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5. 9 a. On December 31, 2016, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2017,
5. 9 a. On December 31, 2016, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2017, 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 2018. Additional information is provided as follows. 1. Other debt outstanding 10-year, 13% bond, December 31, 2010, interest payable annually $4,000,000 6-year, 10% note, dated December 31, 2014, interest payable annually $1,600,000. 2. March 1, 2017, expenditure included land costs of $150,000 3. Interest revenue earned in 2017 $49,000 Required: i. Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building ii. Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2017. 3.5 b. To what extent do you consider the following items to be proper costs of the fixed asset? i. Overhead of a business that builds its own equipment. ii. Cash discounts on purchases of equipment. iii. Interest paid during construction of a building. Required: Give reasons for your opinions. Page 4 of 5
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