CHAPTER 17: BORROWING COSTS

17-7 (IAA)
1. C. 280,000
Weighted Average Accumulated Expense
= 1,000,000 x 12/12 = 1,000,000
2,000,000 x 6/12 = 1,000,000
3,000,000 x 2/12 = 500,000
= 2,500,000
Capitalizable Borrowing Cost
= 1,000,000 X 10% + (2,500,000 – 1,000,000) 12%
= 100,000 + 180,000
Capitalizable Borrowing Cost = 280,000

2. B. 6,280,000
Solution:
Cost of the New Building
= (1,000,000 + 2,000,000 + 3,000,000) + 280,000
= 6,000,000 + 280,000
Cost of the New Building = 6,280,000

3. A. 2,220,000

Interest Expense for 2020

= (1,000,000 X 10% + 20,000,000 X 12%) – 280,000
= 100,000 + 2,400,000 – 280,000
Interest Expense for 2020 = 2,220,000