Question

In: Accounting

On January 1, 2021, the Shagri Company began construction on a new manufacturing facility for its...

On January 1, 2021, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2022. The only interest-bearing debt the company had outstanding during 2021 was long-term bonds with a book value of $11,400,000 and an effective interest rate of 9%. Construction expenditures incurred during 2021 were as follows:

January 1 $ 640,000
March 1 684,000
July 31 564,000
September 30 740,000
December 31 440,000


Required:
Calculate the amount of interest capitalized for 2021.
  

Solutions

Expert Solution

Date Expenditure Weight Weighted Expenditure
Jan-01     640,000 12/12                     640,000
Mar-01     684,000 10/12                     570,000
Jul-31     564,000 5/12                     235,000
Sep-30     740,000 3/12                     185,000
Dec-31     440,000 0                               -  
Total     3,068,000                        1,630,000
Weighted Expenditure 1,630,000
x Interest rate 9%
Amount of interest capitalized for 2021 $ 146,700

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