On January 2, 2020, Crane Company began construction of a new citrus processing plant. The automated...

On January 2, 2020, Crane 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	$ 604000
September 1, 2020	1809600
December 31, 2020	1809600
March 31, 2021	1809600
September 30, 2021	1196000

Crane Company borrowed $3240000 on a construction loan at 12% interest on January 2, 2020. This loan was outstanding during the construction period. The company also had $12480000 in 9% bonds outstanding in 2020 and 2021.

The interest capitalized for 2021 was:

$355107

$84676

$291600

$376276

Expert Solution

$355,107

Interest
($3,240,000 x 12% x 9/12)	291600
($940,848 x 9% x 9/12)	63507
	355,107
Expenditures	Proportion of year	Average accumulated expenditures
4,368,064	9/12	3,276,048
1,809,600	6/12	904,800
1,196,000	0/12	-
		4,180,848
Average expenditures for 2020 = $1,207,200
[($604,000 x 12/12) + ($1,809,600 x 4/12) ]

Interest = $1,207,200 x 12% = $144,864

ekkarill92 answered 2 years ago

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