Question

On January 2, 2019, Siloam Farms Inc. began construction of an automated Cattle Feeder System. The system was finished and ready for use on September 30, 2020. Expenditures on the project were as follows:

January 2, 2019                       $750,000         

July 1, 2019                            $600,000         

December 31, 2019                 $450,000         

March 31, 2020                       $450,000         

September 30, 2020                $300,000

            

The company borrowed $900,000 on a construction loan at 10% interest on January 2, 2019. In addition, the company had $400,000 in 12% bonds and $800,000 in 7.5% bonds outstanding during 2019 and 2020.

Required:

1.         Calculate the following items for 2019 and 2020:

1. Average accumulated expenditures
2. Amount of interest capitalized and expensed.
3. Balance of the Cattle Feeder System account.

2.         Prepare the journal entry to capitalize the interest at December 31, 2019