Question

Can I get help with the wrong ones

Computing and Recording Interest Capitalization The following information is from Bowin Inc. for a long-term construction project that is expected to be completed in January 2021. The construction project is for a building intended for the company's own use. The capital expenditure on January 1, 2020, is for the purchase of land for the building site. No new construction loans were opened for the project in 2020. All debt was outstanding for the full year. Capital Expenditures for 2020 Date Amount Jan. 1, 2020 $ 36,000 Mar. 31, 2020 1,080,000 June 30, 2020 2,160,000 Nov. 30, 2020 1,080,000 Outstanding Debt in 2020 Debt Debt Amount Interest Rate Note payable $1,200,000 896 Note payable 960,000 896 Bond payable 2,400,000 1096 Note payable 600,000 996 Answer the following questions: a. Compute interest to be capitalized and the interest to be expensed in 2020. b. Prepare the entry to record the construction expenditures and interest for 2020. C. Prepare the entry for depreciation in 2021 assuming that the project is completed on January 1, 2021. Assume that the building has a useful life of 30 years, and that the company uses the straight-line depreciation method.

Answer 1

Total Amount to be Capitialized for the purchase of land = $4,356,000 ($36,000+$1,080,000+$2,160,000+$1,080,000)

Total Interest = $466,800 (1200000*8%+960000*8%+2400000*10%+600000*9%)

Average annual Interest Rate = 466800/(12000000+960000+2400000+600000) = 9.04%

Interest to Capitialised = $182,246.4 ((36000*9.04%)+(1080000*9.04%*9/12)+(2160000*9.04*6/12)+(1080000*9.04*1/12))

Interest to be Expensed = $466,800-$182,246.4 = $284,553.6

Account Name	Debit	Credit
Land for the Project	36000
Cash		36000
Land for the Project	1080000
Cash		1080000
Land for the Project	2160000
Cash		2160000
Land for the Project	1080000
Cash		1080000
Interest	284554
Land for the project	182246
Interest Payable		466800

Depreciation Expense	150079
Accumulated Depreciation		150079