Question

Situation I On January 1, 2020, Bramble, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,446,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2020, to finance the construction cost, Bramble borrowed $4,446,000 payable in 10 annual installments of $444,600, plus interest at the rate of 10%. During 2020, Bramble made deposit and progress payments totaling $1,667,250 under the contract; the weighted-average amount of accumulated expenditures was $889,200 for the year. The excess borrowed funds were invested in short-term securities, from which Bramble realized investment income of $269,200. What amount should Bramble report as capitalized interest at December 31, 2020

Answer 1

$88,920

Step-by-step explanation:

capitalized interest = weighted average accumulated expenditure for the year x interest rate of the loan = $889,200 x 10% = $88,920

Capitalized interest can be added to the basis of the new building that is being constructed. This way, the building's depreciable value will increase.