Question

Current Attempt in Progress On December 31, 2019, Pronghorn Inc. borrowed $3,780,000 at 13% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $453,600; June 1, $756,000; July 1, $1,890,000; December 1, $1,890,000. The building was completed in February 2021. Additional information is provided as follows. Other debt outstanding 1. $5,040,000 10-year, 14% bond, December 31, 2013, interest payable annually $2,016,000 6-year, 11% note, dated December 31, 2017, interest payable annually March 1, 2020, expenditure included land costs of $189,000 2. $61,740 3. Interest revenue earned in 2020 Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building $ The amount of interest eTextbook and Media List of Accounts ntry to record the capitalization of interest and the recognition of interest expense, if repare the journal no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) at December 31, 2020. (Credit acCount titles are automatically indented when amount is entered. Do not indent manually. If Account Titles and Explanation Debit Credit Date December 31, 2020

Answer 1

Answer with working is given below

Calculation of Avoidable interest Amount Month period $453,600 March 1 10/12 $756,000 June 1 7/12 $1,890,000 July 1 6/12 $1,890,000 December 1 1/12 Total weighted average expenditure Cost of Borrowing Avoidable interest Weighted average $378,000 $441,000 $945,000 $157,500 $1,921,500 13% $249,795 Actual Interest Borrowing 14% Bond 11% note Actual Interest Amount Interest % $3,780,000 13% $5,040,000 14% $2,016,000 11% Interest $491,400 $705,600 $221,760 $1,418,760 Interest Expense Actual Interest Avoidable Interest Interest Expense $1,418,760 $249,795 $1,168,965 Interest to be capitalized $249,795

Credit Debit $249,795 $1,168,965 Date Journal December 31st 2020 Building Interest Expense To Cash (Being Interest expense capitalised and expensed) $1,418,760