In: Accounting
On January 1, 2021, the company obtained a $3 million loan with a 10% interest rate.. The building was completed on September 30, 2022. Expenditures on the project were as follows:
January 1, 2021 | $ | 1,000,000 | |
March 1, 2021 | 600,000 | ||
June 30, 2021 | 800,000 | ||
October 1, 2021 | 600,000 | ||
January 31, 2022 | 270,000 | ||
April 30, 2022 | 585,000 | ||
August 31, 2022 | 900,000 | ||
On January 1, 2021, the company obtained a $3 million construction loan with a 10% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $4,000,000 and $6,000,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding during all of 2021 and 2022. Interest is paid annually on all debt. The company’s fiscal year-end is December 31.
Required:
Interest Capatilized 2021 2022
Interest Expense 2021 2022
Total Cost of building
Please let me know what these answers are to double check mine. In interest capatilized 2021 and 2022, interest expense 2021 and 2022 numbers and the total cost of building.
2021 | 2022 | ||||
Interest Capitalized | $ 1,60,925 | $ 2,25,251 | |||
Interest Expense | $ 8,59,075 | $ 7,94,749 | |||
Total cost of building | $ 51,41,176 | ||||
Workings: | |||||
Weighted Average rate of all debt:- | |||||
$ 30,00,000 | X | 10% | = | $ 3,00,000 | |
$ 40,00,000 | X | 6% | = | $ 2,40,000 | |
$ 60,00,000 | X | 8% | = | $ 4,80,000 | |
$ 1,30,00,000 | $ 10,20,000 | ||||
Weighted Average rate of all debt = | 7.85% | ||||
($1020000/ $13000000) | |||||
Expenditure for 2021 | |||||
Jan 1,2021 | $ 10,00,000 | X | 12/12 | = | $ 10,00,000 |
March 1, 2021 | $ 6,00,000 | X | 10/12 | = | $ 5,00,000 |
June 30, 2021 | $ 8,00,000 | X | 6/12 | = | $ 4,00,000 |
October 1, 2021 | $ 6,00,000 | X | 3/12 | = | $ 1,50,000 |
$ 30,00,000 | $ 20,50,000 | ||||
Interest Capitalized in 2021 | |||||
$ 20,50,000 | X | 7.85% | = | $ 1,60,925 | |
Expenditure for 2022 | |||||
Jan 1, 2022 ($3000000 + $160925) | $ 31,60,925 | X | 9/9 | = | $ 31,60,925 |
Jan 31, 2022 | $ 2,70,000 | X | 8/9 | = | $ 2,40,000 |
April 30, 2022 | $ 5,85,000 | X | 5/9 | = | $ 3,25,000 |
August 31. 2022 | $ 9,00,000 | X | 1/9 | = | $ 1,00,000 |
$ 49,15,925 | $ 38,25,925 | ||||
Interest Capitalized in 2022 | |||||
$ 38,25,925 | X | 7.85% | X 9/12 | = | $ 2,25,251 |
Cost of Building | |||||
Expenditure for 2021 | = | $ 30,00,000 | |||
Interest Capitalized in 2021 | = | $ 1,60,925 | |||
Expenditure for 2022 | = | $ 17,55,000 | |||
Interest Capitalized in 2022 | = | $ 2,25,251 | |||
Total cost of building | = | $ 51,41,176 | |||
Interest Expense for 2021: | |||||
Total Interest Incurred | = | $ 10,20,000 | |||
Less : Interest Capitalized | = | $ 1,60,925 | |||
2021 Expense | = | $ 8,59,075 | |||
Interest Expense for 2022: | |||||
Total Interest Incurred | = | $ 10,20,000 | |||
Less : Interest Capitalized | = | $ 2,25,251 | |||
2022 Expense | = | $ 7,94,749 |