On February 1, 2007 the Carter Manufacturing Co. began construction of a building to be used as its office headquarters. The building was completed on November 31,2008.
Expenditures on the project were as follows:
February 1, 2007 $ 500,000
April 1, 2007 400,000
August 31, 2007 800,000
December 31, 2007 1,000,000
June 1, 2008 500,000
September 30, 2008 200,000
November 1, 2008 300,000
On January 2, 2007, the company obtained a $1 million, 5 year construction loan with a 10 % interest rate. The company's other interest-bearing debt included two long-term debt notes of $100,000 and $150,000 with interest rates of 6% and 7% respectively. Both notes were outstanding during all of 2007 and 2008. The company's fiscal year-end is December 31.
a) Prepare the journal entry recording the amount of interest that Carter should capitalize in 2007 using the specific interest method.