Answer to Question #318667 in Accounting for Mari

Question

On June 1, 2020, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2021. Expenditures on the project were as follows ($ in millions):

July 1, 2020

54

October 1, 2020

22

February 1, 2021

30

April 1, 2021

21

September 1, 2021

20

October 1, 2021

6

On July 1, 2020, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2021. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2020 and 2021. The company's fiscal year-end is December 31.

 

What is the amount of interest that Crocus should capitalize in 2020, using the specific interest method?

A) $1.90 million.

B) $1.95 million.

C) $2.96 million.

D) None of these answer choices are correct.

Answer 1

interest for 2015:

$32 500 000\times0.06=1 950 000$

interest on debt:

$70 000 000\times0.06+100 000 000\times0.08=12 200 000$

$12 200 000-1950 000=10 250 000$