Answer:
$274,500
Explanation:
*March 1 : Amount spent = 540,000; Period = 10
Weighted average accumulated expenditure = (10/12)*540000= 450,000
*June 1: Amount spent = 900,000; Period = 7
Weighted average accumulated expenditure = (7/12)*900000= 525,000
*July 1: Amount spent = 2,250,000; Period = 6
Weighted average accumulated expenditure = (6/12)*2250000= 1,125,000
*December 1: Amount spent = 2,250,000; Period = 1
Weighted average accumulated expenditure = (1/12)*2250000= 187,000
Therefore total Weighted average accumulated expenditure = 2,287,500
Interest on weighted average = 12% * 2,287,500 = 274,500 = Avoidable interest
Calculation of Actual interest on the instruments;
Bond: 13%*6,000,000= 780,000
Note: 10%*2,400,000= 240,000
Loan: 12%*4,500,000= 540,000
Actual interest = 1,560,000
According to GAAP; The least amount between Actual Interest and Avoidable interest can be capitalized.
Following the figures above, amount of interest to be capitalized in 2017 in relation to the construction of the building is $274,500
