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Social ScienceInterest During ConstructionMatrix Inc. borrowed $1,100,000 at 8% to finance the construction of a new building for its own use. Construction began on January 1, 2019, and was completed on October 31, 2019. Expenditures related to this building were:January 1$258,000(includes cost of purchasing land of $150,000)May 1320,000 July 1450,000 October 31275,000 In addition, Matrix had additional debt (unrelated to the construction) of $500,000 at 9% and $800,000 at 10%. All debt was outstanding for the entire year.Required:Compute the amount of interest capitalized related to the construction of the building.$If the expenditures are assumed to have been incurred evenly throughout the year:Compute weighted average accumulated expenditures$Compute the amount of interest capitalized on the building$
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Interest During Construction
Matrix Inc. borrowed $1,100,000 at 8% to finance the construction of a new building for its own use. Construction began on January 1, 2019, and was completed on October 31, 2019. Expenditures related to this building were:
January 1 $258,000 (includes cost of purchasing land of $150,000) May 1 320,000 July 1 450,000 October 31 275,000 In addition, Matrix had additional debt (unrelated to the construction) of $500,000 at 9% and $800,000 at 10%. All debt was outstanding for the entire year.
Required:
- Compute the amount of interest capitalized related to the construction of the building.
$ - If the expenditures are assumed to have been incurred evenly throughout the year:
Compute weighted average accumulated expenditures$
Compute the amount of interest capitalized on the building$
- Compute the amount of interest capitalized related to the construction of the building.
Expert Answer
1. Capitalized interest-construction loan of $1,100,000:
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Portion of year outstanding 10/12 (January 1- October 31) Weighted average accumulated expenditures Expenditures X $258,000 January 1 215,000 X = 6/12 (May 1 October 31) Маy 1 $320,000 160,000 X 4/12 (July1-October 31) 0/12 (October 31 October 31) July $450,000 150,000 X October 31 $275.000 0 X $1,303.000 525,000
Note: Interests costs (if any) capitalized are included as a part of the cost of the building, not the part of the land.
Calculate the avoidable inte...
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Totalof weighted average accumulated Avoidable interest=| expenditures Percentage of interest =$525,000x8% =$42,000
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