On December 31, 2016, Main Inc. borrowed $3,000,000 at 12% payable annually to f

Question

On December 31, 2016, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2017, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1, $1,500,000. The building was completed in February 2018. Additional information is provided as follows. 1. Other debt outstanding 10-year, 13% bond, December 31, 2010, interest payable annually $4,000,000 6-year, 10% note, dated December 31, 2014, interest payable annually $1,600,000 2. March 1, 2017, expenditure included land costs of $150,000 3. Interest revenue earned in 2017 $49,000 A)Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building. B)repare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2017

Explanation / Answer

(360000-150000)*12%*10/12 = 21000

600000*12%*7/12 = 42000

1500000*12%*6/12 = 90000

690000*12%*1/12 = 6900

810000*13%*1/12 = 8775

Total interest = 168675

Interest capitalised =168675-49000 = $119675

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