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How much interest should be calculated

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Q1. During 2012, ABC company finished construction of a new warehouse. Construction began on 1/1/2011. The cost of the new warehouse was $3,000,000 with the cost incurred evenly throughout the construction. The following information is provided:

ABC Co. incremental interest rate is 10%

Actual interest rate during 2012 was $135,000

The average accumulated expenditures was $1,500,000

Requirement:

A. How much interest should be calculated?

B. What is the entry to capitalize the interest?

Q2. During 2012 XYZ company began and completed a small warehouse.Construction on the warehouse began on 1/2/2012. Expenditures were made as follows:

January 2 $1,000,000

March 1 $900,000

July 1 $400,000

Oct 1 $800,000

XYZ financed the project by issuing $1,000,000 in stock at the beginning of 2012 and borrowed $1,200,000 from the bank at an interest rate of 8%. In addition the company had the following debt:$1,000,000, interest rate of 9% borrowed in 2010,$2,000,000,11% note borrowed in 2009.Both of the debts are due in 2015.

Requirement:

A. Calculated the 2012 Weighted Average Accumulated Expenditures

B. How much is avoidable interest?

C. How much is actual interest?

D. Make the entry capitalizing the interest in 2012.

Reference no: EM131923323

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