Question

In: Accounting

Bone Thugs-n-Harmony incurs the expenditures listed below for constructing its corporate headquarters. They took out a...

Bone Thugs-n-Harmony incurs the expenditures listed below for constructing its corporate headquarters. They took out a $250,000 loan at 8% for the construction. They also have 2 additional loans: 500,000 at 10%, 200,000 at 6%. All loans were outstanding as of 1/1/2019 and were still outstanding when construction was completed on 4/30/2020.

Date

Expenditure

1/1/2019

$100,000.00

9/1/2019

$360,000.00

1/1/2020

$400,000.00

3/1/2020

$120,000.00

How much interest does Bone Thugs-n-Harmony capitalize in 2019?

Solutions

Expert Solution

Average amount invested in to asset=
Weighted average($)
$100,000*12/12=                        1,00,000
$360,000*4/12=                        1,20,000
Average amount invested in to asset                        2,20,000
Borrowing cost to be capitalised in 2019
    =$220,000*8%
     = $17,600

ekkarill92 answered 2 years ago
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