hard · Financial Accounting assets
A manufacturer self-constructs a machine over Year 1. Expenditures (all at the dates shown) are $400,000 on Jan 1, $300,000 on Apr 1, and $500,000 on Oct 1. It has a specific construction loan of $600,000 at 8% (taken Jan 1, fully drawn) and general debt of $1,000,000 at 6% outstanding all year. Temporary investment income on unspent specific-loan proceeds is $12,000.
Under U.S. GAAP, what amount of interest is capitalized for Year 1?
- $48,000, the specific loan alone at 8% for the full year, with the excess expenditures ignored
- $45,000, the $48,000 specific interest reduced by the $12,000 of temporary investment income, plus $9,000 of general-debt interest
- $57,000, the $48,000 of specific-loan interest plus 6% on the $150,000 of excess expenditures
- $108,000, all interest incurred on both the specific loan and the general debt during the construction year
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