Question

During 2020, Bass Corporation constructed assets costing $4,000,000. The weightedaverage accumulated expenditures on these assets during 2020 was $2,400,000. To help pay for construction, $1,760,000 was borrowed at 10% on January 1, 2020, and funds not needed for construction were temporarily invested in short-term securities, yielding $36,000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a $2,000,000, 10-year, 9% note payable dated January 1, 2014. What is the amount of interest that should be capitalized by Bass during 2020?a. $240,000
b. $120,000
c. $233,600
d. $377,600

Answer 1

Answer:

c. $233,600

Explanation:

For computing the total amount of interest capital, first we have to compute the interest on borrowed amount and then on the remaining amount. The calculation is shown below:

Borrowed amount = $1,760,000 × 10% = $176,000

Remaining amount

= ($2,400,000 - $1,760,000) × 9%

= $640,000 × 9%

= $57,600

So, the total amount of interest capitalized would be

= $176,000 + $57,600

= $233,600

All other information which is given is not relevant. Hence, ignored it

Answer 2

Answer:

total interest to be capitalized = $233,600

Explanation:

given data

assets costing =  $4,000,000

accumulated expenditures = $2,400,000

construction = $1,760,000

borrowed = 10%

interest revenue = $36,000

debt outstanding = $2,000,000

solution

we get here interest on specific borrowing towards construction is at 10 %

interest on specific borrowing = 10% × $1,760,000

interest on specific borrowing = $176,000

and

interest on remaining expenditure will be

interest on remaining expenditure = $2,400,000 - $1,760,000

interest on remaining expenditure = $640,000

interest on remaining expenditure at 9 % will be

interest on remaining expenditure = 9% × $640,000

interest on remaining expenditure = $57,600

and

total interest to be capitalized = $176,000+$57,600

total interest to be capitalized = $233,600