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