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18 May, 07:38

On January 1, 2016, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2017. Expenditures on the project were as follows: January 1, 2016 $308,000 September 1, 2016 $456,000 December 31, 2016 $456,000 March 31, 2017 $456,000 September 30, 2017 $308,000 Dreamworld had $5,200,000 in 12% bonds outstanding through both years. Dreamworld's capitalized interest in 2016 was: Multiple Choice $36,960. $64,440. $55,200. $73,920.

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  1. 18 May, 07:54
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    C) $55,200

    Explanation:

    Step 1: Calculate the Accumulated Expenditure of Dreamworld Co. using the Weighted Average Method

    Expenditure date Amount Months Total (Amt x Months

    January 1 2016 $308,000 12/12 $308,000

    September 1, 2016 $456,000 4/12 $152,000

    December 1, 2016 $456,000 0/12 $0

    The Accumulated Expenditure $460,000

    Step 2: Having calculated the accumulated expenditure, the next step is to determine the capitalized interest for 2016

    Capitalized Interest = Interest on Outstanding Bonds x Average Accumulated Expenditure (calculated in step 1)

    = 12% x $460,000

    = 0.12 x 460,000

    = $55,200
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