Use the following information for questions.
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:
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.
-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?

Question

Use the following information for questions.
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:  
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.
-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?

Quizplus · Accepted Answer

To determine the amount of interest that should be capitalized, we need to calculate the weighted-average accumulated expenditures and then multiply it by the interest rate.

For Bass Corporation: 
Weighted-average accumulated expenditures = ($600,000 * 12/12) = $600,000 
Interest to be capitalized = $600,000 * 10% = $60,000 
However, since funds were temporarily invested in short-term securities, we need to subtract the interest revenue earned from this investment: 
Interest to be capitalized = $60,000 - $9,600 = $58,400

Therefore, the answer is C) $58,400.

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