Question

Exercise 10-25 Interest capitalization; multiple periods [LO10-7] 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: $4,000,000, 9% note $6,000,000, 68 bonds Construction expenditures incurred were as follows: $ 430,000 630,000 630,000 570,000 July 1, 2018 September 30, 2018 November 30, 2018 January 30, 2019 The company's fiscal year-end is December 31. Required: Calculate the amount of interest capitalized for 2018 and 2019.

Answer 1

a	Out standing loan 1 9%	$4,000,000
b	Out standing loan 2 6 %	$6,000,000
c	Total loana+b)	$10,000,000
	Amount of interest in 2018 during construction perios
d	On Loan 1 (a*9%)	$360,000
e	On Loan 2 (b*6%	$360,000
f	Total Capitalizable interest	$720,000
	Average interest rate f/c*100	7.2%
Expenditures incurred	For 2018
Date	Amount	Capitalizable Interest (Amount *average interest rate* period left till the end of the year/12	Capitalization period
1-Jul	$430,000	$15,480	For 6 months
30-Sep	$630,000	$11,340	For 3 months
30-Nov	$630,000	$7,560	For two months
	Total capitlaizable interest for 2018	$34,380
For 2019
Date	Amount	Capitalizable Interest (Amount *average interest rate* period left till the end of the year/12
Cumulative amount incurred for previous year	$1,690,000	$121,680	For 12 months
30-Jan	$570,000	$37,620	For 11 months
	Total capitlaizable interest for 2019	$159,300