On December 31, 2019, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1, $1,500,000. The building was completed in February 2021. Additional information is provided as follows. 1. Other debt outstanding 10.year, 13% bond, December 31, 2013, interest payable annually $4,000,000 6-year, 10% note, dated December 31, 2017, interest payable annually $1,600,000 2. March 1, 2020, expenditure included land costs of $150,000 3. Interest revenue earned in 2020 $49,000 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.
On December 31, 2019, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1, $1,500,000. The building was completed in February 2021. Additional information is provided as follows. 1. Other debt outstanding 10.year, 13% bond, December 31, 2013, interest payable annually $4,000,000 6-year, 10% note, dated December 31, 2017, interest payable annually $1,600,000 2. March 1, 2020, expenditure included land costs of $150,000 3. Interest revenue earned in 2020 $49,000 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.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter10: Property, Plant And Equipment: Acquisition And Subsequent Investments
Section: Chapter Questions
Problem 9P
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Question
On December 31, 2019, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1, $1,500,000. The building was completed in February 2021. Additional information is provided as follows.
| 1. Other debt outstanding | ||
| 10.year, 13% bond, December 31, 2013, interest payable annually |
$4,000,000
|
|
| 6-year, 10% note, dated December 31, 2017, interest payable annually |
$1,600,000
|
|
| 2. March 1, 2020, expenditure included land costs of $150,000 | ||
| 3. Interest revenue earned in 2020 |
$49,000
|
Instructions
a. Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building.
b. Prepare the
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