692266&infoId=553228

Practice 10-6
Capitalized Interest: Single-Year Computation

The company had the following loans outstanding for the

entire year:

Amount
$
Specific construction loan $100,000
General loan 2,000,000

The company began the self-construction of a building on

January 1.
The following expenditures were made during the year:

1-Jan $100,000
1-May 200,000
1-Nov 300,000
Total $600,000

Construction was completed on December 31. Compute (1)

the amount of interest capitalized during the year and (2)
the recorded cost of the building at the end of the year.

Construction expense
Principal
$
For Expenditure made on January 1-
Principal 100,000
Interest capitalized= $100,000 x 10% x (12/12)
For Expenditure made on May 1-
Principal 200,000
Interest capitalized= $200,000 x 12% x (8/12)

For Expenditure made on Nov 1-

Principal 300,000
Interest capitalized= $300,000 x 12% x (2/12)

Total 600,000

(1)amount of interest capitalized during the year

(2) the recorded cost of the building at the end of the

632,000
year.=$600,000+32,000

Capitalized Interest: Multiple-Year Computation

Refer to Practice 10-6. Assume that construction was not

completed on December 31 of Year 1. Also assume that the
same loans were outstanding for all of Year 2.The following
expenditure was made during Year 2:
1-Jul $500,000

Final construction was completed on December 31 of Year 2.

Compute (1) the amount of interest capitalized during Year 2
and (2) the recorded cost of the building at the end of Year 2.

Construction expense
Principal
$
For Expenditure made in Year 1
Interest capitalized= $((100,000 x 10%)+(500,000 x 12%)) x
(12/12)

For Expenditure made on January 1,Year 2

Principal 500,000
Interest capitalized= $500,000 x 12% x (12/12)
Sub Total for Year 2 500,000
(1)amount of interest capitalized during the year 2

(2) the recorded cost of the building at the end of the 1,262,000
year.=$632,000+500,000+130,000
 Interest Rate

10%
12%

Construction expenses
Interest Capitalized
$

10,000
 16,000

6,000

32,000

32,000

Construction expenses
Interest Capitalized
$

70,000

60,000
130,000
130,000