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n January 1, 2018, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The only interest-bearing debt the company had outstanding during 2018 was long-term bonds with a book value of $11,600,000 and an effective interest rate of 11%. Construction expenditures incurred during 2018 were as follows: January 1 $ 660,000 March 1 696,000 July 31 576,000 September 30 760,000 December 31 460,000 Required: Calculate the amount of interest capitalized for 2018.

Sagot :

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Answer:

$183,700

Explanation:

Calculation to determine the amount of interest capitalized for 2018.

First step is to calculate the Accumlated expenditure

Date Expenditure * Weight = Average

January 1 660000 * 12/12 =660,000

March 1 696000 * 10/12 = 580,000

July 31 576000 * 5/12 = 240,000

September 30 760000 * 3/12 =190,000

December 31 460000 * 0/12 = 0

Accumulated expenditure=660,000+580,000+240,000+190,000

Accumulated expenditure=$1,670,000

Now let determine the amount of interest capitalized for 2018

Interest capitalized for 2018=$1,670,000 * 11%

Interest capitalized for 2018=$183,700

Therefore the amount of interest capitalized for 2018 is $183,700

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