On June 1, 2017, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2018. Expenditures on the project were as follows ($ in millions): $\begin{array}{|l|r|}
\hline \text { July } 1,2017 & 54 \
\hline \text { October } 1,2017 & 22 \
\hline \text { February } 1,2018 & 30 \
\hline \text { April } 1,2018 & 21 \
\hline \text { September } 1,2018 & 20 \
\hline \text { October } 1,2018 & 6 \
\hline
\end{array}$ On July 1, 2017, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2018. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2017 and 2018. The company's fiscal year-end is December 31.
-What is the amount of interest that Crocus should capitalize in 2018, using the specific interest method (rounded to the nearest thousand dollars)?
A) $7,248,000 (rounded).
B) $7,283,000 (rounded).
C) $8,740,000 (rounded).
D) None of these answer choices are correct.

Question

On June 1, 2017, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2018. Expenditures on the project were as follows ($ in millions): $\begin{array}{|l|r|}
\hline \text { July } 1,2017 & 54 \
\hline \text { October } 1,2017 & 22 \
\hline \text { February } 1,2018 & 30 \
\hline \text { April } 1,2018 & 21 \
\hline \text { September } 1,2018 & 20 \
\hline \text { October } 1,2018 & 6 \
\hline
\end{array}$ On July 1, 2017, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2018. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2017 and 2018. The company's fiscal year-end is December 31. 
-What is the amount of interest that Crocus should capitalize in 2018, using the specific interest method (rounded to the nearest thousand dollars)?
A) $7,248,000 (rounded).
B) $7,283,000 (rounded).
C) $8,740,000 (rounded).
D) None of these answer choices are correct.

Quizplus · Accepted Answer

Of the average accumulated expenditures ($124.25 million from question 63), $70 million was financed at 6% for 10 months in 2018, and the remainder of $54.25 million was financed at 8% for that period. The total interest cost was:
($70 million × .06 × 10/12) + ($54.25 million × .08 × 10/12) = $7,117,000 (rounded).

On June 1, 2017, the Crocus Company Began Construction of a New