Cranberry Corp.constructed equipment to manufacture a new line of home products during 2017.The average balance of accumulated expenditures on the equipment during September through December 2017 was $500,000.Construction started on September 1,2017,and was still in progress at the end of 2017.If Cranberry borrowed $500,000 for one year on September 1,2017,to finance the construction,and the interest rate on the construction loan was 6%,how much interest can Cranberry capitalize as part of the equipment cost for 2017?

Question

​Cranberry Corp.constructed equipment to manufacture a new line of home products during 2017.The average balance of accumulated expenditures on the equipment during September through December 2017 was $500,000.Construction started on September 1,2017,and was still in progress at the end of 2017.If Cranberry borrowed $500,000 for one year on September 1,2017,to finance the construction,and the interest rate on the construction loan was 6%,how much interest can Cranberry capitalize as part of the equipment cost for 2017?

Quizplus · Accepted Answer

Cranberry can capitalize interest on the $500,000 loan at a 6% annual rate for 4 months (September through December), which equals $10,000 (500,000 * 0.06 * 4/12).

​Cranberry Corp

Cranberry Corp