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Thornton Industries began construction of a warehouse on July 1, 2018. The project was completed on...

Thornton Industries began construction of a warehouse on July 1, 2018. The project was completed on March 31, 2019. No new loans were required to fund construction. Thornton does have the following two interest-bearing liabilities that were outstanding throughout the construction period:

$2,000,000, 7% note
$8,000,000, 3% bonds


Construction expenditures incurred were as follows:

July 1, 2018 $ 340,000
September 30, 2018 690,000
November 30, 2018 690,000
January 30, 2019 630,000


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

Required:
Calculate the amount of interest capitalized for 2018 and 2019.

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Answer

Interest Capitalized for 2018
Date Expenditure Weight Average
01-Jul-18 $        3,40,000 0.5 $    1,70,000
30-Sep-18 $        6,90,000 0.25 $    1,72,500
30-Nov-18 $        6,90,000 0.08 $       55,200
Accumulated   Expenditures $      17,20,000 $    3,97,700
Weighted Average rate = 380,000/10,000,000=3.8%
Interest Capitalized for 2018 = 3,97,700 x 3.80% = 15,112.6
Interest Capitalized for 2019
Date Expenditure Weight Average
01-Jan-19 17,35,112.60 1 17,35,112.60
31-Jan-19 $        6,30,000 0.889 $    5,60,070
Accumulated   Expenditures 23,65,112.60 22,95,182.60
Interest Capitalized for 2019 = 22,95,182.60 x 3.80% = 87216.94

ekkarill92 answered 2 years ago
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