ExpertHard1 markMultiple Choice
CPA · Question 19 · Area 2: Select Accounts
Construction of a qualifying asset began on Jan 1. Weighted Average Accumulated Expenditures (WAAE) were $1,000,000. The company had a specific construction loan of $600,000 at 8% and general debt of $2,000,000 at 5%. What amount of interest should be capitalized?
Construction of a qualifying asset began on Jan 1. Weighted Average Accumulated Expenditures (WAAE) were $1,000,000. The company had a specific construction loan of $600,000 at 8% and general debt of $2,000,000 at 5%. What amount of interest should be capitalized?
Answer options:
A.
$80,000
B.
$68,000
C.
$50,000
D.
$48,000
How to approach this question
1. Calculate WAAE. 2. Match WAAE to Specific Debt first. 3. Match remaining WAAE to General Debt (Weighted Avg Rate). 4. Sum interest. 5. Cap at actual interest incurred.
Full Answer
B.$68,000✓ Correct
B
Interest on specific debt ($600k * 8% = $48k) plus interest on excess WAAE using general rate ($400k * 5% = $20k). Total = $68,000.
Common mistakes
Applying the weighted average rate of ALL debt to the total WAAE; forgetting to check the 'actual interest' cap.
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