How much is capitalizable borrowing cost for retrench co

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Reference no: EM132817686

RETRENCH Co. started construction of a qualifying asset for CUT DOWN, Inc. on January 1, 20x1. The following were expenditures incurred on the construction.

Date Expenditures

January 1, 20x1 4,000,000

May 1, 20x1 1,800,000

December 1, 20x1 2,880,000

Included in the January 1, 20x1 expenditures is cost of materials purchased on account for ?400,000. The account was settled on July 1, 20x1.
Included in the May 1, 20x1 expenditures is ?40,000 cost of materials obtained in exchange for old equipment.

Progress billings during the year are as follows:

Date of billing Amount billed Date billings were collected

April 1, 20x1 800,000 June 1, 20x1

September 1, 20x1 2,400,000 November 1, 20x1

Payments on billings are subject to 10% withholding by CUT DOWN, Inc.
RETRENCH Co. determined the capitalization rate to be 10%.

Problem 1: How much is the capitalizable borrowing cost?

a. 646,000

b. 546,000

c. 446,000

d. 0

Reference no: EM132817686

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