On December 31, 2013, Main Inc. borrowed $6,150,000 at 13% payable annually to f

Question

On December 31, 2013, Main Inc. borrowed $6,150,000 at 13% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: March 1, $738,000; June 1, $1, 230,000; July 1, $3,075,000; December 1, $3,075,000. The building was completed in February 2015. Additional information is provided as follows. Other debt outstanding 10-year, 12% bond, December 31,    2007, interest payable annually $8,200,000 6-year, 11% note, dated December    31, 2011, interest payable annually $3,280,000 March 1, 2014, expenditure included land costs of $307,500 Interest revenue earned in 2014 $100,450 Determine the amount of interest to be capitalized in 2014 in relation to the construction of the building. (Round answer to O decimal places, e.g. 5,275.) The amount of interest $ Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Explanation / Answer

           

Note:-

Interest on land expenditure during construction is capitalized to the building cost, not the land

Entry:-

Dr building $406,412.50

Dr interest expense $1,819,887.50

Cr Cash $2,226,300

Expenditures,2014 Average Investment 1-Mar     738,000 0.83             615,000 1-Jun 1,230,000 0.583333             717,500 1-Jul 3,075,000 0.5          1,537,500 1-Dec 3,075,000 0.083333             256,250          3,126,250

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