Question

On January 2, 2017, Swify Corporation began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2018. Expenditures for the construction were as follows:January 2, 2017 $ 600,000September 1, 2017 1,800,000December 31, 2017 1,800,000March 31, 2018 1,800,000September 30, 2018 1,200,000
Swifty Corporation borrowed $3240000 on a construction loan at 10% interest on January 2, 2017. This loan was outstanding during the construction period. The company also had $12360000 in 7% bonds outstanding in 2017 and 2018. The interest capitalized for 2017 was _______.

Answer 1

Answer:

Capitalized Interest for 2017 1,200,000

Explanation:

date // expenditure // weigth // capitalized interest  

Jan   1th  600,000  1  600,000.00

Sep   1th  1,800,000 0.33 600,000.00

Dec 31th  1,800,000  0  -  

Total                   1,200,000.00

especific borrowings at 10% = $3,240,000

As we have to capitalize up to 1,200,000

We only apply the rate to that amount

1,200,000 x 10% = 120,000