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 $9,000.
Under U.S. GAAP, what amount of interest is capitalized for Year 1?
- $48,000, computed as the 8% specific rate applied to the full $600,000 specific borrowing for the year
- $39,000, being $600,000 specific borrowing at 8% less the $9,000 temporary investment income earned on those proceeds
- $45,750, the $39,000 specific-loan interest (net of investment income) plus 6% general-debt interest on the $112,500 of weighted-average expenditures exceeding $600,000
- $54,750, the full $48,000 specific interest plus 6% general-debt interest on $112,500 of excess weighted-average expenditures
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