Question Details

What is the amount of interest that should be capitalized by Bass during 2010 



Use the following information for questions 1 through 3.

	On March 1, 2010, Newton Company purchased land for an office site by paying $540,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction:
Date	Expenditures
March 1, 2010	$   360,000
April 1, 2010	504,000
May 1, 2010	900,000
June 1, 2010	1,440,000

The office was completed and ready for occupancy on July 1. To help pay for construction, $720,000 was borrowed on March 1, 2010 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2010 was a $300,000, 12%, 6-year note payable dated January 1, 2010.

	1.	The weighted-average accumulated expenditures on the construction project during 2010 were
a.	$384,000.
b.	$2,934,000.
c.	$312,000.
d.	$696,000.

	2.	The actual interest cost incurred during 2010 was
a.	$90,000.
b.	$100,800.
c.	$50,400.
d.	$84,000.

	3.	Assume the weighted-average accumulated expenditures for the construction project are $870,000. The amount of interest cost to be capitalized during 2010 is
a.	$78,300.
b.	$82,800.
c.	$90,000.
d.	$100,800.

 
	4.	During 2010, Bass Corporation constructed assets costing $1,000,000. The weighted-average accumulated expenditures on these assets during 2010 was $600,000. To help pay for construction, $440,000 was borrowed at 10% on January 1, 2010, and funds not needed for construction were temporarily invested in short-term securities, yielding $9,000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a $500,000, 10-year, 9% note payable dated January 1, 2004. What is the amount of interest that should be capitalized by Bass during 2010 ?
a.	$60,000.
b.	$30,000.
c.	$58,400.
d.	$94,400.




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