The Allen Company Has Decided to Construct Its Own Warehouse

question 42

Essay

The Allen Company has decided to construct its own warehouse facility.The construction will be partially financed through a construction loan and the remainder will be financed from internally generated funds.The company's accountants have collected the following information concerning the construction.
$\begin{array}{llll}& \text { Average Balance } & \text { Construction } & \text { Other } \\\text { Year } & \text { ConstructionAccount } & \text { Debt } @ 14 \% & \text { Debt } @ 10 \%\\1 & \$ 1,000,000 & \$ 1,000,000 & \$ 1,500,000 \\2 & \$ 2,000,000 & \$ 1,700,000 & \$ 1,700,000 \\3 & \$ 2,500,000 & \$ 2,000,000 & \$ 1,300,000\end{array}$ Required:
Determine the amount, if any, of capitalized interest cost for each year.

a. Year 1
b. Year 2
c. Year 3

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Definitions:

Unsought Products

Items that the consumer does not know about or knows about but does not initially want.

Impulse Buys

Purchases made spontaneously without prior planning, often triggered by emotions or the strategic placement of products.

Product Life Cycle

The progression of a product through stages including introduction, growth, maturity, and decline.

Unsought Products

Items that consumers do not normally think of buying or do not know exist until they are brought to their attention through advertising or word-of-mouth.