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Question - Capitalization of Interest

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Question - Capitalization of Interest

The following three situations involve the capitalization of interest.

Situation I: On January 1, 2020, Ohno, Inc. signed a fixed-price contract to have Builder Associates con- struct a major plant facility at a cost of $4,000,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2020, to finance the construction cost, Ohno borrowed $4,000,000 payable in 10 annual installments of $400,000, plus interest at the rate of 10%. During 2020, Ohno made deposit and progress payments totaling $1,500,000 under the contract; the weighted-average amount of accu- mulated expenditures was $800,000 for the year. The excess borrowed funds were invested in short-term securities, from which Ohno realized investment income of $250,000.

Instructions - What amount should Ohno report as capitalized interest at December 31, 2020?

Reference no: EM132594357

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