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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Dexter Construction Corporation is building a student condominium complex; it started construction on January 1, Year 1. Dexter borrowed $2.5 million on January 1 specifically for the project by issuing a 10%, 5-vear, $2.5 million note, which is payable on December 31 of Year 3. Dexter also had a 12%, 5-year, $3 million note payable and a 10%, 10-year, $1.8 million note payable outstanding all year. Calculate the weighted average interest rate on the non-construction-specific debt for Year 1.

RE10-9 Refer to RE10-8. In Year 1, Dexter incurred costs as follows:

Chapter 10, Problem 11RE, Dexter Construction Corporation is building a student condominium complex; it started construction

Calculate Dexter’s weighted average accumulated expenditures.

RE10-11Refer to the information in RE 10-8 and RE10-9. Assume that Dexter borrowed SI million specifically for the project by issuing a 10%, 5-year, $1 million note (instead of borrowing $2.5 million as stated in RE10-8). Calculate Dexter’s capitalized interest on the student condominium complex in Year 1.

To determine

Compute the Corporation D’s capitalized interest.

Explanation

Capitalized interest:

Interest Cost incurred to finance the construction of a long-term construction projects are known as capitalized interest.

Calculate the capitalized interest for Corporation D:

$1,000,000×10%=$100,000
$380,000× 11.25% (1)=$42,750
$1,380,000×=$142,750

Table (1)

Therefore, the capitalized interest is $142,750.

Note: Interest rate = 10% on the first $1,000,000 and 11.25% on remaining 380,000.

Working note:

(1)Compute the weighted average interest rate:

Weightedaverageinterest

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