Question

Cole Co. began constructing a building for its own use in January 20X3. During 20X3, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during 20X3 was $40,000. What amount of interest cost should Cole capitalize

Answer 1

Answer: $40,000

Explanation:

When capitalizing Interest for a PPE, accounting procedure is that one looks at the actual interests incurred vs the interest computed on the weighted-average amount of accumulated expenditures for the PPE and then pick the lower of the two for capitalization.

The actual interest incurred is;

= 50,000 + 20,000

= $70,000

The Interest computed on the weighted-average amount of accumulated expenditures for the building during 20X3 = $40,000. This is the lower one and so will be the amount capitalized.