Song Company started construction on a building on January 1 of this year and completed construction on December 31 of the same year.Song had only two interest notes outstanding during the year,and both of these notes were outstanding for all 12 months of the year.The following information is available:

What amount of interest should Song capitalize for the current year?
A)$15,000
B)$18,000
C)$22,500
D)$27,900

Question

Song Company started construction on a building on January 1 of this year and completed construction on December 31 of the same year.Song had only two interest notes outstanding during the year,and both of these notes were outstanding for all 12 months of the year.The following information is available:

What amount of interest should Song capitalize for the current year?

What amount of interest should Song capitalize for the current year?
A)$15,000 
B)$18,000 
C)$22,500 
D)$27,900

Quizplus · Accepted Answer

The interest to be capitalized is the interest incurred during the construction period. The total interest incurred ($30,000) should be divided equally over the 12 months of construction. Therefore, the amount of interest to be capitalized is $2,500 per month ($30,000 ÷ 12). Since there were two notes outstanding for the entire year, the amount of interest to be capitalized for the current year is $5,000 ($2,500 × 2). Therefore, the correct answer is B) $18,000.

Song Company Started Construction on a Building on January 1