Jerrow Corp. has recorded $520,000 of total interest expense from $9,500,000 of general borrowing, which consists of short-term bank debt of $1,500,000 and an $8,000,000 bond payable. Other financing for the company’s $14 million operation was sourced through equity financing, which has an approximate cost of 18%.
In March 20X2, Jerrow acquired inventory for resale at an invoice cost of $730,000. The goods were paid for when they were shipped in early March. Due to delays in shipping, the goods arrived in late November and were then available for sale, although they were still unsold at 31 December, the year-end.
In June 20X2, the company contracted for construction of a storage facility, which was nearing completion by the end of 20X2. Payments on the facility were $500,000 in late July, $400,000 in late October, and $1,200,000 in early December. One final payment of $200,000 is expected sometime in January after final inspection is completed. The company borrowed $1,000,000 in early December for this project, at an annual interest rate of 7%. No interest on this loan had been paid or recorded at 31 December, the year-end. This project is financed through the specific loan and general cash balances.

Required:
1. What accounting policy must Jerrow adopt for borrowing costs related to inventory and the storage facility under construction?
2. Prepare the adjusting journal entry to capitalize borrowing costs on inventory and the storage facility at year-end.