Crimson Corp.constructed equipment to manufacture a new line of home products during 2015.The average balance of accumulated expenditures on the equipment during September through December 2015 was $500,000.Construction started on September 1, 2015 and was still in progress at the end of 2015.If Crimson borrowed $500,000 for one year on September 1, 2015, to finance the construction, and the interest rate on the construction loan was 6%, how much interest can Crimson capitalize as part of the equipment cost for 2015?

Question

Quizplus · Accepted Answer

Crimson can capitalize interest for the period the loan was used for construction. From September 1 to December 31, 2015, is 4 months. The interest for 4 months on $500,000 at 6% is $10,000 (calculated as $500,000 * 6% * 4/12).