On December 31, 2013, Main Inc. borrowed $3,450,000 at 13% payable annually to f

Question

On December 31, 2013, Main Inc. borrowed $3,450,000 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, $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.

1. Other debt outstanding 10-year, 12% bond, December 31, 2007, interest payable annually $4,600,000

6-year, 11% 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

Know that the amount of interest is $227988.

Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2014.

Explanation / Answer

Interest Capitalize Date Particulars Amount Rate Days Interest Mar-01 Building 241500 13% 306 26320 Jun-01 Building 690000 13% 214 52591 Jul-01 Building 1725000 13% 184 113047 Dec-01 Building 793500 13% 31 8761 Dec-01 Building 931500 11.72% 31 9272 Total 4381500 209991 General rate for Dec-01 capitalization Particular Amount Rate Days Interest 12% Bond 4600000 12% 365 552000 11% Note 1840000 11% 365 202400 Total 6440000 754400 General rate Total Interest 754400 11.72% Total Amount 6440000 Interest to capitalize 209991 Interest expense 745128 ( 754400 - 9272 ) Journal Entries Date Particulars Debit Credit Dec-31 Building 209991 Interest payable 209991 Feb-26 Interest expenses 745128 Interest payable 745128

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