Assuming that the effects of interest capitalization are material, calculate the amount of interest costs to be capitalized by Matthew Corporation in 2016 in relation to the following separate events:
a. On January 1, Matthew began construction for a new storage building for its own use.
Expenditures incurred evenly throughout the year totaled $900,000. Matthew borrowed
$1,000,000 specifically for construction of the storage building at an annual interest rate of
6%.
b. Inventories costing $200,000 were routinely manufactured during the year. Matthew borrowed $200,000 at 8% to finance inventory-related costs.
c. On September 1, Matthew began construction of a custom-designed machine to the specifications of a customer. As of December 31, $200,000 of materials, labor, and overhead have been assigned to the machine. Those costs were incurred evenly throughout the period September 1 through December 31. To finance construction, $230,000 was borrowed at a 9% interest rate.

Question

Quizplus · Accepted Answer

The Answer of Assuming that the effects of interest capitalization are material, calculate the amount of interest costs to be capitalized by Matthew Corporation in 2016 in relation to the following separate events:
a. On January 1, Matthew began construction for a new storage building for its own use.
Expenditures incurred evenly throughout the year totaled $900,000. Matthew borrowed
$1,000,000 specifically for construction of the storage building at an annual interest rate of
6%.
b. Inventories costing $200,000 were routinely manufactured during the year. Matthew borrowed $200,000 at 8% to finance inventory-related costs.
c. On September 1, Matthew began construction of a custom-designed machine to the specifications of a customer. As of December 31, $200,000 of materials, labor, and overhead have been assigned to the machine. Those costs were incurred evenly throughout the period September 1 through December 31. To finance construction, $230,000 was borrowed at a 9% interest rate.

Assuming That the Effects of Interest Capitalization Are Material, Calculate