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    Capitalized interest and research & development expense

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    On January 2, 2011 the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2012. The Company borrowed $1,500,000 on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2011:

    $5,000,000 12% bonds
    $3,000,000 8% long term note

    Construction expenditures incurred during 2011 were as follows:

    January 1 $ 600,000
    March 31 $1,200,000
    June 30 $ 800,000
    September 30 $ 600,000
    December 31 $ 400,000


    Calculate the amount of interest capitalized for 2011 using the specific interest method

    Delaware Company incurred the following research and development cost during 2011:
    Salaries and wages for lab research $400,000
    Materials used in R&D projects 200,000
    Purchase of equipment 900,000
    Fees paid to outsiders for R&D projects 320,000
    Patent filing and legal costs for developed project 65,000
    Salaries, wages, and supplies for R&D work performed
    For another company under contract 350,000
    Total $2,235,000

    The equipment has a seven-year life and will be used for a number or research projects. Depreciation for 2011 is $120,000.


    Calculate the amount of research and development expense that Delaware should report in its 2011 income statement.

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