Reference no: EM132541075

Question - Hubbly Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $1,100,000 on May 1, $1,200,000 on June 1, and $2,000,000 on December 31. Assume that Hubbly Company borrowed $1,000,000 on January 1 on a 5-year, 14% note to help finance construction of the building. In addition, the company had outstanding all-year a 8%, 5-year, $2,000,000 note payable, and a 10%, 4-year, $3,500,000 note payable. All interest payable at December 31.

Instructions -

(a) Compute the weighted average accumulated expenditures for interest capitalization purposes.

(b) Compute the weighted average interest rate for interest capitalization purposes.

(c) Compute the avoidable interest for interest capitalization purposes.

(d) Compute the actual interest for interest capitalization purposes.

(e) Determine whether the company should capitalize actual interest or avoidable interest.