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Well-Built Company had the following general borrowings during 2019 which were used to finance the construction of the company’s new building
Well-Built Company had the following general borrowings during 2019 which were used to finance the construction of the company’s new building.
|
Principal |
Interest |
|
|
10% bank loan |
2,800,000 |
280,000 |
|
10% short-term note |
1,600,000 |
160,000 |
|
12% long-term loan |
2,000,000 |
240,000 |
The construction began on January 1, 2019 and the building was completed on December 31, 2019. Expenditures on the building were made as follows:
|
January 1 |
400,000 |
|
March 31 |
1,000,000 |
|
June 30 |
1,200,000 |
|
September 30 |
1,000,000 |
|
December 31 |
400,000 |
Expert Solution
| 1 | Date | Capitalization Expenditures | Period | Weighted-Average Accumulated Expenditures |
| January 1 | $ 400,000 | 12/12 | $ 400,000 | |
| March 31 | 1,000,000 | 9/12 | 750,000 | |
| June 30 | 1,200,000 | 6/12 | 600,000 | |
| September 30 | 1,000,000 | 3/12 | 250000 | |
| December 31 | 400,000 | 0/12 | 0 | |
| $ 2,000,000 | ||||
| Principal | Interest | |||
| 10% bank loan | 2,800,000 | 280,000 | ||
| 10% short-term note | 1,600,000 | 160,000 | ||
| 12% long-term loan | 2,000,000 | 240,000 | ||
| Total | 6,400,000 | 680,000 | ||
| Average capitalizable rate = | 10.625% | (680000/6400000) | ||
| Capitalizable borrowing cost = (2000000 x 10.625%) | 212,500 |
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