If Clark Company capitalizes the maximum amount of interest allowable under GAAP, how much will Clark report as interest expense in year 8?
During year 8, Clark Company manufactured equipment for its own use at a total cost of $2,400,000. The project required the entire year to complete and all costs were incurred uniformly throughout the year. At the beginning of the period, Clark was able to borrow $1,500,000 at 6% specifically for the purchase of materials and the manufacture of the equipment. The entire debt, with interest was repaid on December 31, year 8, replaced with a long-term loan. Throughout year 8, Clark Company had additional debt of $1,000,000 with a weighted average interest rate of 7%.
If Clark Company capitalizes the maximum amount of interest allowable under GAAP, how much will Clark report as interest expense in year 8?
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