Hawkins Corporation began construction of a motel on March 31,
2018. The project was completed on April 30, 2019. No new loans
were required to fund construction. Hawkins does have the following
two interest-bearing liabilities that were outstanding throughout
the construction period:
$5,800,000, 6% note
$8,520,000, 10% bonds
Construction expenditures incurred were as follows:
| March 31, 2018 | $ | 3,280,000 | |
| June 30, 2018 | 5,280,000 | ||
| November 30, 2018 | 1,656,000 | ||
| February 28, 2019 | 2,280,000 | ||
The company’s fiscal year-end is December 31.
Required:
Calculate the amount of interest capitalized for 2018 and 2019.
(Round weighted average interest rate to 2 decimal places
and final answers to the nearest whole dollar.)
If Interest rate rounded to Two Decimal Point
| Weighted interest method | |||
| Multiply: Interest rate | |||
| Loan type | Loan amount | Interest expense | |
| - | |||
| Note | 5,800,000 | 6.00% | 348,000 |
| Bond | 8,520,000 | 10.00% | 852,000 |
| Total | 14,320,000 | 1,200,000 | |
| Weighted average interest rate (1200000/14320000) | 8.00% | ||
| Expenditure for 2018 | |||
| Expenditure for 2018 | Amount | Time factor | Weighted average |
| - | |||
| 31-Mar-18 | 3,280,000 | 9/12 | 2,460,000 |
| 30-Jun-18 | 5,280,000 | 6/12 | 2,640,000 |
| 30-Nov-18 | 1,656,000 | 1/12 | 138,000 |
| Accumulated capital Expenditure before interest capitalized | 10,216,000 | ||
| Average Accumulated capital Expenditure | 5,238,000 | ||
| Interest capitalized in 2018 | |||
| Average Accumulated capital Expenditure | Multiplied by: interest rate | Interest capitalized in 2018 | |
| 5,238,000 | 8.00% | $ 419,040 | |
| Total capitalized value in 2018 | 10,216,000 | 419,040 | 10,635,040 |
| Expenditure for 2019 | |||
| Expenditure for 2019 | Amount | Time factor | |
| 01-Jan-19 | 10,635,040 | 4/4 | 10,635,040 |
| 28-Feb-19 | 2,280,000 | 2/4 | 1,140,000 |
| Accumulated capital Expenditure before interest capitalized | 12,915,040 | ||
| Average accumulated capital Expenditure | 11,775,040 | ||
| Interest capitalized in 2019 | |||
| Average Accumulated capital Expenditure | Interest rate | Fraction of month | Interest capitalized in 2019 |
| 11,775,040 | 8.00% | 4/12 | $ 314,001 |
If Interest rate rounded to Two Decimal Percentage
| Weighted interest method | |||
| Multiply: Interest rate | |||
| Loan type | Loan amount | Interest expense | |
| - | |||
| Note | 5,800,000 | 6.00% | 348,000 |
| Bond | 8,520,000 | 10.00% | 852,000 |
| Total | 14,320,000 | 1,200,000 | |
| Weighted average interest rate (1200000/14320000) | 8.38% | ||
| Expenditure for 2018 | |||
| Expenditure for 2018 | Amount | Time factor | Weighted average |
| - | |||
| 31-Mar-18 | 3,280,000 | 9/12 | 2,460,000 |
| 30-Jun-18 | 5,280,000 | 6/12 | 2,640,000 |
| 30-Nov-18 | 1,656,000 | 1/12 | 138,000 |
| Accumulated capital Expenditure before interest capitalized | 10,216,000 | ||
| Average Accumulated capital Expenditure | 5,238,000 | ||
| Interest capitalized in 2018 | |||
| Average Accumulated capital Expenditure | Multiplied by: interest rate | Interest capitalized in 2018 | |
| 5,238,000 | 8.38% | $ 438,944 | |
| Total capitalized value in 2018 | 10,216,000 | 438,944 | 10,654,944 |
| Expenditure for 2019 | |||
| Expenditure for 2019 | Amount | Time factor | |
| 01-Jan-19 | 10,654,944 | 4/4 | 10,654,944 |
| 28-Feb-19 | 2,280,000 | 2/4 | 1,140,000 |
| Accumulated capital Expenditure before interest capitalized | 12,934,944 | ||
| Average accumulated capital Expenditure | 11,794,944 | ||
| Interest capitalized in 2019 | |||
| Average Accumulated capital Expenditure | Interest rate | Fraction of month | Interest capitalized in 2019 |
| 11,794,944 | 8.38% | 4/12 | $ 329,472 |
Hawkins Corporation began construction of a motel on March 31, 2018. The project was completed on...