Question

On December 31, 2019, Novak Inc. borrowed $4,020,000 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, $482,400; June 1, $804,000; July 1, $2,010,000; December 1, $2,010,000. The building was completed in February 2021. Additional information is provided as follows. 1. Other debt outstanding 10-year, 14% bond, December 31, 2013, interest payable annually 6-year, 11% note, dated December 31, 2017, interest payable annually 2. March 1, 2020, expenditure included land costs of $201,000 3. Interest revenue earned in 2020 $5,360,000 $2,144,000 $65,660 Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building. The amount of interest $ e Textbook and Media List of Accounts

Answer 1

Specific Borrowing Cost Less : Interest Revenue Earned $522,600 $ 4,020,000*13% $65,660 Average Interest Rate of General Borrowing Prinicipal Interest Specific Borrowing Cost to be capitalized $456,940 10 Year 6 Year Total 5360000 750400 2144000 235840 7504000 986240 13% Q2 599593 909247 Date Amount 01-Mar 281400 01-Jun 804000 01-Jul 2010000 01-Dec 2010000 Total 5105400 Less : Specific Borrowings 4020000 Balance Amount from general borrowings 1085400 Average rate of interest 13.14% General Borrowing Cost 142653 Journal Building A/c Dr Interest Expenses A/c Dr To 13% Specific Loan A/c To 10 Year 14% Bond A/c To 6 Year 11% Notes A/C 522600 750400 235840 Qi Total Borrowing Cost to be capitalized 599593