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083Q7 - Capitalization of Interest During Construction...

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Capitalization of Interest During Construction Periods: [083Q7] Joseph Construction Company decided to build a new warehouse at an estimated total cost of $16,200. To finance this project, the firm obtained a $12,000 construction loan at an interest rate of 10%. The remainder of the construction costs will be financed by the firm’s considerable after-tax operating cash flow. The firm has loans other than the construction loan totaling $1,000 at a weighted-average interest rate of 5%. The construction period began February 1, Year 1, and ended October 1, Year 3. Spending on the project by year and source is shown below: February 1, Year 1 $4,000 Construction loan July 31, Year 1 2,000 Construction loan June 1, Year 2 200 Internal funds Monthly throughout Year 2 500 Construction loan
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