Question

A company began construction of a new warehouse on Jan 1, 2018. The building was finished and ready for use on Sept 30, 2019. Expenditures on the project were as follows: January 1, 2018 $ 313,000 September 1, 2018 $ 465,000 December 31, 2018 $ 465,000 March 31, 2019 $ 465,000 September 30, 2019 $ 313,000 The company had $5,500,000 in 15% bonds outstanding through both years. The capitalized interest in 2018 was:

Answer 1

$70,200

Step-by-step explanation:

the formula to determine the amount of interest capitalized is:

• $313,000 x 15% x 1 (whole 2018) = $46,950
• $465,000 x 15% x 4/12 (Sept.-Dec.) = $23,250
• total $70,200

US GAAP allows companies to treat the cost of borrowing (interests) during the project's inception period as part of the original capital investment amount.