Question

On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows: January 1, 2018 $ 300,000 September 1, 2018 $ 450,000 December 31, 2018 $ 450,000 March 31, 2019 $ 450,000 September 30, 2019 $ 300,000 Dreamworld had $5,000,000 in 12% bonds outstanding through both years. Dreamworld's capitalized interest in 2018 was:

Answer 1

Answer: $54,000

Explanation:

January 1, 2018

Average expenditure = Expenditure × No. of months

                                    $= 300,000\times\frac{12}{12}$

                                           = $300,000

September 1, 2018

Average expenditure = Expenditure × No. of months

                                    $= 450,000\times\frac{4}{12}$

                                           = $150,000

December 31, 2018

Average expenditure = Expenditure × No. of months

                                    $= 450,000\times\frac{0}{0}$

                                           = $0

Total of average expenditure = $300,000 + $150,000 + $0

                                                 = $450,000

Dreamworld's capitalized interest in 2018 was:

= Total of average expenditure × interest on bonds

= $450,000 × 12%

= $54,000