Snowbird Company is constructing a building that qualifies for interest
Snowbird Company is constructing a building that qualifies for interest capitalization. It is built between January 1 and December 31, 2016. Snowbird made the following expenditures related to this building:
April 1.......... $ 396,000
July 1............ 400,000
September 1........ 510,000
December 1......... 120,000
The company borrowed $ 500,000 at 12% to help finance the project. In addition, Snowbird had outstanding borrowings of $ 2 million at 8% and $ 1 million at 9%.
Required:
1. Compute the amount of interest capitalized related to the construction of the building.
2. Next Level What effect does the interest capitalization have on the company’s financial statements after it completes the building?
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