Question

On December 31, 2019, Crane Inc. borrowed $3,720,000 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, $446,400; June 1, $744,000; July 1, $1,860,000; December 1, $1,860,000. 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		$4,960,000
		6-year, 11% note, dated December 31, 2017, interest payable annually		$1,984,000
2.		March 1, 2020, expenditure included land costs of $186,000
3.		Interest revenue earned in 2020		$60,760

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

Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2020. (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, 2020

eTextbook and Media

List of Accounts

Answer 1

Solution 1:

Weighted-Average accumulated expenditure and interest capitalized
Date	Amount	Capitalization period	Weighted Average Accumulated Expenditures
01-Mar	$4,46,400	10/12	$3,72,000
01-Jun	$7,44,000	7/12	$4,34,000
01-Jul	$18,60,000	6/12	$9,30,000
01-Dec	$18,60,000	1/12	$1,55,000
Total	$49,10,400		$18,91,000
*Interest rate			13%
Interest capitalized in 2020			$2,45,830

Solution 2:

Computation of Interest expense
Debt	Amount	Interest rate	Interest amount
Construction Loan	$37,20,000	13%	$4,83,600
14% Bond	$49,60,000	14%	$6,94,400
11% Note	$19,84,000	11%	$2,18,240
Total interest incurred			$13,96,240
Less: Interest Capitalized			$2,45,830
Interest Expense			$11,50,410

Date	Accounts Title	Debit	Credit
31-Dec	Building	$2,45,830
	Interest expense	$11,50,410
	Cash		$13,96,240