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 $1,500,000 at 10% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2018:

$8,000,000, 15% bonds

$2,000,000, 10% long-term note

Construction expenditures incurred during 2018 were as follows:

January 1	$	660,000
March 31		1,260,000
June 30		872,000
September 30		660,000
December 31		460,000

Required:
Calculate the amount of interest capitalized for 2018 using the specific interest method.

	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

	Expenditure		Weight		Average
Jan-01	$             660,000	*	12/12	=	$                      660,000
Mar-31	$          1,260,000	*	9/12	=	$                      945,000
Jun-30	$             872,000	*	6/12	=	$                      436,000
Sep-30	$             660,000	*	3/12	=	$                      165,000
Dec-31	$             460,000	*	12/12	=	0
Accumulated expenditure	$          3,912,000				$                  2,206,000
	Average		Interest rate		Capitalised interest
Average accumulated expenditures	$          2,206,000
Construction loan	$          1,500,000	*	10%	=	$                      150,000
Other loans(not construction)	$             706,000	*	14%	=	$                        98,840
					$                      248,840
Working
	Loan Amount	Interest rate	Amount
	8000000	15%	1200000
	2000000	10%	200000
	10000000		1400000
Average rate	14.00%
	1400000/10000000