Question

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 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. Note: Do not round until your final answers, then round to nearest whole number. a. Amount of interest to be capitalized $ Amount of interest to expense $ 0 0

Answer 1

Ded Answers @ calculation des coreighted Average accumulated expenditure : Tani $36,000 x(12/12) $36000 march 31 $1,080,000 x(alia) $810,000 June 30 $2,160,000 x(Chia) NOV 30 $1,080,000x(1/2) = $90,000 $1,080,000 $2,016,000 calculation of interest on weighted average accumulated Expenditure weighted ang.accumulated cap. x weighted avg rate =$2016,000x 9.0465% - = $182,377 calculation ds weighted Rate: mente gittis $1,900,000x8:+960,000x81.+2,400,000x0%. +600,000x9/. $1,200,000 +960,000 +2400,000+600,000 -9.04654

2 calculation of Actual interest =$1,200,000 X84. +960,000 X8% + 2,400,000 W01.7600pcox9%. = $466,800 interest capitalized shall be lower of the available interest lies interest on wighted nog acumulated Expenditure or actual interest. Hence, interest to be capitaljaid =$182,374 interest to be Expensed = $466,800-$182 377 - $284,423 Entries to record construction and interest for a 600.- Dr. 36,000 Account name Land Construction in process Cnote) interest Expense cash & payables 4,50.2, 377 284,483 14822,800

3 Note: Constuefron in progress = $1,080,000 +3,169000+1,680,000 +182,377 = $4,502,347 © Jound Entry : Dure Account Name Depreciation Expense Accumulated depreciation 150,079 150,079 explanation Deprecation expense = cost obuilding Jesebel libe = $4,500,377/30 = $150,079,