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: $2,000,000, 7% note $8,000,000, 34 bonds Construction expenditures incurred were as follows: July 1, 2018 September 30, 2018 November 30, 2018 January 30, 2019 $ 340,000 690,000 690,000 630,000 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 Amount Interest Rate Capitalized Interest Average accumulated expenditures $ 0 x % x

Answer 1

Solution:

Weighted average interest rate = 7%*2000000/10000000 + 3%*8000000/10000000 =3.8%

Construction of Building - Thornton Industries
Schedule of Weighted-Average accumulated expenditure for Year 2018
Date	Expenditure		Weight		Weighted Average Accumulated Expenditures
1-Jul-18	$340,000	*	6/12	=	$170000
30-Sep-18	$690,000	*	3/12	=	$172500
30-Nov-18	$690,000	*	1/12	=	$57500
Accumulated expenditure	$1,720,000				$400000

Particulars	Average		Interest rate		Capitalized interest
Average accumulated expenditure	$400,000	*	3.80%	=	$15,200

Construction of Building - Thornton Industries
Schedule of Weighted-Average accumulated expenditure for Year 2019
Date	Expenditure		Weight		Weighted Average Accumulated Expenditures
1-Jan	$1,720,000	*	3/12	=	$430,000
30-Jan	$630,000	*	2/12	=	$105,000
Accumulated expenditure	$2,350,000				$535,000

Particulars	Average		Interest rate		Capitalized interest
Average accumulated expenditure	$535,000	*	3.80%	=	$20,330