Question

Thornton Industries began construction of a warehouse on July 1, 2021. The project was completed on March 31, 2022. No new loans were required to fund construction. Thornton does have the following two interest-bearing liabilities that were outstanding throughout the construction period:

$3,000,000, 12% note

$7,000,000, 7% bonds

Construction expenditures incurred were as follows:

July 1, 2021	$	700,000
September 30, 2021		990,000
November 30, 2021		990,000
January 30, 2022		930,000

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

Required:
Calculate the amount of interest capitalized for 2021 and 2022.

Calculate the amount of interest capitalized for 2021. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).)

	Date Expenditure Weight Average July 1, 2021 x = September 30, 2021 x = November 30, 2021 x = Accumulated expenditures Amount Interest Rate Capitalized Interest Average accumulated expenditures x % x =

• 2021

	Date Expenditure Weight Average January 1, 2022 x = January 30, 2022 x = Amount Interest Rate Capitalized Interest Average accumulated expenditures x x =

Answer 1

Interest Capitalized for 2021
Date	Expenditure		Weight		Average
July 1, 2021	700,000	x	6/12	=	350,000
September 30, 2021	990,000	x	3/12	=	247,500
November 30, 2021	990,000	x	1/12	=	82,500
Accumulated expenditures	2,680,000				680,000
	Amount		Interest rate		Capitalized Interest
Average accumulated expenditures	680,000	x	8.50%	=	57,800
weighted average interest rate = (3,000,000x12% + 7,000,000x7%)/(3,000,000+7,000,000) =8.5%
Balance on January 1, 2022 = (2,680,000+57,800) = 2,737,800
Interest Capitalized for 2022
Date	Expenditure		Weight		Average
January 1, 2022	2,737,800	x	12/12	=	2,737,800
January 30, 2022	930,000	x	11/12	=	852,500
Accumulated expenditures	3,667,800				3,590,300
	Amount		Interest rate		Capitalized Interest
Average accumulated expenditures	3,590,300	x	8.50%	=	305,175.5