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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, 2018690,000
November 30, 2018690,000
January 30, 2019630,000


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

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

Answer & Explanation Solved by verified expert
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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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Transcribed Image Text

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.

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