Question

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.

Answer 1

Interest Capitalized for 2018
Date	Expenditure	Weight	Average
01-Jul-18	3,40,000	6/6	3,40,000
30-Sep-18	6,90,000	3/6	3,45,000
30-Nov-18	6,90,000	1/6	1,15,000
Accumulated   Expenditures	17,20,000		8,00,000
		Interest
7% note	20,00,000	1,40,000
3% bonds	80,00,000	2,40,000
	1,00,00,000	3,80,000
Weighted Average rate = 380,000/10,000,000
=3.80%
Interest Capitalized for 2018 = 800,000 x 3.80% x 6/12 = 15,200
Interest Capitalized for 2019
Date	Expenditure	Weight	Average
01-Jan-19	17,20,000	3/3	17,20,000
31-Jan-19	6,30,000	2/3	4,20,000
Accumulated Expenditures	23,50,000		21,40,000
Interest Capitalized for 2019 = 21,40,000 x 3.80% x 3/12 = 20,330