Thornton Industries began construction of a warehouse on July 1, 2016. The proje
ID: 2462420 • Letter: T
Question
Thornton Industries began construction of a warehouse on July 1, 2016. The project was completed on March 31, 2017. No new loans were required to fund construction. Thornton does have the following two interest-bearing liabilities that were outstanding throughout the construction period:
Calculate the amount of interest capitalized for 2016 and 2017. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).)
Thornton Industries began construction of a warehouse on July 1, 2016. The project was completed on March 31, 2017. No new loans were required to fund construction. Thornton does have the following two interest-bearing liabilities that were outstanding throughout the construction period:
Thornton Industries began construction of a warehouse on July 1, 2016. The project was completed on March 31, 2017. 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, 8% note $8,000,000, 4% bonds Construction expenditures incurred were as follows: July 1, 2016 September 30, 2016 November 30, 2016 January 30, 2017 $400,000 600,000 600,000 540,000 The company's fiscal year-end is December 31 Required Calculate the amount of interest capitalized for 2016 and 2017. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).) Weight Average July 1, 2016 September 30, 2016 November 30, 2016 Accumulated expenditures Interest Rate Average accumulated expenditures $ Weight Average January 1, 2017 January 30, 2017 Interest Rate Average accumulated expenditures $Explanation / Answer
a) Interest Capitalized for 2016 Date Expenditure Weight Average Jul 1, 2016 $400,000 x 0.5 = $200,000 Sep 30, 2016 $600,000 x 0.25 = $150,000 Nov 30, 2016 $600,000 x 0.083 = $50,000 Accumulated Expenditures $1,600,000 $400,000 Amount Interest Rate Capitalized Interest Average Accumulated Expenditures $400,000 4.80% $19,200 Weighted Average interest rate $2,000,000, 8% note $160,000 $8,000,000, 4% bonds $320,000 $480,000 Weighted rate = $480,000/($2,000,000 + $8,000,000) 4.80% b) Interst capitalized for 2017 Date Expenditure Weight Average Jan 1, 2017 $1,619,200 x 1 = $1,619,200 Jan 31, 2017 $540,000 x 0.889 = $480,000 Accumulated Expenditures $2,159,200 $2,099,200 Bal .on jan1 2017 ($1,600,000+$19,200) $1,619,200 Amount Interest Rate Capitalized Interest 2017 Average Accumulated Expenditures $2,099,200 4.80% $100,761.6
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