Western Company Entered into a Contract with Snape Construction Company

question 20

Multiple Choice

Western Company entered into a contract with Snape Construction Company to construct a building. Construction began in 2011 and was completed in 2012. As of January 1, 2012, Western had made total progress payments to Snape of $50,000. In addition, interest capitalized on the building during 2011 was $2,500. Western made additional payments on June 30, 2012, and December 31, 2012. Western had issued $80,000 of 9% bonds to finance part of the construction. The average interest on Western's additional debt was 11% for 2012.
How much interest should be capitalized by Western for 2012?

• A) $6,750
• B) $6,975
• C) $13,500
• D) $13,725

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