Company A constructed a building for its own use during the current year. Construction began on the building on the building on January 3 and a payment to the contractor was made that day. Company A took possession and began using the building on December 29. Company As controller has determined the amount of interest to capitalize on the building and made the following entry:

Building 95,000

Interest Payable 95,000

The amount was determined based on the total interest incurred during the year on all the companys debt. The controllers reasoning is the building took all year to construct and, therefore, all interest incurred during the construction period should be capitalized.

Company As debt outstanding the current year is as follows:

5-year note payable outstanding at beginning of year, face value $500,000 and interest rate of 7%;

10-year bonds payable outstanding at beginning of year, face value $1,000,000 and interest rate of 5%; and

2-year construction loan dated July 1 of the current year, face value $400,000 and interest rate of 5%.

Interest payments on the note and the bond are annual and due on January 1. Interest payments on the construction loan are annual and due on June 30.

Company As payment schedule to its contractor was as follows:

Date Expenditure

January 3 $400,000

March 1 $500,000

July 1 $700,000

October 1 $400,000

December 29 $350,000

Is the controllers entry correct? Why or Why not? Does this building qualify for interest capitalization? Why or Why not? If the building qualifies for interest capitalization, what would be the proper amount of interest to capitalize? (round all time periods to the nearest month