During 2014, Kimmel Co. incurred weighted-average accumulated expenditures of $800,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2014 was a $1,000,000, 10%, 5-year note payable dated January 1, 2012. What is the amount of interest that should be capitalized by Kimmel during 2014?

Question

Quizplus · Accepted Answer

The amount of interest that should be capitalized by Kimmel during 2014 can be calculated using the following formula:

Capitalized Interest = Weighted-Average Accumulated Expenditures x Weighted-Average Interest Rate

The weighted-average interest rate is calculated by dividing the total interest expense by the average amount of debt outstanding during the year, which is calculated as (beginning balance + ending balance) / 2.

In this case, the total interest expense for the year is $100,000 ($1,000,000 x 10%). The average amount of debt outstanding during the year is $1,000,000, since there have been no additional borrowings or repayments.

Therefore, the weighted-average interest rate is 10%, and the capitalized interest for the year is:

Capitalized Interest = $800,000 x 10% = $80,000.

Therefore, the correct answer is C, $80,000.