In january of 2021, the mateo company began construction of its own storage facility. during 2021, $13,000,000 in construction costs were incurred as follows: january 1, $2,000,000; march 31, $4,000,000; june 30, $4,000,000; october 31, $3,000,000. mateo took out a $4,000,000, 10% construction loan at the beginning of the year. the company had $20,000,000 in other interest-bearing debt with a weighted-average interest rate of 8%. the facility was completed early in 2022. what amount of interest should be capitalize in 2021 using the specific interest method?

Answer

The answer and procedures of the exercise are attached in the following archives.

Step-by-step explanation:

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.  

Note: prior to construction completion Interest has to capitalized.

Weights = Loan used period / 12 months

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan