In: Accounting
On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:
January 1, 2018 |
$ |
300,000 |
|
September 1, 2018 |
$ |
450,000 |
|
December 31, 2018 |
$ |
450,000 |
|
March 31, 2019 |
$ |
450,000 |
Dreamworld had the following debt obligations outstanding during both years:
Construction loan, 10% $500,000
Long-term note, 12% $2,500,000
Required: What would Dreamworld's capitalized interest be in 2019 (assuming interest from 2018 does not compound in 2019)?
Date | Amount incurred | No. of months | Weighted average amount |
a | b | c=a × b/12 | |
Beg. | 1,200,000 | 12 | 1,200,000 |
Mar. 31 | 450,000 | 8 | 300,000 |
Accumulated expenditure | 1,500,000 |
Avoidable interest | ||||
Particulars | Amount used for contruction | Rate of interest | Interest | |
Contruction loan | 500,000 | 10.0000% | 50,000.00 | |
General debt | 1,000,000 | 12.0000% | 120,000.00 | |
Avoidable interest | 170,000.00 |
Capitalized interest is 170,000