Question

On December 31, 2016, Whispering Inc. borrowed $4,260,000 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, $511,200; June 1, $852,000; July 1, $2,130,000; December 1, $2,130,000. 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		$5,680,000
		6-year, 10% note, dated December 31, 2014, interest payable annually		$2,272,000
2.		March 1, 2017, expenditure included land costs of $213,000
3.		Interest revenue earned in 2017		$69,580

Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building.

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, 2017. (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.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2017

Answer 1

Auscoer' a) calculation of the amount of Inlērest to be capitalised in 2017. Average Investment March-1 $511,200 I 10/12 $426,000 June -1 $852,000 7/12 $ 497,000 July-l. $2139000 6/12 $ 1,065000 Decembert $2,130,000 Vie $177,500 $2,165,500 -ta-th- Loans Amount Issued Actual Interest cost 12% of finance construction $4260,000 12/31/2016 $511,200 13%. Bond $5680,000 yearago $ 738 400 10% Note $2,272,000 year ago $227200 $1,476,800 Amount of Interest to be calculated = Average investmentxkl. = $2,165,500 x12% i. Amount of Interest - $259,860 (6) Journal entry Date particulars TLF Debit Teredit $259,860 Interest expense ale $1,216,940 To cash $1476,800 Building A/C