400,000 note payable, 9% annual interest, and $500,000 par value bonds, 7.5% annual interest.
Determine the amount of interest to be capitalized.

Sagot :

anthougo

Answer:

Agro Co.

The amount of interest to be capitalized is:

= $92,850.

Explanation:

a) Data and Calculations:

Date Payment     Weight        Weighted Average

1/1    $300,000     12/12                  $300,000

4/1     620,000      9/12                    465,000

8/1     460,000      5/12                      191,667

10/1   300,000      3/12                       75,000

Weighted-average accumulated expenditure = $1,031,667

Sources debt:

$750,000 construction loan, 10% annual interest = $75,000

$400,000 note payable, 9% annual interest         =   36,000

$500,000 par value bonds, 7.5% annual interest =   37,500

Total debt = $1,650,000                 Total interest = $148,500

Weighted-average interest rate = $148,500/$1,650,000 * 100 = 9%

Interest to be capitalized = Weighted-average accumulated expenditure * Weighted-average interest rate

= $1,031,667 * 9%

= $92,850

We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Thank you for visiting. Our goal is to provide the most accurate answers for all your informational needs. Come back soon. Westonci.ca is here to provide the answers you seek. Return often for more expert solutions.