On December 31, 2013, Main Inc. borrowed $3,450,000 at 12% payable annually to f

Question

On December 31, 2013, Main Inc. borrowed $3,450,000 at 12% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: March 1, $414,000; June 1, $690,000; July 1, $1,725,000; December 1, $1,725,000. The building was completed in February 2015. Additional information is provided as follows.

SHOW LIST OF ACCOUNTS

LINK TO TEXT

Date

Account Titles and Explanation

Debit

Credit

1. Other debt outstanding 10-year, 11% bond, December 31, 2007, interest payable annually $4,600,000 6-year, 10% note, dated December 31, 2011, interest payable annually $1,840,000 2. March 1, 2014, expenditure included land costs of $172,500 3. Interest revenue earned in 2014 $56,350

Explanation / Answer

Date Building Cost Interest rate Captilized Interest Cost 01-Mar-14              414,000 12%                                41,400 01-Jun-14              690,000 12%                                48,300 01-Jul-14           1,725,000 12%                              103,500 01-Dec-14           1,725,000 12%                                17,250 Total interest captilized in 2014 210450 Journal Entry Assets A/C dr.            210,450 To interest Exp.                              210,450

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