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Arlington Company is constructing a building.Construction began on January 1 and was completed on December 31.Expenditures were $2,400,000 on March 1, $1,980,000 on June 1, and $3,000,000 on December 31.Arlington Company borrowed $1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building.In addition, the company had outstanding all year a 10%, 3-year, $2,400,000 note payable and an 11%, 4-year, $4,500,000 note payable.
-4.During 2011, Churchill Inc.constructed assets costing £4,200,000.The weighted-average accumulated expenditures on these assets during the year was £2,600,000.Churchill took out a construction loan of £4,000,000 was borrowed at 7% on January 1, 2011, and funds not needed for construction were temporarily invested in short-term securities, yielding £30,000 in interest revenue.Other than the construction loan, the only other debt outstanding during the year was a £2,000,000, 5-year, 9% note payable dated January 1, 2007.What is the amount of interest that should be capitalized by Churchill during 2011?

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The interest to be capitalized is calculated on the weighted-average accumulated expenditures (£2,600,000) using the construction loan rate (7%). Thus, £2,600,000 * 7% = £182,000. However, since £30,000 was earned from investing excess funds, the net interest to be capitalized is £182,000 - £30,000 = £152,000.

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