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 =

Solution :

The interest capitalization for 2021

Date                  Expenditure  x   Weight      =      Average

1 July,2021         700,000              6/12                350,000

30 Sept,2021     990,000              3/12               247,500

30 Nov, 2021     990,000              1/12                 82,500

Total                  2,680,000                                   680,000

                                               Amount  x interest rate  = Capitalization interest

Average total expenditure   680,000       8.50%                    57,800

The weighted average interest rate

= 8.5 %

Balance as on 1st Jan, 2022 =

The interest Capitalized for 2022

Date                  Expenditure  x   Weight      =      Average

1 Jan,2022          2,737,800          12/12              2,737,800

30 Jan, 2022      930,000             11/12               852,500

Accumulated      3,667,800                                 3,590,300

expenditures

                                               Amount  x interest rate  = Capitalization interest

Average accumulated            3,590,000       8.50%                    305,175.5

expenditure  

income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.