How do you calculate capitalized interest on construction costs?

We calculate the capitalized interest for each period by applying the interest rate to the qualifying construction costs for that period. Interest calculation for Year 1: Interest on construction costs incurred on January 1, Year 1: $1,500,000 * 5% = $75,000.

Which year will the company capitalize the interest on the construction project?

In Year 1 and Year 2, the company will capitalize the interest on the construction project rather than expensing it immediately. The journal entries will be: Year 1 Journal Entry: Cr. Interest Payable $75,000 This journal entry reflects the capitalization of interest on the construction costs for Year 1.

What is construction period interest capitalization?

Construction period interest capitalization represents the cost of financing the building of a long-term asset, such as a rental building. Construction interest expense is also called capitalized interest. Unlike other forms of industry-related interest, construction interest expense is handled differently, because its interest cannot be deducted.