On January 1, 2021, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2022. Expenditures on the project were as follows:January 1, 2021 $290,000 September 1, 2021 $408,000 December 31, 2021 $408,000 March 31, 2022 $408,000 September 30, 2022 $290,000 Kendall borrowed $786,000 on a construction loan at 12% interest on January 1, 2021. This loan was outstanding throughout the construction period. The company had $4,680,000 in 9% bonds payable outstanding in 2021 and 2022.Interest capitalized for 2021 was:

Interest capitalized for 2021 was $51,120.

Explanation:

To calculate this, we use the weighted-average method of calculating capitalized interest which is calculated as the multiplication of interest rate and the sum of the weight of each expenditure based on the number of months within a year. This can be stated mathematically as follows:

Therefore, the interest capitalized for 2021 can be calculated as follows:

Weighted expenditure from January 1, 2021 to December 31, 2021 = $290,000 * (12 months / 12 months) = $290,000.

Weighted expenditure from September 1, 2021 to December 31, 2021 =$408,000 * (4 months / 12 months) = $136,000.

Weighted expenditure from December 31, 2021 to December 31, 2021 = $408,000 * (0 months / 12 months) = $0.

Sum of weighted expenditure for for 2021 = $290,000 + $136,000 + $0 = $426,000

Interest capitalized for 2021 = Sum of weighted expenditure for for 2021 * Interest on construction loan = $426,000 * 12% = $51,120

Therefore, interest capitalized for 2021 was $51,120.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

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