Problem
On January 1, 20X5, Russel Ltd. purchased land for $570,000 for its new head office. Construction on the office building started on July 1, 20X5. The following expenditures were paid on the following dates for construction:
July 1, 20X5 $360,000
September 30, 20X5 $750,000
December 1, 20X5 420,000
To help fund the construction, Russel borrowed $600,000 on July 1, 20X5, on a 10%, two year note payable. Other than this note, Russel has a 12%, 10-year bond in the amount of$1,200,000 issued at face value on January 1, 20X3, with interest payable annually on December 31. What are the borrowing costs to be added to the cost of the building?
a) $20,125
b) $30,000
c) $42,300
d) $85,800