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: $3,000,000, 8% note $9,000, 800, 4% bonds Construction expenditures incurred were as follows: July 1, 2018 September 30, 2018 November 30, 2018 January 30, 2019 $ 48e, eae 720,899 720.99 660,800 120,00€ The company's fiscal year-end is December 31. Required: Calculate the amount of interest capitalized for 2018 and 2019. Complete this question by entering your answers in the tabs below. 2018 2019 Calculate the amount of interest capitalized for 2018. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).) Expenditure Weight Average Date July 1, 2018 September 30, 2018 November 30, 2018 Accumulated expenditures x s 0 Amount Interest Rate Capitalized Interest Average accumulated expenditures S 2018 2019 >

Answer 1

2018 :

a) Interest Capitalized for 2018
Date	Expenditure		Weight		Average
1-Jul-18	$480,000	x	0.5	=	$240,000
30-Sep-18	$720,000	x	0.25	=	$180,000
30-Nov-18	$720,000	x	0.083	=	$60,000
Accumulated Expenditures	$1,920,000				$480,000
	Amount		Interest Rate		Capitalized Interest 2018
Average Accumulated Expenditures	$480,000	x	5.00%	=	$24,000

Working:

Weighted Average interest rate
$3,000,000, 8% note	$240,000
$9,000,000, 4% bonds	$360,000
	$600,000
Weighted rate = $600000/(3000000+9000000)	5.00%

2019:

b) Interst capitalized for 2019
Date	Expenditure		Weight		Average
1-Jan-19	$1,944,000	x	1	=	$1,944,000
30-Jan-19	$540,000	x	0.889	=	$480,060
Accumulated Expenditures	$2,484,000				$2,424,060
Bal .on jan1 2019 ($1,920,000+$24,000)	$1,944,000
	Amount		Interest Rate		Capitalized Interest 2019
Average Accumulated Expenditures	$2,424,060	x	5.00%	=	$121,203.00