Question

On January 1, 2018, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The company borrowed $2,100,000 at 8% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2018:

$7,000,000, 13% bonds

$3,000,000, 8% long-term note

Construction expenditures incurred during 2018 were as follows:

January 1	$	860,000
March 31		1,460,000
June 30		1,112,000
September 30		860,000
December 31		660,000

Required:
Calculate the amount of interest capitalized for 2018 using the specific interest method. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).)
  

	Date Expenditure Weight Average January 1 x = March 31 x = June 30 x = September 30 x = December 31 x = Accumulated expenditure Average Interest Rate Capitalized Interest Average accumulated expenditures x % = x % =

Answer 1

Solution:

Year 2018: Weighted-Average accumulated expenditure and interest capitalized
Date	Expenditure	Weigh	Avearge
01 January 2018	$8,60,000	12/12	$8,60,000
31 March 2018	$14,60,000	9/12	$10,95,000
30 June 2021	$11,12,000	6/12	$5,56,000
30 September 2018	$8,60,000	3/12	$2,15,000
31 December 2018	$6,60,000	0/12	$0
Accumulated Expenditure	$40,92,000		$27,26,000
Weighted average interest rate of all other debt
Debt	Amount	Interest rate	Interest amount
13% Bonds	$70,00,000	13%	$9,10,000
8% Long term Note	$30,00,000	8%	$2,40,000
Totals	$1,00,00,000		$11,50,000
Weighted average rate (total interets/ total debt)		11.50%

Year 2018: Interest Capitalized
		Average	Interest Rate	Capitalized Interest
Avearge Accumulated Expenditure		$27,26,000
Specific		$21,00,000	8.00%	$1,68,000
Other debt		$6,26,000	11.50%	$71,990
Total Interest Capitalized				$2,39,990