Question

ned in 2020 $49,000 $1,600,000 L OF $150,000 Instructions a. Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building b. Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2020. E10.9 (LO 2) (Capitalization of Interest) On July 31, 2020, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction began imme- diately and was completed on November 1, 2020. To help finance construction, on July 31 Amsterdam issued a $300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $200,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Amsterdam made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam's only outstanding liability at December 31, 2020, is a $30,000, 8%, 6-year note payable, dated January 1, 2017, on which interest is payable each December 31. Instructions a. Calculate weighted average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2020. (Round all computations to the nearest dollar.) b. Prepare the journal entries needed on the books of Amsterdam Company at each of the following dates. 1. July 31, 2020. 2. November 1, 2020. 3. December 31, 2020. 10.10 (LO2) (Capitalization of Interest) The following three situations involve the capitalizati finance

Answer 1

a)
Expenditures
Date	Amount	Capitalisation period	=	Weigthed average
Jul-31	300000	3/12	=	75000
Nov-01	100000	0	=	0
	400000			75000
Interest revenue	2500	(300000-200000)*0.1*3/12
Avoidable interest
Weighted average expenditures	Interest rate	=	Avoidable interest
75000	12%	=	9000
Actual interest
400000*0.12*5/12	20000
30000*0.08	2400
	22400

b.
31-Jul	Cash	400000
	notes payable		400000
	Machinery	300000
	debt investments	100000
	cash		400000
Nov-11	cash	102500
	interest revenue		2500
	debt investments		100000
	Machinery	100000
	cash		100000
Dec-31	machinery	9000
	interest expense	13400
	cash		2400
	interest payable		20000