Any help would be appreciated I'm in a hybrid class and have to learn this on my own! Thanks!
Capitalization of Interest
Carver Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed for construction. Management has decided to correct its policy and desires to include interest as part of the cost of a new store just being completed.
total construction expenditures:
Jan. 2, 20Y1…
May 1, 20Y1…
Nov. 1, 20Y1…
Mar. 1, 20Y2…
Sept. 1, 20Y2…
Nov. 30, 20Y2…
total $4,000,000
Outstanding Debt:
Mortgage related directly to new store; interest rate, 10%;
term, five years from beginning of
construction…
General Bond Liability:
bonds issued just prior to construction of store; interest
rate, 8% for 10 yrs…
Estimated Cost of equity capital…14…
1. Based on the given information, how much interest would be added to the cost of the store in 20Y1? If required, round capitalized interest percentages to one decimal place. Round dollar amount calculations and your final answer to the nearest whole dollar.
2. Based on the given information, how much interest would be added to the cost of the store in 20Y2? If required, round capitalized interest percentages to one decimal place. Round dollar amount calculations and your final answer to the nearest whole dollar.
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