Computing and Recording Interest Capitalization

The following information is from Bowin Inc. for a long-term construction project that is expected to be completed in January of next year. The construction project is for a building intended for the companys own use. The capital expenditure on January 1 of the current year is for the purchase of land for the building site. No new construction loans were opened for the project during the year. All debt was outstanding for the full year.

Capital Expenditures for Current Year
Date	Actual Expenditures
Jan. 1	$66,000
Mar. 31	1,980,000
June 30	3,960,000
Nov. 30	1,980,000

Outstanding Debt in Current Year
Debt	Debt Amount	Interest Rate
Note payable	$2,200,000	8%
Note payable	1,760,000	8%
Bond payable	4,400,000	10%
Note payable	1,100,000	9%

Compute Interest to Capitalize and Expense

Journal Entry in Year 1

Journal Entries in Year 2

a. Compute (1) interest to be capitalized and (2) interest to be expensed, during the year.

Calculation of Actual Interest
Debt	Debt Amount	Interest rate	Interest Amount
Specific Debt
Construction loan	Answer	Answer	Answer
General Debt
Note payable	Answer	Answer	Answer
Note payable	Answer	Answer	Answer
Bond payable	Answer	Answer	Answer
Note payable	Answer	Answer	Answer
Total

Calculation of Weighted Average Accumulated Expenditures
Date	Expenditures	Months Outstanding	WA Accum. Expenditures
January 1	Answer	Answer	Answer
March 31	Answer	Answer	Answer
June 30	Answer	Answer	Answer
November 30	Answer	Answer	Answer
Total

Calculation of annual interest rate used in the schedule that follows
	Numerator		Denominator	=	Interest Rate
General Debt	Answer		Answer	=

Calculation of Avoidable Interest
	Weighted Average
	Accumulated	Interest	Avoidable
Debt Category	Expenditures	Rate	Interest
Specific Debt	Answer	Answer	Answer
General Debt	Answer
Total	Answer		Answer

1. Capitalized Interest	Answer
2. Interest expense	Answer