During 2014, Midori Ito Corporation constructed and manufactured certain assets

Question

During 2014, Midori Ito Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities.

Interest Costs Incurred

All of these assets required an extended period of time for completion.

Assuming the effect of interest capitalization is material, what is the total amount of interest costs to be capitalized?

Interest Costs Incurred

Warehouse constructed for Ito’s own use $30,600 Special-order machine for sale to unrelated customer, produced according
to customer’s specifications 9,110 Inventories routinely manufactured, produced on a repetitive basis 8,850

Explanation / Answer

Calculation of Interest Cost to be Capitalized Particulars Interest Cost Reason Warehouse constructed for Ito’s own use $30,600 Interest to be capitalized and added to the Warehouse Cost. Capitalized interest is the cost of the funds used to finance the construction of a long-term asset that an entity constructs for itself Special-order machine for sale to unrelated customer, produced according to customer’s specifications $9,110 The interest cost to be capitalized and added to cost of inventory or machine to be produced according to customer specification. Inventories routinely manufactured, produced on a repetitive basis The interest is not capitalized and it will be shown as interest expense in calculating the Net Income of the Company. The interest paid on loan taken for the goods manufactured in routine, so it cannot be capitalized Toatl Interest Amount to be Capitalized $39,710

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