On December 31, 2011, Hurston Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2012, 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, $1,200,000. Additional information is provided as follows.
1. Other debt outstanding
10-year, 11% bond, December 31, 2005, interest payable annually $4,000,000
6-year, 10% note, dated December 31, 2009, interest payable annually $1,600,000
2. March 1, 2012, expenditure included land costs of $150,000
3. Interest revenue earned in 2012 $49,000
(a) Determine the amount of interest to be capitalized in 2012 in relation to the construction of the building. (Note: Do not round the computation for the capitalization period.)
Answer= $180000
(b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2012. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
Answer=
- Interest expense ???
- Building 180000
- Cash ???