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, 9% note $8,000,000, 4% bonds

Construction expenditures incurred were as follows:

July 1, 2018 $680,000
September 30, 2018 1,020,000
November 30, 2018 1,020,000
January 30, 2019 960,000

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

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

Answer 1

Answer:

In total it capitalized  84,180.82  dollars

Explanation:

construction capitalized interest

date       expenditures         weight

01-jul    680,000.00   0.75   508,602.74

30-sep  1,020,000.00   0.50   508,602.74

30-sep  1,020,000.00   0.50   508,602.74

30-ene  960,000.00           0.16          157,808.22    

   TOTAL                          1,683,616.44

average rate  

principal          rate interest

2,000,000 0.09 180000

8,000,000 0.04 320000

10,000,000  500000

total interest / total principal = 0.05

Capitalized interest:

1,683,616.44  x 0.05 =  84,180.82