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 company's 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 Mar. 31 June 30 Nov. 30 $102,000 3,060,000 6,120,000 3,060,000 Debt Outstanding Debt in Current Year Debt Amount Interest Rate Note payable $3,400,000 8% Note payable 2,720,000 8% Bond payable 6,800,000 10% Note payable 1,700,000 9% a. Compute (1) interest to be capitalized and (2) interest to be expensed, during the year. Calculation of Actual Interest Debt Debt Amount Interest Interest rate Amount Specific Debt Construction loan 0 0% 0 General Debt Note payable S 0 0% $ Note payable 0% Bond payable 0 0% OOO Note payable 0% 0 Total S 0 Calculation of Weighted Average Accumulated Expenditures Months Expenditures Outstanding WA Accum. Expenditures Date January 1 $ 0 March 31 0 June 30 0 November 30 Total 0 OOOO 0 $ 0 0 0 $ 0 0 0 0 0 Calculation of annual interest rate used in the schedule that follows General Debt S Numerator + Denominator = Interest Rate Calculation of Avoidable Interest Weighted Average Accumulated Interest Avoidable Debt Category Expenditures Rate Interest Specific Debt s 0 0% $ 0 General Debt 0 0 0 Total $ 0 $ 0 0 $ 0 1. Capitalized Interest $ 2. Interest expense b. Prepare the summary entry to record the construction expenditures and interest for the year. Assume all payments are in cash. Account Name Dr. 0000 0 Cr. OOOO 0 0 0 0 To record construction expenditures and interest. c. Assume that the project is completed on January 1 of the next year. (1) Prepare the entry to transfer costs from construction in process to property and equipment. (2) Prepare the annual entry for depreciation for that next year, assuming that the building has a useful life of 30 years with no salvage value, and that the company uses the straight-line depreciation method. 1. 2. Account Name To record cost transfer Dr. Cr. 0 0 0 0 Account Name Dr. Cr. 0 0 0 0 To record annual depreciation