Exercise 10-23 Interest capitalization [LO10-7] On January 1, 2018, the Shagri C

Question

Exercise 10-23 Interest capitalization [LO10-7] On January 1, 2018, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The only interest-bearing debt the company had outstanding during 2018 was long-term bonds with a book value of $10,900,000 and an effective interest rate of 7%. Construction expenditures incurred during 2018 were as follows January 1 March 1 July 31 September 30 December 31 $590,000 654, 000 534,000 690,000 390,000 Required Calculate the amount of interest capitalized for 2018 Date Expenditure Weight Average January 1 March 1 July 31 September 30 December 31 Accumulated expenditure Capitalized Interest Average Interest Rate Average accumulated expenditures

Explanation / Answer

DATE EXPENDITURE WEIGHT AVERAGE JANUARY 1 $590,000 * 12/12 $590,000 MARCH 1 $654,000 * 10/12 $545,000 JULY 31 $534,000 * 5/12 $222,500 SEPTEMBER 30 $690,000 * 3/12 $172,500 DECEMBER 31 $390,000 * 0/12 $0 ACCUMULATED EXPENDITURE $2,858,000 $1,530,000 AVERAGE * INTEREST RATE * CAPITALIZED INTEREST AVERAGE ACCUMULATED EXPENDITURE $1,530,000 7% $107,100

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