Question

On January 2, 2020, Oriole Company began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2021. Expenditures for the construction were as follows:
January 2, 2020 $603000
September 1, 2020 1810800
December 31, 2020 1810800
March 31, 2021 1810800
September 30, 2021 1218000

Oriole Company borrowed $3300000 on a construction loan at 10% interest on January 2, 2020. This loan was outstanding during the construction period. The company also had $13560000 in 7% bonds outstanding in 2020 and 2021. The interest capitalized for 2020 was: ___________-

a. $474600
b. $158200
c. $482340
d. $120660

Answer 1

Answer:

Oriole Company

The interest capitalized for 2020 was: ___________-

d. $120660

Explanation:

a) Data and Calculations:

Construction Expenditures:

Date                         Expenditure    Weight    Weighted Average

January 2, 2020       $603,000       12/12             $603,000

September 1, 2020    1,810,800        4/12               603,600

December 31, 2020  1,810,800         0/12              0

Accumulated Weighted-Average Expenditure $1,206,600

January 2, 2020 Construction Loan   $3,300,000

Interest rate of construction loan = 10%

Capitalized Interest for 2020 = $1,206,600 * 10% = $120,660

2021 Expenditure:

March 31, 2021           1,810,800

September 30, 2021  1,218,000

Other outstanding debts:

7% bonds = $13,560,000