Sportswear, Inc. decided to construct a new small building for additional work capacity. On February 1, 2028, Sportswear signed a contract to construct a new building for $2,000,000 on land already owned. Construction started on July 1, 2028. The payments to the contractor are as follows:

Date Amount

August 1, 2028 $500,000

November 30, 2028 840,000

April 30, 2028 660,000

Construction was completed and the building was ready for use on December 1, 2028. Sportswear borrowed $1,500,000 on July 1, 2028, to complete the project. The construction loan was a 3-year loan, with an 8% interest rate. In addition, Sportswear had the following debt outstanding for the full year of 2028.

8%, 10-year note payable of $1,000,000, dated January 1, 2025, with interest payable on December 31.

6%, 20-year bond issue of $2,000,000 sold at par on July 1, 2027, with interest payable annually on December 31.

The new building qualifies for capitalization of interest.

1. Compute weighted-average accumulated expenditures.
2. Compute avoidable interest
3. Compute actual interest
4. Identify the amount of interest to be capitalized and the amount of interest to be expensed

Answer rating: 100% (QA)

Answer a Weighted average expenditure 718333 b Avoidable interest 47912 c Actual interest 260000 d capitalizable interest 47912 interest expense 212088 The problem is an example of BORROWING COSTS Bor... View the full answer