Question 1

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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Applying the weighted average rate of ALL debt to the total WAAE; forgetting to check the 'actual interest' cap.

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?

How to approach this question

Full Answer

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