Question

Thornton Industries began construction of a warehouse on July 1, 2021. The project was completed on March 31, 2022. No new loans were required to fund construction. Thornton does have the following two interest-bearing liabilities that were outstanding throughout the construction period:

$3,000,000, 10% note

$7,000,000, 6% bonds

Construction expenditures incurred were as follows:

July 1, 2021	$	460,000
September 30, 2021		660,000
November 30, 2021		660,000
January 30, 2022		600,000

The company’s fiscal year-end is December 31.

Required:
Calculate the amount of interest capitalized for 2021 and 2022.

Answer 1

a) Interest Capitalized for 2021
Date	Expenditure		Weight		Average
Jul 1, 2021	$460,000	x	0.5	=	$230,000
Sep 30, 2021	$660,000	x	0.25	=	$165,000
Nov 30, 2021	$660,000	x	0.083	=	$54,780
Accumulated Expenditures	$1,780,000				$449,780
	Amount		Interest Rate		Capitalized Interest
Average Accumulated Expenditures	$449,780		7.20%		$32,384
Weighted Average interest rate
$3,000,000, 10% note	$300,000
$7,000,000, 6% bonds	$420,000
	$720,000
Weighted rate = $720,000/($3,000,000 + $7,000,0000	7.20%
b) Interst capitalized for 2022
Date	Expenditure		Weight		Average
Jan 1, 2022	$1,812,384	x	1	=	$1,812,384
Jan 31, 2022	$600,000	x	0.889	=	$533,400
Accumulated Expenditures	$2412,384				$2,345,784
Bal .on jan1 2022 ($1,780,000+$32384)	$1,812,384
	Amount		Interest Rate		Capitalized Interest 2022
Average Accumulated Expenditures	$2,345,784		7.20%		$168,896

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