Question: The Snowbird Company is constructing a building that qualifies for interest capitalization. It is built between January 1 and December 31, 2007. Expenditures, which occur

The Snowbird Company is constructing a building that qualifies for interest capitalization. It is built between January 1 and December 31, 2007. Expenditures, which occur evenly throughout the year, totaled $800,000. The company borrowed $500,000 at 12% to help finance the project. In addition, the Snowbird Company had outstanding borrowings of $2 million at 8%.

Required

1. Compute the amount of interest capitalized on the building.

2. What effect does the interest capitalization have on the company’s financial statements after it completes the building?

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