Kit Company borrows $ 5 million at 12% on January 1, 2016, specifically for the purpose of financing the construction of a building that is expected to take 18 months to complete. Kit invests the total amount at 11% until it makes payment's for the construction project. During the first year of construction, Kt incurs the following expenditures related to this construction project:
January 1....... $1,000,000
April 1........ 1,600,000
October 1....... 1,200,000
December 31........ 500,000
Required:
1. Compute the amount of interest expense Kt would capitalize related to the construction of the building.
2. Compute the amount of interest revenue Kit would recognize.
3. Assume that Kit uses WES. What amount of interest would be capitalized related to the construction of the building?