To determine the amount of interest that Agasse would capitalize in 2024, we need to calculate the weighted average accumulated expenditures (WAAE) during the period.
WAAE = [(Expenditure1 x Time1) + (Expenditure2 x Time2) + ... + (ExpenditureN x TimeN)] / Total Time
Expenditure1 = $364,000
Time1 = 9 months (April 1 to December 31)
Expenditure2 = $864,000
Time2 = 4 months (August 31 to December 31)
Expenditure3 = $464,000
Time3 = 0 months (December 31 to December 31)
Total Time = Time1 + Time2 + Time3 = 9 months + 4 months + 0 months = 13 months
WAAE = [(364,000 x 9) + (864,000 x 4) + (464,000 x 0)] / 13
WAAE = (3,276,000 + 3,456,000) / 13
WAAE = 6,732,000 / 13
WAAE = $517,846.15
Next, we calculate the interest expense by multiplying the average accumulated expenditures by the interest rate and time.
Interest Expense = WAAE x Interest Rate x Time
Interest Rate = 12% per year
Time = 13 months / 12 months per year = 1.0833 years
Interest Expense = $517,846.15 x 0.12 x 1.0833
Interest Expense = $67,431.80
Therefore, Agasse would capitalize an amount of $67,431.80 as interest in 2024.
Agasse Industries began construction of a new facility and took out a $1,500,000, 12% construction loan on April 1, 2024. Agasse made payments to the general contractor of $364,000 on April 1, $864,000 on August 31, and $464,000 on December 31.
Required:
Compute the amount of interest that Agasse would capitalize in 2024.
1 answer