Question

A company with a June 30 fiscal year-end entered into a $3,000,000 construction project on April 1 to be completed on September 30. The cumulative construction-in-progress balances at April 30, May 31, and June 30 were $500,000, $800,000, and $1,500,000, respectively. The interest rate on company debt used to finance the construction project was 5% from April 1 through June 30 and 6% from July 1 through September 30. Assuming that the asset is placed into service on October 1, what amount of interest should be capitalized to the project on June 30?

Answer 1

Answer:

$11,666            

Explanation:

The computation of the mount of interest should be capitalized to the project on June 30 is shown below:

= $500,000 × 0.05 × 3 months ÷ 12 months + $300,000 × 0.05 × 2 months ÷ 12 months  + $700,000 × 0.05 × 1 months ÷ 12 months

= $6,250 +  $2,500  + $2,916

= $11,666        

The $300,000 is come from

= $800,000 - $500,000

And, the $700,000 is come from

= $1,500,000 -$800,000

= $700,000          

According to the months, the number of months are chosen.