Answer:
1.$2,166,667
2.$204,000
3.$140,250
Explanation:
1.Weighted-Average accumulated expenditure
Date Amount Capitalization period
Weighted Average Accumulated Expenditures
01 June 2017 $2,000,000 7/12 $1,166,667
31 August 2017 $3,000,000 4/12 $1,000,000
31 December 2017 $2,500,000 0/7 $0
Total $7,500,000 $2,166,667
2.
Computation of Avoidable Interest
Debt Weighted Average Accumulated Expenditures Interest rate Avoidable
Interest amount
From 9% Bond $1,700,000 9% $153,000
From 12% Note $425,000 12% $51,000
Totals $2,125,000 $204,000
3.
Computation of Actual Interest cost incurred
Debt Weighted Average Accumulated Expenditures Interest rate Actual Interest
From 9% Bond $1,700,000 9%×7÷12 $89,250
From 12% Note $425,000 12% $51,000
Totals $2,125,000 $140,250
The weighted-average accumulated expenditures qualifying for capitalization of the interest cost is $21665667.
The weighted-average accumulated expenditures qualifying for capitalization of the interest cost will be calculated thus:
1 June, 2017:
Accumulated expenditure = 7/12 × $2000000 = $1166667
31 August, 2017:
Accumulated expenditure = 4/12 × $3000000 = $1000000
Total = $2,1666,667.
The avoidable interest incurred during 2017 will be:
= (9% × $1700000) + (12% × $425000)
= $153000 + $51000
= $204000
The total amount of interest cost to be capitalized in 2017 will be:
= ($1700000 × 9% × 7/12) + ($425000 × 12%)
= $140250
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