Question: On January 1, 2018, Grinch Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:
January 1, 2018 $200,000
September 1, 2018 $300,000
December 31, 2018 $300,000
March 31, 2019 $300,000
September 30, 2019 $200,000
Grinch borrowed $750,000 at 12% interest on January 1, 2018 to be used specifically for the construction of the asset. This loan was outstanding throughout the construction period. The company also had $4,500,000 in 9% bonds outstanding in 2018 and 2019. The company uses the specific interest method to capitalize interest, and their year ends on December 31st.
1 Interest capitalized by Grinch Inc. for 2018 was:
A) $48,000
B) $42,000
C) $60,000
D) $36,000
2. Interest capitalized by Grinch Inc. for 2019 was:
A) $115,740
B) $86,805
C) $97,875
D) $67,500
3. Interest expense reported by Grinch Inc. on its 2018 income statement was:
A) $495,000
B) $459,000
C) $405,000
D) $90,000
4. The total cost of the cattle feeder system is:
A) $1,300,000
B) $1,386,805
C) $1,451,740
D) $1,422,805
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