Sacramento Corp.constructed equipment to manufacture a new line of home products during 2013.The average balance of accumulated expenditures on the equipment during September through December 2013 was $500,000.Construction started on September 1,2013 and was still in progress at the end of 2013.If Sacramento borrowed $500,000 for one year on September 1,2013,to finance the construction,and the interest rate on the construction loan was 6%,how much interest can Sacramento capitalize as part of the equipment cost for 2013?

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Quizplus · Accepted Answer

Interest capitalized = Average accumulated expenditures * Interest rate * Time= $500,000 * 6% * 4/12= $10,000