Answer:
$4,320
Explanation:
The computation of the amount of interest capitalized for 2022 is shown below:-
The average interest rate based on the two interest-bearing liabilities
Total interest Total interest on
bearing liabilities each outstanding liability
$2,000,000 $2,000,000 × 8% = $160,000
$8,000,000 $8,000,000 × 4% = $320,000
$10,000,000 $480,000
Average interest rate = $480,000 ÷ $10,000,000
= 0.048
or 4.8%
Average accumulated expenses in year 2022 = $540,000 × 2 ÷ 3
= $360,000
The amount of interest to be capitalized in year 2022
= $360,000 × 4.8% × 3 ÷ 12
= $4,320
The amount of interest to be capitalized in year 2022 = $4,320
