Answer:
THORNTON INDUSTRIES
AMOUNT OF INTEREST TO BE CAPITALIZED FOR THE YEAR ENDED DECEMBER 31, 2016 AND 2017
2016
July 1 - Dec 31 $400,000 *4.8%*6/12 = $9,600
Sep 30 - Dec 31 $600,000*4.8%*3/12 = $7,200
Nov 30 - Dec 31 $600,000*4.8%*1/12 = <u>$2,400</u>
Total Interest for 2016 <u> $19,200</u>
2017
Jan 1 - Dec 31 $1,600,000*4.8% = $76,800
Jan 30 - Dec 31 $540,000*4.8%*11/12 = <u> 23,760</u>
Total interest for the year 2017 <u> $100,560 </u>
weightred average cost of capital =
<u> $2,000,000*8% + $8,000,000*4%</u>
$2,000,000 + $8,000,000
= 160,000 + 320,000
10,000,0000
=$480,000 / 10,000,000 = 0.048 = 4.8%
Explanation:
Interest to be capitalized on construction expenditure will be interest on the amount borrowed to finance such construction. the interest will be from commencement of the construction to the cessation period
