An Engineering Firm Has Decided to Construct Its Own Office

question 151

Essay

An engineering firm has decided to construct its own office building.The construction will be partially financed through a construction loan and any remainder will be financed from internally generated funds.The internal accountants have collected the following information concerning the construction.
$\begin{array}{llll}& \text { Average Balance } & \text { Construction } & \text { Other } \\\text { Year } & \text { Construction Account } & \text { Debt } @ 10 \% & \text { Debt } @12 \%\\1 & \$ 1,000,000 & \$ 1,000,000 & \$ 500,000 \\2 & \$ 1,500,000 & \$ 1,000,000 & \$ 250,000 \\3 & \$ 2,000,000 & \$ 800,000 & \$ 200,000\end{array}$ 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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