Questions -
Q1. During 2012, ABC company finished construction of a new warehouse. Construction began on 1/1/2011. The cost of the new warehouse was $3,000,000 with the cost incurred evenly throughout the construction. The following information is provided:
ABC Co. incremental interest rate is 10%
Actual interest rate during 2012 was $135,000
The average accumulated expenditures was $1,500,000
Requirement:
A. How much interest should be calculated?
B. What is the entry to capitalize the interest?
Q2. During 2012 XYZ company began and completed a small warehouse.Construction on the warehouse began on 1/2/2012. Expenditures were made as follows:
January 2 $1,000,000
March 1 $900,000
July 1 $400,000
Oct 1 $800,000
XYZ financed the project by issuing $1,000,000 in stock at the beginning of 2012 and borrowed $1,200,000 from the bank at an interest rate of 8%. In addition the company had the following debt:$1,000,000, interest rate of 9% borrowed in 2010,$2,000,000,11% note borrowed in 2009.Both of the debts are due in 2015.
Requirement:
A. Calculated the 2012 Weighted Average Accumulated Expenditures
B. How much is avoidable interest?
C. How much is actual interest?
D. Make the entry capitalizing the interest in 2012.