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In: Accounting

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.

Solutions

Expert Solution

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

ekkarill92 answered 1 year ago
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