Question

On January 1, 2021, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 205,000 September 1, 2021 $ 306,000 December 31, 2021 $ 306,000 March 31, 2022 $ 306,000 September 30, 2022 $ 205,000 Kendall borrowed $752,000 on a construction loan at 7% interest on January 1, 2021. This loan was outstanding throughout the construction period. The company had $4,510,000 in 7% bonds payable outstanding in 2021 and 2022.
Interest capitalized for 2021 was:

Answer 1

Answer:

The correct answer is "$21490".

Explanation:

The given expenditures are:

January:

= $205000

September:

= $306000

December:

= $306000

Now,

January average will be:

= $205000\times \frac{12}{12}$

= $205000$ ($)

September average will be:

= $306000\times \frac{4}{12}$

= $102000$

December average will be:

= $306000\times \frac{0}{12}$

= $0$

The total average will be:

= $205000+102000+0$

= $307000$ ($)

Hence,

The Interest capitalized for year 2021 will be:

= $Interest \ rate\times Weighted \ average$

On substituting the estimated values, we get

= $7 \ percent\times 307000$

= $21490$ ($)