Answer:
$108,975
Explanation:
According to the scenario, computation of the given data are as follow:-
We need to do following calculations
Average Accumulated Expenditures:-
Expenditures for Construction × (Number of Month ÷ Total Month)
1 January $520,000 × (12 ÷ 12) = $520,000
31 March $620,000 × (9 ÷ 12) = $465,000
30 June $420,000 × (6 ÷ 12) = $210,000
30 October $660,000 × (2 ÷ 12) = $110,000
Total Average Accumulated Expenditures = $1,305,000
Now
Weighted Average Interest Rate is
= Total Amount of Loan × Total Value of Interest
= $3,000,000 × 10%
= $300,000
$5,000,000 × 6%
= $300,000
Total Amount of Loan is
= $3,000,000 + $5,000,000
= $8,000,000
Total Value of Interest
= $300,000 + $300,000
= $600,000
Weighted Average Interest Rate is
= Total Value of Interest ÷ Total Amount of Loan
= $600,000 ÷ $8,000,000
= 0.075
= 7.5%
Amount of Interest Capitalization= is
Specific Borrowing Interest = $740,000 × 9% = $66,600
Excess Borrowing = (Total Average Accumulated Expenditures - Specific Borrowing)
= $1,305,000 - $740,000
= $565,000
Interest on Excess Borrowing = Excess Borrowing × Weighted Average Interest Rate
= $565,000 × 7.5%
= $42,375
Capitalized Interest = Excess Interest Borrowing + Specific Borrowing Interest
= $42,375 + $66,600
= $108,975
