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

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Accounting

Thornton Industries began construction of a warehouse on July 1,2018. The project was completed on March 31, 2019. No new loanswere required to fund construction. Thornton does have thefollowing two interest-bearing liabilities that were outstandingthroughout 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

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In: AccountingThornton 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 loanswere required to fund construction. Thornton does have thefollowing two interest-bearing liabilities that were outstandingthroughout the construction period:$2,000,000, 7% note$8,000,000, 3% bondsConstruction expenditures incurred were as follows:July 1, 2018$340,000September 30, 2018690,000November 30, 2018690,000January 30, 2019630,000The company’s fiscal year-end is December 31.Required:Calculate the amount of interest capitalized for 2018 and 2019.


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