hard · Financial Accounting assets
An entity capitalizes interest on a self-constructed asset. During the year, weighted-average accumulated expenditures are $4,000,000. The entity has a specific $2,500,000 construction loan at 6% and general debt of $5,000,000 at 9% and $3,000,000 at 11%. Actual total interest incurred for the year is $1,070,000.
What amount of interest should be capitalized (rounded to the nearest dollar)?
- $300,000, capitalizing 6% on the full weighted-average expenditures using the specific-loan rate
- $295,313, applying 6% to the specific borrowing and the general weighted-average rate to the excess expenditures
- $391,000, applying the weighted-average rate of all debt to the entire weighted-average expenditures
- $240,000, limiting capitalized interest to the interest actually incurred on the specific construction loan
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