Question

On January 1, 2021, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2022. The only interest-bearing debt the company had outstanding during 2021 was long-term bonds with a book value of $11,100,000 and an interest rate of 9%. Construction expenditures incurred during 2021 were as follows:

January 1 $500,000
March 1 600,000
July 31 480,000
September 30 600,000
December 31 300,000

Required:
Calculate the amount of interest capitalized for 2016.

Answer 1

$1,120,500

Step-by-step explanation:

January 1 $500,000*12/12*9%=$45,000

March 1 $600,000*10/12*9%=$45,000

July 31 $480,000*5/12*9%=$18,000

September 30 $600,000*3/12*9%=$13,500

December 31 $300,000*0/12=0

Interest on Bonds Outstanding $11,100,000*9%=$999,000

Total Interest to be capitalized=$1,120,500