INTEREST CAPITALIZATION

Balance in the Land Account

Purchase Price ..................................................................................... ¥139,000

Surveying Costs................................................................................... 2,000

Title Insurance Policy......................................................................... 4,000

Demolition Costs ................................................................................. 3,000

Salvage.................................................................................................... (1,000)

Total Land Cost............................................................................. ¥147,000

Expenditures (2010)

Date Amount Fraction Weighted-Average Accumulated Expenditures

1-Dec ¥147,000 1/12 ¥12,250

1-Dec 30,000 1/12 2,500

1-Dec 3,000 1/12 250

¥180,000 ¥15,000

Interest Capitalized for 2010

Weighted-Average Accumulated Expenditures Interest Rate Amount Capitalizable

¥15,000 8% ¥1,200

Interest charged to Interest Expense

[(¥600,000 X .08 X 1 /12) – ¥1,200] ¥2,800

Expenditures (2011)

Date Amount Fraction Weighted Expenditure

1-Jan ¥180,000 6/12 ¥ 90,000

1-Jan 1,200 6/12 600

1-Mar 240,000 4/12 80,000

1-May 330,000 2/12 55,000

1-Jul 60,000 0 0

¥811,200 ¥225,600
 Interest Capitalized for 2011

Weighted Average Expenditure Interest Rate Amount Capitalizable

¥225,600 8% ¥18,048

Interest charged to Interest Expense

[(¥600,000 X .08) – ¥18,048] ¥29,952

(a) Balance in Land Account—2010 and 2011 ......... 147,000

(b) Balance in Building—2010 ....................................... 34,200*
Balance in Building—2011 ....................................... 682,248**
(c) Balance in Interest Expense—2010....................... 2,800
Balance in Interest Expense—2011....................... 29,952
*¥30,000 + ¥3,000 + ¥1,200

**¥34,200 + ¥240,000 + ¥330,000 + ¥60,000 + ¥18,048