Granite Construction is one of the largest heavy civil construction contractors in the United States. Granite operates nationwide, serving both public and private sector clients. Within the public sector, the company primarily concentrates on infrastructure projects, including the construction of roads, highways, bridges, dams, tunnels, canals, mass transit facilities, and airport infrastructure.
The following information was taken from Granite€™s annual report to shareholders.

Required:
1. What is the underlying rationale for the capitalization of interest?
2. Assume that none of the assets to which 2012 capitalized interest applies have been completed and placed into service. Calculate the firm€™s 2012 income before income taxes, assuming that no interest was capitalized in 2012. What is the percentage change from the reported amount?
3. Starting with net income of $59.9 million as reported in 2012, assume the same facts as in requirement 2 and recalculate Granite€™s net income.
4. Briefly discuss the impact of capitalized interest on a firm€™s future reportedearnings.

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Granite Construction Incorporated Consolidated Statement of Income Years Ended December 31, 2012 2011 2010 Interest expense Capitalized interest Income before income axes Net income $10.6 (2.3) 81.0 S59.9 $10.4 (7.4) 89.4 S66.1 (106.4) S(62.4) Consolidated Statement of Cash Flows Cash paid during the year for interest $11.5 $16.2 S 15.7